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, 1998
       [    ]   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 12, 1999 was approximately $1,416,775.

There were 118,221 shares of common stock outstanding at March 12, 1999.

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



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

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

                                     PART II

Item 5.  Market for the Registrant's Common Equity and Related Stockholder 
         Matters...............................................................3
Item 6.  Selected Financial Data...............................................6
Item 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations......................................7 - 17
Item 8.  Financial Statements and Supplementary Data.....................18 - 37
Item 9.  Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure.............................38

                                    PART III

Item 10. Directors and Executive Officers of Registrant.......................38
Item 11. Executive Compensation...............................................38
Item 12. Security Ownership of Certain Beneficial Owners and Management.......38
Item 13. Certain Relationships and Related Transactions.......................38

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......38


Signatures....................................................................40

<PAGE>
                                       2


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, 1998, CNBC
had  consolidated  total  assets of $164.9  million,  total  deposits  of $137.9
million and stockholders'  equity of $10.1 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. In 1998, the Bank opened its fourth banking location, which had
$2 million in deposits at December 31, 1998.

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 does not have a 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  Banking and Branching  Efficiency Act of 1994 (the
"Interstate  Banking and  Branching  Act")  enabled  bank  holding  companies to
acquire  banks in states  other than its home state,  regardless  of  applicable
state law. The  Interstate  Banking and Branching Act also  authorized  banks to
merge across state  lines,  thereby  creating  interstate  branches.  Under such
legislation,  each  state had the  opportunity  to "opt out" of this  provision.
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
<PAGE>
                                       3

already have a branch.  Without de novo branching,  an  out-of-state  commercial
bank can enter the state only by acquiring an existing bank or branch.  The vast
majority of states have allowed  interstate banking by merger but not authorized
de novo branching.

New Jersey enacted legislation to authorize interstate banking and branching and
the entry into New Jersey of foreign country banks. New Jersey did not authorize
de novo branching into the state.  However,  under federal law,  federal savings
banks which meet certain conditions may branch de novo into a state,  regardless
of state law.

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>
                                       4

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.

Community reinvestment
Under the Community Reinvestment Act ("CRA"), as implemented by OCC regulations,
a national bank has a continuing and affirmative  obligation consistent with its
safe and sound operation to help meet the credit needs of its entire  community,
including  low and moderate  income  neighborhoods.  The CRA does not  establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's  discretion to develop the types of products and services
that it believes are best suited to its particular  community,  consistent  with
the CRA. The CRA  requires  the OCC, in  connection  with its  examination  of a
national bank, to assess the association's record of meeting the credit needs of
its community and to take such record into account in its  evaluation of certain
applications by such association. The CRA also requires all institutions to make
public disclosure of their CRA ratings.
CNB received a "Satisfactory" CRA rating in its most recent examination.

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,  1998,  CNBC and its  subsidiary  had 65  full-time  equivalent
employees. Management considers relations with employees to be satisfactory.

Item 2.  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

In May of 1998, CNB commenced a lawsuit against an entity that acted as an agent
for CNB in the sale of CNB's money orders, and certain affiliates of such entity
for fraud and other damages.  CNB alleges,  among other things,  that at various
times during its  business  relationship  with the  defendants,  the  defendants
stole,  misappropriated,  hypothecated  or  embezzled  a  sum  of  approximately
$805,000 from CNB. The defendants have responded  alleging CNB records regarding
these  transactions are in error and in fact CNB is liable to the defendants for
amounts  due as a  result  of  these  errors  and for  damages  incurred  by the
defendants  as  a  result  of  CNB's  collection  efforts.  The  amount  of  the
defendants' counterclaim has not been quantified.

This  litigation is in the midst of discovery.  CNB has retained an  independent
accountant to review and confirm CNB's records.  The likelihood of CNB's success
in this  litigation  and its  ability to recover any amount for which it obtains
judgment, cannot be predicted in any meaningful way at this stage.

CNB has filed  appropriate  proofs of loss  under  various  insurance  policies,
including  CNB's fidelity bond. It is also too early to determine the amount CNB
will ultimately recover, if any, under these insurance policies.

Item 4.  Submission of matter to a vote of security holders
During  the  fourth  quarter  of  1998,  there  were  no  matters  submitted  to
stockholders for a vote.

Part II
Item 5.  Market for the Registrant's Common Equity and Related Stockholders 
         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 1998.
<PAGE>
                                       5

At March 12, 1999, the Corporation had 1,936 common stockholders of record.

On April 6, 1998,  the  Corporation  paid a cash  dividend of $1.75 per share to
stockholders  of record on March 4, 1998.  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>
                                       6
Item 6.  Selected Financial Data

<TABLE>
<CAPTION>
Five-Year Summary
Dollars in thousands, 
except per share data           1998       1997        1996        1995     1994(1)
--------------------------------------------------------------------------------------
Year-end Balance Sheet data:
<S>                         <C>         <C>         <C>         <C>         <C>      
Total assets ............   $ 164,901   $ 138,868   $ 134,951   $ 114,410   $ 111,062
Gross loans .............      71,440      56,947      57,128      44,739      25,563
Reserve for possible
  loan losses ...........       1,415         825         750         650         625
Investment securities ...      63,966      62,360      60,863      55,103      53,751
Total deposits ..........     137,943     119,717     115,854     100,889     103,941
Long-term debt ..........      15,749       3,749       1,749       1,749         249
Stockholders' equity ....      10,123      10,032       8,287       6,896       5,588
-------------------------   ---------   ---------   ---------   ---------   ---------
Income Statement data:
Interest income .........   $   9,555   $   9,571   $   9,034   $   7,470   $   5,596
Interest expense ........       4,598       4,330       3,802       2,829       2,068
-------------------------   ---------   ---------   ---------   ---------   ---------
Net interest income .....       4,957       5,241       5,232       4,641       3,528
Provision (credit) for
 possible loan losses ...       1,016         159          91         486      (1,464)
-------------------------   ---------   ---------   ---------   ---------   ---------
Net interest income after
 provision (credit)
 for possible loan losses       3,941       5,082       5,141       4,155       4,992
Other operating income ..       1,297       1,199       1,147       1,363       1,375
Other operating expenses        4,999       4,630       4,839       4,245       3,645
-------------------------   ---------   ---------   ---------   ---------   ---------
Income before income tax
 expense ................         239       1,651       1,449       1,273       2,722
Income tax expense ......          13         582         504         471         998
-------------------------   ---------   ---------   ---------   ---------   ---------
Net income ..............   $     226   $   1,069   $     945   $     802   $   1,724
--------------------------------------------------------------------------------------
<FN>
(1) Includes  the effects of a $1.6 million  recovery of a loan that was charged
off in 1989.
</FN>
Per common share data:
Net income per basic
 share .................... $    1.25   $    8.98   $    8.31   $    7.22   $   15.51
Net income per diluted
 share ....................      1.22        8.11        7.51        6.51       13.90
Book value ................     72.54       74.34       66.23       62.05       50.28
Dividends .................      1.75        1.50        1.35        1.25        1.00

Basic average number
 of common shares
 outstanding ..............   115,189     114,141     113,498     111,141     111,141
Diluted average number
 of common shares
 outstanding ..............   129,039     127,991     127,348     124,991     124,991
Number of common shares
 outstanding at year-end ..   118,221     114,141     114,141     111,141     111,141
Financial ratios:
Return on average assets ..      .23%        .78%        .71%        .72%       1.66%
Return on average common
 equity ...................     1.51       13.05       13.19       12.71       30.24
Stockholders' equity as a
 percentage of total assets     6.14        7.22        6.14        6.03        5.03
Dividend payout ratio .....   140.00       16.70       16.25       17.31        6.45
-------------------------------------------------------------------------------------
</TABLE>
<PAGE>
                                       7

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

Performance summary
1998 net  income  decreased  to  $226,000  compared  to  $1,069,000  in 1997 due
primarily to an $857,000  increase in the loan loss  provision.  Also negatively
affecting 1998 earnings were costs  associated  with the opening of a new branch
in May, 1998.  Related earnings per common share on a diluted basis decreased to
$1.22 from $8.11.

Total assets rose 18.7% to $164.9 million at 1998 year-end from $138.9 million a
year  earlier.  While some of this  increase was  attributable  to  nonrecurring
year-end  deposits,  the opening of a new branch  added core  deposits and total
loans grew 25.4%.  The Bank also  restructured the liability side of the balance
sheet by replacing volatile short-term jumbo time deposits with laddered Federal
Home Loan Bank advances.

Investments
The  investment   securities   available  for  sale  ("AFS")  portfolio  changed
nominally,  to $32.3  million at  December  31,  1998 from $32.7  million a year
earlier,  while the related  gross  unrealized  loss  increased  from $14,000 at
December 31, 1997 to $40,000,  representing less than .5% of the AFS portfolio's
book value at both dates.

The major change within the portfolio  occurred in the U.S.  Treasury and agency
portfolio,  which declined 45.5% from the end of 1997 to year-end 1998. Proceeds
from sales and  maturities  were allocated to  higher-yielding  areas of the AFS
portfolio, all of which had volume increases.

The  investment  securities  held to maturity  ("HTM")  portfolio  rose to $31.7
million  at  December  31,  1998  compared  to  $29.7  million  a year  earlier.
Mortgage-backed securities declined 30.3% in 1998 due to higher prepayments. The
U.S.  Treasury and agency  portfolios rose 31.4% due to a higher level of agency
callables securities.

At December 31, 1998, the Bank held structured notes with total book and related
market values of $2,750,000  and  $2,725,000,  reflecting  $25,000 of unrealized
depreciation,  while a year earlier the  structured  note  portfolio  had a book
value of $4,250,000 and related  market value of $4,112,000,  reflecting a gross
unrealized  loss of  $138,000.  The decrease in 1998  resulted  from a maturity.
These  structured  notes consist of notes which are indexed to the ten-year U.S.
Treasury  interest  rate.  Accordingly,  the  value  of these  securities  could
fluctuate depending on interest rate movements. The notes mature in March, 2000.

Also, at December 31, 1998, the Bank held callable U.S.  Government agency notes
with a carrying  value of $19.1  million,  all of which were included in the HTM
portfolio.  These notes are callable at various dates from 1999 through  August,
2000.

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,  1998  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.
<TABLE>
<CAPTION>
Investment Securities Available for Sale
                                                 Maturing After One Maturing After Five
                              Maturing Within      Year But Within   Years But 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      $ 1,507     5.94%   $ 1,507      5.79%  $      -       -%   $      -         -% $  3,014      5.87%
U.S. Government agencies          211     5.47      4,149      5.76      3,486    6.31      14,742      5.69    22,588      5.80
Obligations of state
 political and subdivisions(1)      -         -         -         -          -       -       2,747      7.93     2,747      7.93
Other debt securities               -         -         -         -        260    7.71       2,428      6.94     2,688      7.01
---------------------------- --------- --------- --------- ---------- --------- --------- --------- --------- ---------- ---------
Total amortized cost          $ 1,718     5.82%   $ 5,656      5.77%    $3,746    6.41%    $19,917      5.92%  $31,037      5.95%
---------------------------- --------- --------- --------- ---------- --------- --------- --------- --------- ---------- ---------
<FN>
(1) Includes $250,000 of nontax-exempt securities with a 7.60% yield.
</FN>
</TABLE>
<PAGE>
                                       8
<TABLE>
<CAPTION>

Investment Securities Held to Maturity            Maturing After One Maturing After Five
                              Maturing Within      Year But Within   Years But 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>          <C>  
U.S. Government agencies(1)    $ 1,665     6.22%   $ 7,550      5.48%    $ 8,122  6.46%    $11,961      6.18%   $29,298      6.08%
Obligations of state and
 political subdivisions             99     8.14      2,315      6.81           -      -          -          -     2,414      6.86
----------------------------- --------- --------- --------- ----------- --------- ------- ---------- --------- --------- ----------
Total amortized cost           $ 1,764     6.33%   $ 9,865      5.79%    $ 8,122   6.46%   $11,961      6.18%   $31,712      6.14%
----------------------------- --------- --------- --------- ----------- --------- ------- ---------- --------- --------- ----------
<FN>
(1) Includes $17.5 million of U.S. Government agency securities callable in 1999
of which $16.5 million mature after five years.
</FN>
</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, 1998. 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  decreased to 5.95% at December 31, 1998
from 6.52% at December 31, 1997, while the yield on the HTM portfolio  decreased
to 6.12% at December  31, 1998 from 6.46% at December  31,  1997.  In  addition,
56.4% of the total portfolio  matured after ten years,  compared to 32% in 1997.
These changes  reflect the lower interest rate  environment and the necessity to
extend maturities to improve yields.
<PAGE>
                                       9
<TABLE>
<CAPTION>
Consolidated Average Balance Sheet with Related Interest and Rates
                                                              1998                                1997
----------------------------------------------------------------------------------------------------------------------
                                                    Average               Average     Average                Average
Tax equivalent basis dollars 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                      $ 12,195  $     653      5.35%   $           $    439       5.43%
                                                                                         8,073
  Other short-term investments                             -          -       -            742         39       5.32
  Interest-bearing deposits with banks                    77          4      5.10           59          3       5.14
  Investment securities:
    Taxable 1                                         55,401      3,390      6.12       59,008      3,718       6.30
    Tax-exempt                                         4,761        342      7.20        2,722        189       6.95
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
    Total investment securities                       60,162      3,732      6.20       61,730      3,907       6.33
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
  Loans 2,3:
    Commercial                                        21,234      1,702      8.01       19,391      1,660       8.56
    Real estate                                       37,224      3,502      9.41       37,684      3,514       9.32
    Installment                                          772         78     10.14          729         73       9.98
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
    Total loans                                       59,230      5,282      8.92       57,804      5,247       9.08
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
    Total interest earning assets                    131,664      9,671      7.35      128,408      9,635       7.50
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
Noninterest earning assets:
  Cash and due from banks                              3,670                             3,855
  Gross unrealized loss on investment
    securities available for sale                        (18)                              (83)
  Reserve for possible loan losses                    (1,104)                             (806)
  Other assets                                         6,686                             6,413
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
  Total noninterest earning assets                     9,234                             9,379
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
Total assets                                        $140,898                          $137,787
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
Liabilities and stockholders' equity
Interest bearing liabilities:
  Savings deposits 4                                $ 34,619        728      2.10    $  31,732        666       2.10
  Time deposits 5                                     61,887      3,047      4.92       71,343      3,261       4.57
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
  Total interest bearing deposits                     96,506      3,775      3.91      103,075      3,927       3.81
  Short-term borrowings                                3,068        159      5.19        3,809        202       5.30
  Long-term debt                                      11,725        664      5.66        3,453        201       5.83
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
  Total interest bearing liabilities                 111,299      4,598      4.13      110,337      4,330       3.92
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
Noninterest bearing liabilities:
  Demand deposits                                     18,230                            16,294
  Other liabilities                                    1,302                             2,150
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
  Total noninterest bearing liabilities               19,532                            18,444
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
Stockholders' equity                                  10,067                             9,006
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
Total liabilities and stockholders' equity          $140,898                          $137,787
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
Net interest income (tax equivalent basis)                        5,073      3.21                    5,305       3.58
Tax equivalent basis adjustments 6                                 (116)                               (64)
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
Net interest income                                            $  4,957                            $ 5,241
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
Average rate paid to fund interest earning assets                            3.49                                3.37
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
Net interest income as a percentage of
  interest earning assets (tax equivalent basis)                             3.85%                               4.13%
-------------------------------------------------- ---------- ---------- ----------- ---------- ----------- ----------
<FN>
1  Includes  investment  securities  available  for sale and held to  maturity 2
Includes  nonperforming  loans 3 Includes  loan fees of $151,000 and $123,000 in
1998 and 1997, respectively
4  Includes noninterest bearing deposits maintained by a state governmental 
agency of $469,000 in 1998 and 1997
5  Includes noninterest bearing deposits maintained by corporations and U.S. 
governmental agencies of $5,920,000 in 1998 and $10,635,000 in 1997
6  The tax equivalent adjustment was computed assuming a 34% statutory federal 
income tax rate in 1998 and 1997
</FN>
</TABLE>
<PAGE>
                                       10

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>

                                                      1998 Net  Interest  Income Increase    1997 Net Interest Income Increase
                                                       (Decrease)  from 1997 due to           (Decrease)  from 1996 due to
---------------------------------------------------------------------------------------------------------------------------------
In thousands                                           Volume     Rate      Total                 Volume       Rate       Total
------------------------------------------------------ ---------- --------- ---------- ---------- --------- ---------- ----------
<S>                                                      <C>        <C>      <C>                  <C>         <C>       <C>   
Interest income
Loans:
  Commercial                                             $   158    $  (116) $     42             $     (52)  $    70   $     18
  Real estate                                                (43)        31       (12)                  431       (33)       398
  Installment                                                  4          1         5                    40       (13)        27
------------------------------------------------------ ---------- --------- ---------- ---------- --------- ---------- ----------
Total loans                                                  119        (84)       35                   419        24        443
Taxable investment securities                               (227)      (101)     (328)                   45        96        141
Tax-exempt investment securities                              67         86       153                    13         1         14
Federal funds sold and securities
   purchased under agreements to resell                      224        (10)      214                   106        15        121
Other short-term investments                                 (39)         -       (39)                 (175)       (1)      (176)
Interest-bearing deposits with banks                           1          -         1                    (2)        -         (2)
------------------------------------------------------ ---------- --------- ---------- ---------- --------- ---------- ----------
Total interest income                                        145       (109)       36                   406       135        541
------------------------------------------------------ ---------- --------- ---------- ---------- --------- ---------- ----------
Interest expense
Savings deposits                                             (62)         -       (62)                   97       (13)        84
Time deposits                                                432       (218)      214                  (205)     (292)      (497)
Short-term borrowings                                         39          4        43                   (10)       (3)       (13)
Long-term debt                                              (482)        19      (463)                  (97)       (5)      (102)
------------------------------------------------------ ---------- --------- ---------- ---------- --------- ---------- ----------
Total interest expense                                       (73)      (195)     (268)                 (215)     (313)      (528)
------------------------------------------------------ ---------- --------- ---------- ---------- --------- ---------- ----------
Net interest income                                      $    72    $  (304)  $  (232)              $   191    $ (178)   $    13
------------------------------------------------------ ---------- --------- ---------- ---------- --------- ---------- ----------
</TABLE>

Loans
Loans rose 25.4% to $71.4 million at December 31, 1998 compared to $56.9 million
a year earlier.  The increase resulted from the December,  1998 purchase of loan
participations  totalling  $15.6 million in seasoned  commercial and real estate
loans with a correspondent bank. Approximately half the loans had floating rates
that reprice  monthly while the remaining  half are  fixed-rate  loans.  All the
loans are performing.

Internal  loan  growth  was flat  during  1998 due to the large  number of early
payoffs,  as  average  loans  grew by 2.3%,  with the  growth  occurring  in the
commercial loan portfolio.  The yield on the portfolio  declined 16 basis points
reflecting the lower rate environment and the effects of competitive pressures.

Loans  originated for sale rose to $2 million at December 31, 1998 from $807,000
a  year  earlier.  Loans  sold  totalled  $1.2  million  in  1998  and  1997  as
originations  rose to $2.3 million from $1.6 million,  while gains on loan sales
rose to $64,000 in 1998 from $57,000 in 1997.

At December 31, 1998,  loans to churches  totalled  $8.9  million,  representing
12.5% 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.

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 1999.
<PAGE>
                                       11

Maturities and interest sensitivities of loans
Information  pertaining to maturities and the sensitivity to changes in interest
rates of loans at December 31, 1998 is presented below.
                               One Year
                  Due in One    Through   Due After
In thousands     Year or Less Five Years  Five Years    Total
---------------- ------------ ---------- ----------- ----------
Commercial          $  4,361   $  9,557   $  8,673    $ 22,591
Real estate:
  Construction         2,633          -          -       2,633
  Mortgage               321      8,926     36,128      45,375
  Installment             95        369        377         841
------------------ ---------- ---------- ----------- ----------
Total               $  7,410   $ 18,852   $ 45,178    $ 71,440
------------------ ---------- ---------- ----------- ----------
Loans at fixed
  interest rates    $  3,531   $  7,748   $ 11,723    $ 23,002
Loans at variable
  interest rates       3,879     11,104     33,455      48,438
----------------- ---------- ---------- ----------- ----------
Total               $  7,410   $ 18,852   $ 45,178    $ 71,440
------------------ ---------- ---------- ----------- ----------
Summary of loan loss experience
Changes in the reserve for possible loan losses are summarized below.

Dollars in thousands                     1998         1997
-------------------------------------- ----------- ------------
Balance, January 1                        $  825      $  750
-------------------------------------- ----------- ------------
Charge-offs:
  Commercial loans                           480          31
  Real estate loans                           83         108
  Installment loans                           16          19
-------------------------------------- ----------- ------------
Total                                        579         158
-------------------------------------- ----------- ------------
Recoveries:
  Commercial loans                            40          57
  Real estate loans                          111           5
  Installment loans                            2          12
-------------------------------------- ----------- ------------
Total                                        153          74
-------------------------------------- ----------- ------------
Net charge-offs                             (426)        (85)
Provision for possible loan
  losses charged to operations             1,016         158
-------------------------------------- ----------- ------------
Balance, December 31                      $1,415      $  825
-------------------------------------- ----------- ------------
Net charge-offs as a
  percentage of average loans                .72%        .15%
Reserve for possible loan losses as
  a percentage of loans                     1.98        1.45
Reserve for possible loan losses as
  a percentage of nonperforming loans      78.51       59.10
-------------------------------------- ----------- ------------

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,
general  business  and  economic  conditions,  concentration  of credit  and the
possibility  that there may be inherent  losses in the  portfolio  which  cannot
currently be identified.

A  standardized  method is used to assess the  adequacy  of the  reserve  and to
identify the risks  inherent in the loan  portfolio.  This process  includes the
ongoing  assessment of  individual  borrowers'  financial  condition and payment
records and gives  consideration to areas of exposure such as conditions  within
the borrowers' industry, the value of underlying collateral, and the composition
of the performing and non-performing loan portfolios.

Specific  allocations are identified by loan category and allocated according to
prior charge-off  history as well as future performance  projections.  All loans
are graded and  incorporated  in the process of  assessing  the  adequacy of the
reserve.  The reserve is maintained at a level  considered  sufficient to absorb
estimated  losses in the loan portfolio,  and reserves not allocated to specific
loan  categories are considered  unallocated and evaluated based on management's
assessment of the portfolio's risk profile.
<PAGE>
                                       12

The reserve  represented  1.98% of total loans at December 31, 1998  compared to
1.45% a year  earlier due to an  increase in the  provision  for  possible  loan
losses from $1,016,000 in 1998 to $159,000 in 1997. This increase  resulted from
the  overdraft  referred  to in Note 6 along  with an  addition  to the  reserve
related to an increase in the loan portfolio.  The commercial reserve allocation
increased  to 4.38% of the  commercial  loan  portfolio  at  December  31,  1998
compared to 1.85% a year earlier  because of the  inclusion of a fully  reserved
$400,000 impaired loan.

Charge-offs  rose from  $158,000 to $579,000 due to the  charge-off  during 1998
fourth quarter of $405,000 of the aforementioned overdraft.

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:
                           1998                  1997
-------------------- -------------------- ---------------------
                              Percentage           Percentage
                                of Loan               of Loan
                                Category             Category
                                to Gross             to Gross
Dollars in thousands    Amount   Loans     Amount     Loans
-------------------- ---------- ---------- --------- ----------
Commercial             $   990     31.62%    $   348    33.34%
Real estate                408     67.20         382    65.34
Installment                 15      1.18          12     1.14
Unallocated                  2         -          83        -
-------------------- ---------- ---------- --------- ----------
Total                  $ 1,415    100.00%    $   825   100.00%
-------------------- ---------- ---------- --------- ----------
Nonperforming assets
Information  pertaining  to  nonperforming  assets at December 31 is  summarized
below:

In thousands                                1998         1997
------------------------------------ ------------ -------------
Nonperforming loans
  Commercial                              $1,148       $  614
  Real estate                                647          781
  Installment                                  1            1
------------------------------------ ------------ -------------
Total nonperforming loans                  1,796        1,396
Other real estate owned                      590          385
------------------------------------ ------------ -------------
Total                                     $2,386       $1,781
------------------------------------ ------------ -------------

The increase in nonperforming loans in 1998 resulted primarily from the addition
of the overdraft.

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 more fully discussed in Note 6 to the Financial Statements.

OREO is carried  net of a $35,000  reserve at  December  31, 1998 and $30,000 in
1997.

Deposits
Total deposits rose to $137.9 million at December 31, 1998 from $119.7 million a
year earlier,  while average  deposits  declined 3.9%, to $114.7 million in 1998
from $119.4 million in 1997. Year-end 1998 included a $15.9 million nonrecurring
municipal  savings  deposit,  while  December  31,  1997  included an $8 million
nonrecurring U.S. Government agency demand deposit. Both deposits were withdrawn
shortly after year-end.

Average savings accounts rose in 1998 by 8.8% due to higher money market account
balances resulting from the introduction during 1998 of a tiered-rate account.

Time  deposits  averaged  $61.9  million  in  1998,  13.2%  less  than in  1997,
reflecting  management's  decision to reduce the Bank's  dependency on expensive
short-term, volatile municipal deposits with Federal Home Loan Bank advances.

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,  1998.
While  local  municipalities  use the  accounts  for  operating  and  short-term
investment purposes, the U.S. Government uses  noninterest-bearing  certificates
<PAGE>
                                       13

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, 1998, such balances totalled $469,000 and $1,918,000,
respectively.

Short-term borrowings
Average short-term borrowings declined to $3.1 million in 1998 from $3.8 in 1997
because of lower U.S.  Treasury tax and loan note option  account  balances.  At
December  31,  1998,  all but $18,000 of the note option  balance had been drawn
down by the U.S. Treasury.

Long-term debt
Long-term  debt rose from  $3,749,000 at December 31, 1997 to $15,749,000 a year
later due to the  addition  of $12 million in Federal  Home Loan Bank  advances.
These  advances are primarily  fixed-rate  advances that are callable at various
dates prior to maturity. Under the call provisions,  the advances must either be
repaid or converted  into advances at the current rate.  The advances  mature in
various years from 2000 through 2008.

These  advances  were incurred  primarily to reduce the  dependency on municipal
certificates of deposit and provide a more stable funding source.

Results of operations - 1998 compared with 1997
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 decreased 4.4%,
to $5.1  million  in 1998 from $5.3  million  in 1997,  while  the  related  net
interest margin  decreased to 3.85% from 4.13%.  While average  interest earning
assets rose 2.5% in 1998,  most of this growth  consisted of  short-term,  lower
yielding  earning assets where the margins are lower. The higher interest income
levels were more than offset by increased  interest expense  resulting from both
an increase in interest bearing liabilities and a higher cost of funds.

Interest  income on a FTE basis was  relatively  unchanged in 1998,  compared to
1997. Average taxable investment  securities declined 6.1% in 1998 due primarily
to prepayments on the mortgage-backed securities portfolio. Additionally, income
was reduced by the lower  yield  during the year,  which  declined to 6.12% from
6.30% due to the  reinvestment of maturities in a lower rate environment and the
effects of that environment on securities that repriced during the year.

Income from  tax-exempt  investments  rose 80.9% due to both a higher volume and
higher yields.
While income from loans rose due to higher  commercial loan volume,  lower rates
virtually  eliminated the year-to-year  income  increase.  The yield on the loan
portfolio  declined  to 8.92%  from 9.08% due to three  reductions  in the prime
lending rate in 1998 along with the impact of price competition.

Interest income from  shorter-term  earning assets increased 48.7% due to higher
volume, which averaged 38.3% more in 1998 than in 1997.

Overall,  the yield on earning  assets  declined 15 basis points,  to 7.35% from
7.50% due principally to the lower rate environment.

Interest  expense was $4.6 million in 1998, an increase of 6.2% from 1997.  This
increase  resulted  primarily  from higher  levels of long-term  debt.  Interest
expense  on time  deposits  declined  6.6% due to a $9.5  million  reduction  in
average  time  deposits.  The average rate paid on time  deposits  rose 35 basis
points due to the continued high cost of municipal deposits.

Interest  expense on  long-term  debt rose to $664,000 in 1998 from  $201,000 in
1997, due to the FHLB advances incurred during 1998, while the average rate paid
declined by 17 basis points.

The average rate paid on interest bearing  liabilities rose 21 basis points,  to
4.13%  compared to 3.92%,  while the overall  cost of funding  interest  earning
assets rose 12 basis points.
<PAGE>
                                       14

Other operating  income rose 8.2% to $1,297,000 in 1998 from $1,199,000 in 1997.
The primary  reasons for the increase were higher  service  charges,  which rose
10.6% and higher income from non-customer  transaction charges,  which increased
from $18,000 to $89,000.  These  increases were partially  offset by lower money
order fees due to the  discontinuance of an agency  relationship with a customer
of the Bank who sold the Bank's money orders.

Other operating  expenses,  which include  expenses other than interest,  income
taxes and the provision  for possible loan losses,  totalled $5 million in 1998,
an 8% increase  compared  to 1997.  The primary  reasons for the  increase  were
primarily higher loan collection costs and legal expenses incurred in connection
with the aforementioned overdraft.

Salaries and other employee  benefits remained  virtually  unchanged in 1998, as
did  equipment  expense.  Occupancy  expense  rose 10.7% due to the  expenses in
operating a new branch.  Other  expenses  rose to $299,000 ,or 22.8% in 1998 due
primarily to the aforementioned  loan collection  expense,  which increased from
429,000  to  $69,000  and the costs  related to the  overdraft,  which  totalled
approximately $124,000.

Income tax expense
Income tax expense as a percentage  of pre-tax  income was 5.4% in 1998 compared
to 35.3% in 1997.  The decrease  resulted due to higher tax exempt  income and a
state tax loss in 1998.

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 Bank
also utilizes the Federal Home Loan Bank for longer-term funding purposes.

The  major   contribution   during  1998  from   operating   activities  to  the
Corporation's  liquidity  came from  proceeds  from sales of loans held for sale
while loans originated for sale represented the primary use of cash.

Net cash used in investing  activities  was primarily the result of the purchase
of investment securities held to maturity,  which totalled $20.3 million and the
purchase of $15.6 million in loan participations, 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 $18.9 million.

The primary sources of funds from financing activities resulted from an increase
in deposits of $18.3  million  and $12  million in FHLB  advances,  while a $4.2
million decrease in short-term borrowings comprised the largest use of funds.

Effects of inflation
Inflation,  as measured by the CPI,  declined to 1.6% in 1998  compared to 2% in
1997 and 2.8% in 1996.

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

<PAGE>
                                       15
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.

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, 1998. 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)     1999       2000       2001       2002      2003     Thereafter  Balance     Value
-------------------------------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
<S>                                  <C>     <C>       <C>        <C>        <C>       <C>        <C>        <C>        <C>      
Interest sensitive assets
Federal funds sold                   4.50%   $  1,500  $       -  $       -  $       - $       -  $       -  $   1,500  $   1,500
Interest bearing deposits
 with banks                          3.25          25          -          -          -         -          -         25         25
Investment securities available for sale:
 U.S. Treasury securities            5.87       1,507      1,507          -          -         -          -      3,014      3,046
 Obligations of U.S. government
  agencies                           5.80      17,493      3,517      1,049        105       105        319     22,588     22,423
 Obligations of state and political
  subdivisions                       7.93           -          -          -          -         -      2,747      2,747      2,831
 Other debt securities               7.01           -          -          -          -         -      2,688      2,688      2,744
 Equity securities                     -            -          -          -          -         -      1,177      1,177      1,210
Investment securities held to maturity:
 Obligations of U.S. government
  agencies                           6.08       8,065      1,465        222        222       190     19,134     29,298     29,106
 Obligations of state and political
  subdivisions                       6.86          99        349      1,564        281       121          -      2,414      2,474
Loans net of unearned income:
 Commercial                          8.45       4,361        448      4,249      2,835     2,025      8,673     22,591     22,676
 Mortgage                            9.03       2,954        586      1,002      3,692     3,646     36,128     48,008     48,815
 Consumer                           10.17          95         66        184         48        71        377        841        831
-------------------------------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Loans held for sale                  8.06       2,026          -          -          -         -          -      2,026      2,026
-------------------------------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
 Total interest sensitive assets     7.64%    $38,125     $7,938   $  8,270   $  7,183  $  6,158    $71,243   $138,917   $139,707
-------------------------------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Interest sensitive liabilities
Deposits:
  SuperNOW accounts                  1.48%    $36,287  $       -  $       -  $       - $       -  $       -   $ 36,287   $ 36,287
  Money market accounts              2.93       5,043          -          -          -         -          -      5,043      5,043
  Regular savings                    1.97           -          -          -          -         -     16,193     16,193     16,193
  Time - less than $100,000          5.16      14,597      1,878        371        370        31      3,320     20,567     21,040
  Time -  $100,000 or more           5.23      42,194        292        147          -       100        201     42,934     43,116
Short-term borrowings                4.12          18          -          -          -         -          -         18         18
Long-term debt                       5.62           -      2,000        150      2,225       300     11,074     15,749     16,555
-------------------------------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
Total interest sensitive             4.19%    $98,139   $  4,170  $     668   $  2,595  $    431    $30,788   $136,791   $138,252
liabilities
-------------------------------- ---------- ---------- ---------- ---------- --------- ---------- ---------- ---------- ----------
<FN>
(1) Tax equivalent basis; excludes equity securities.
</FN>
</TABLE>

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>
                                       16

Capital
The following table presents the consolidated and bank-only  capital  components
and  related  ratios as  calculated  under  regulatory  accounting  practice  at
December 31:
                             Consolidated       Bank Only
                             December 31,      December 31,
Dollars in thousands         1998     1997     1998     1997
--------------------------- -------- -------- -------- --------
Total stockholders' equity  $10,123  $10,032  $10,597  $10,628
Net unrealized (gain) loss
on investment securities
  available for sale            (25)      38        1       45
Disallowed intangibles          (96)     (56)     (46)     (56)
--------------------------- -------- -------- -------- --------
Tier 1 capital               10,052   10,014   10,552   10,617
--------------------------- -------- -------- -------- --------
Qualifying long-term debt     1,749    1,749      249      249
Reserve for possible loan
  losses                      1,066      781    1,058      773
--------------------------- -------- -------- -------- --------
Tier 2 capital                2,815    2,530    1,307    1,022
--------------------------- -------- -------- -------- --------
Total capital               $12,867  $12,544  $11,859  $11,639
--------------------------- -------- -------- -------- --------
Risk-adjusted assets        $84,942  $62,491  $84,263  $61,824
Total assets                164,901  138,868  163,867  137,985
--------------------------- -------- -------- -------- --------
Risk-based capital ratios:
  Tier 1 capital to risk-
    adjusted assets           11.83%   16.02%   12.52%   17.17%
  Regulatory minimum           4.00     4.00     4.00     4.00
  Total capital to risk-
    adjusted assets           15.15    20.07    14.07    18.83
  Regulatory minimum           8.00     8.00     8.00     8.00
Leverage ratio                 7.02     7.21     7.42     7.90
Total stockholders' equity
  to total asset               6.14     7.22     6.47     7.90
--------------------------- -------- -------- -------- --------

Results of operations - 1997 compared with 1996
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. 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 to
$1,069,000 in 1997, up 5.7% from $1,011,000 in 1996.

On a fully  taxable  equivalent  ("FTE")  basis,  net  interest  income was $5.3
million in 1997 and 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 were offset by the decrease in net
interest margin resulting from higher rates paid on funding sources.

Total  investment  securities  averaged  $61.7 million in 1997 compared to $60.8
million in 1996.The activity in the portfolio  consisted primarily of investment
maturities and calls and the reinvestment of the related proceeds.

Total loans averaged $57.8 million in 1997 compared to $53.5 million in 1996, an
increase  of 8%,  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.

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 to $283,000 in 1998 from  $238,000 in 1997 and higher  earnings  from
increased cash surrender value of corporate owned life insurance,  which rose to
$72,000 in 1998 from $3,000 in 1997.  These  increases were partially  offset by
lower gains 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,  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.
<PAGE>
                                       17

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

Year 2000
Many computer  programs were written using two digits rather than four to define
the applicable year. These programs were written without  considering the impact
of the  upcoming  change in  century  from 1999 to 2000,  and the  programs  may
experience  problems  handling  dates  beyond  1999.  This could cause  computer
applications to fail or create incorrect  information unless corrective measures
are taken.  Incomplete or untimely  resolution of the Year 2000 ("Y2K") issue by
the Bank,  or its major  borrowers  and lenders,  could have a material  adverse
impact on the Bank's business, operations and financial condition.

During  1997,   the   Corporation   established   an  overall  plan  to  address
system-related Y2K issues. The plan calls for either system modifications to, or
replacement of, existing business systems  applications,  including hardware and
equipment.  A majority of the systems are  provided  and  maintained  by outside
vendors with whom management is coordinating the Y2K efforts.  The Bank operates
its deposit,  loan and general ledger systems on one software system licensed to
the Bank through a third party ("primary  software  vendor").  The Bank received
the  software  from  its  primary  software  vendor  and  began  testing  during
September,  1998 to verify the vendor's  representation that the software is Y2K
compliant.  The testing for the deposit, loan and general ledger systems,  which
are the primary functions of this software,  has been completed as of the end of
1998. Additional Y2K software systems have been purchased from other vendors and
the Bank has substantially completed testing those systems for Y2K compliance.

All hardware and equipment not considered to be Y2K compliant has been replaced,
or replacements are on order and expected to be in place by July, 1999.

The cost of this Y2K  compliance  program  related  to system  modifications  is
estimated to be $258,000,  most of which represents  capital  expenditures  that
will be funded through operating cash flows. At December 31, 1998, approximately
$243,000 of these costs have been  incurred or  committed  to, most of which are
capital costs.

The  Corporation  has also initiated  discussions  with third  parties,  such as
vendors,  customers,  governmental  entities,  and others,  to attempt to obtain
assurance that they have appropriate plans to be Y2K compliant.  At December 31,
1998, the Corporation had contacted its major  depositors and borrowers in order
to assess their Y2K  readiness.  Failure of the  Corporation or third parties to
correct Y2K issues could cause  disruption of operations  resulting in increased
operating costs. In addition,  to the extent customers'  financial positions are
weakened as a result of Y2K issues, credit quality could be adversely affected.

The  Corporation  is  preparing  contingency  plans in the  event of Y2K  system
failures,  including the  identification of back-up data processing  vendors and
alternate sources of liquidity.  Additionally,  the Corporation has the services
of a third party to provide  independent  verification and validation of its Y2K
concerns.  However,  since it cannot  predict  whether its vendors and customers
will  be  successful  in  becoming  Y2K  compliant,  it is  developing  detailed
contingency plans to address the potential of a disruption of operations.

The  Corporation  receives  guidance  from the  Federal  Financial  Institutions
Examination  Council  ("FFIEC"),   the  formal  interagency  body  empowered  to
prescribe  uniform  principles,  standards and  examination  procedures  for the
examination of financial  institutions by the federal regulatory  agencies,  and
participates in scheduled federal Y2K examinations, which are being conducted to
assess each financial institution's Y2K efforts.

The  cost  of the  project  and the  expected  completion  dates  are  based  on
management's  best  estimates.  However,  there can be no  guarantee  that these
estimates  will  be  achieved  and  actual  results  could  differ   materially.
Substantially  all of the work under this program,  including testing of mission
critical  systems,  was completed by the end of 1998, with further testing to be
performed during 1999.
<PAGE>
                                       18

CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES

Consolidated Balance Sheet

                                                                  December 31,
                                                           ====================

Dollars in thousands, except per share data                    1998       1997
===============================================================================
Assets
Cash and due from banks (Note 2) ........................   $ 20,467   $ 13,260
Federal funds sold (Note 3) .............................      1,500       --
Interest-bearing deposits with banks ....................         25         40
Investment securities available for sale (Note 4) .......     32,254     32,694
Investment securities held to maturity (Market
 value of $31,580 in 1998 and $29,638 in 1997) (Note 5)..     31,712     29,666
Loans held for sale .....................................      2,026        807
Loans (Note 6) ..........................................     71,440     56,947
Less: Reserve for possible loan losses (Note 7) .........      1,415        825
                                                            --------   --------
Net loans ...............................................     70,025     56,122
                                                            --------   --------
Premises and equipment (Note 8) .........................      3,308      3,192
Accrued interest receivable .............................      1,110      1,112
Other real estate owned .................................        590        385
Other assets  (Note 14) .................................      1,884      1,590
                                                            --------   --------
Total assets ............................................   $164,901   $138,868
                                                            ========   ========
Liabilities and Stockholders' Equity
Deposits: (Notes 2, 4, 5, and 9)
 Demand .................................................   $ 16,919   $ 24,789
 Savings ................................................     57,523     24,949
 Time ...................................................     63,501     69,979
                                                            --------   --------
Total deposits ..........................................    137,943    119,717
Short-term borrowings (Notes 6 and 10) ..................         18      4,213
Accrued expenses and other liabilities ..................      1,068      1,157
Long-term debt (Note 11) ................................     15,749      3,749
                                                            --------   --------
Total liabilities .......................................    154,778    128,836
Commitments and contingencies (Note 20)
Stockholders' equity (Note16):
 Preferred stock, no par value: Authorized 100,000
  shares (Note 15);
  Series A , issued and outstanding 8 shares in 1998 and 
   1997 .................................................        200        200
  Series B , issued and outstanding 20 shares in 1998 and
   1997 .................................................        500        500
  Series C , issued and outstanding 108 shares in 1998 and
   1997 .................................................         27         27
  Series D , issued and outstanding 3,280 shares in 1998 and
   1997 .................................................        820        820
 Common stock, par value $10: Authorized 400,000 shares;
  118,780 shares issued in 1998 and 114,980 shares issued in 
   1997, ................................................      1,188      1,150
  118,221 shares outstanding in 1998 and 114,141 shares
   outstanding in 1997
 Surplus ................................................        938        901
 Retained earnings ......................................      6,442      6,497
 Accumulated other comprehensive income (loss) ..........         25        (38)
 Treasury stock, at cost - 559 shares in 1998 and 839 shares
  in 1997 ...............................................        (17)       (25)
                                                            --------   --------
Total stockholders' equity ..............................     10,123     10,032
                                                            --------   --------
Total liabilities and stockholders' equity ..............   $164,901   $138,868
                                                            ========   ========
See accompanying notes to consolidated financial statements.
<PAGE>
                                       19

CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES

Consolidated Statement of Income
                                                       Year Ended December 31,
                                                      =========================
Dollars in thousands,
 except per share data                                  1998      1997    1996
===============================================================================
Interest income
Interest and fees on loans ...................   $  5,282   $  5,247   $  4,804
Interest on Federal funds sold and securities
 purchased under agreements to resell .......        653        439        317
Interest on other short-term investments ....       --           39        215
Interest on deposits with banks .............          4          3          5
Interest and dividends on investment securities:
 Taxable .....................................     3,390      3,718      3,577
 Tax-exempt ..................................       226        125        116
                                                --------   --------   --------
Total interest income ........................     9,555      9,571      9,034
                                                --------   --------   --------
Interest expense
Interest on deposits (Note 9) ................     3,775      3,927      3,514
Interest on short-term borrowings ............       159        202        189
Interest on long-term debt ...................       664        201         99
                                                --------   --------   --------
Total interest expense .......................     4,598      4,330      3,802
                                                --------   --------   --------
Net interest income ..........................     4,957      5,241      5,232
Provision for possible loan losses (Note 7) ..     1,016        159         91
                                                --------   --------   --------
Net interest income after provision
 for possible loan losses ....................     3,941      5,082      5,141
                                                --------   --------   --------
Other operating income
Service charges on deposit accounts ..........       668        604        592
Other income (Notes 12 and 14) ...............       642        577        548
Net (losses) gains on sales of investment securities
 (Notes 4 and 5) .............................       (13)        18          7
                                                --------   --------   --------
Total other operating income .................     1,297      1,199      1,147
                                                --------   --------   --------
Other operating expenses
Salaries and other employee benefits (Note 15)     2,644      2,615      2,628
Occupancy expense (Note 8) ...................       356        319        289
Equipment expense (Note 8) ...................       386        382        409
Other expenses (Note 12) .....................     1,613      1,314      1,513
                                                --------   --------   --------
Total other operating expenses ...............     4,999      4,630      4,839
                                                --------   --------   --------
Income before income tax expense .............       239      1,651      1,449
Income tax expense (Note 13) .................        13        582        504
                                                --------   --------   --------
Net income ...................................  $    226   $  1,069   $    945
                                                ========   ========   ========
Net income per common share  (Note 17)
Basic ........................................  $   1.25   $   8.98   $   8.31
Diluted ......................................      1.22       8.11       7.51
                                                ========   ========   ========
Basic average common shares outstanding ......   115,189    114,141    113,498
Diluted average common shares outstanding ....   129,039    127,991    127,348
                                                ========   ========   ========
See accompanying notes to consolidated financial statements.
<PAGE>
                                       20

<TABLE>
<CAPTION>
CITY NATIONAL BANCSHARES CORPORATION
 AND SUBSIDIARIES

Consolidated Statement of Changes
in Stockholders' Equity
                                                                                                    Accumulated
                                                                                                      Other
                                                               Common            Preferred Retained Comprehensive Treasury
Dollars in thousands                                            Stock    Surplus   Stock   Earnings Income (Loss)  Stock     Total
===================================================================================================================================
<S>                                                            <C>       <C>       <C>       <C>       <C>        <C>       <C>    
Balance, December 31, 1995 .................................   $ 1,120   $   886   $   200   $ 4,856   $  (141)   $   (25)  $ 6,896
Comprehensive income:
 Net income ................................................      --        --        --         945      --         --         945
 Unrealized holding gains on securities
  arising during the period (net of tax of $14) ............      --        --        --        --          34       --   
 Reclassification adjustment for gains
  included in net income (net of tax of $(3)) ..............      --        --        --        --          (4)      --   
                                                                                                       -------
 Net unrealized holding gains on securities
  arising during the period (net of tax of $11) ............      --        --        --        --          30       --          30
                                                                                                                            -------
 Total comprehensive income ................................       975
Proceeds from issuance of common stock .....................        30        15      --        --        --         --          45
Proceeds from issuance of preferred stock ..................      --        --         527      --        --         --         527
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
Comprehensive income:
 Net income ................................................      --        --        --       1,069      --         --       1,069
 Unrealized holding gains on securities
  arising during the period (net of tax of $45) ............      --        --        --        --          84       --   
 Reclassification adjustment for gains
  included in net income (net of tax of $(7)) ..............      --        --        --        --         (11)      --   
                                                                                                       -------
 Net unrealized holding gains on securities
  arising during the period (net of tax of $38) ............      --        --        --        --          73       --          73
                                                                                                                            -------
 Total comprehensive income ................................     1,142
Proceeds from issuance of preferred stock ..................      --        --         820      --        --         --         820
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
Comprehensive income:
 Net income ................................................      --        --        --         226      --         --         226
 Unrealized holding gains on securities
  arising during the period (net of tax of $16) ............      --        --        --        --          55       --   
 Reclassification adjustment for losses
  included in net income (net of tax of $5) ................      --        --        --        --           8       --   
                                                                                                       -------
 Net unrealized holding gains on securities
  arising during the period (net of tax of $21) ............      --        --        --        --          63       --          63
                                                                                                                            -------
 Total comprehensive income ................................       289
Proceeds from issuance of common stock .....................        38        37      --        --        --            8        83
Dividends paid on common stock .............................      --        --        --        (199)     --         --        (199)
Dividends paid on preferred stock ..........................      --        --        --         (82)     --         --         (82)
                                                               -------   -------   -------   -------   -------    -------   -------
Balance, December 31, 1998 .................................   $ 1,188   $   938   $ 1,547   $ 6,442   $    25    $   (17)  $10,123
                                                               =======   =======   =======   =======   =======    =======   =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
                                       21

CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY

Consolidated Statement of Cash Flows
                                                     Year Ended December 31,
                                              ==================================

In thousands                                        1998      1997        1996
================================================================================
Operating activities
Net income ...................................   $    226   $  1,069   $    945
Adjustments to reconcile net income to net cash
 from operating activities:
 Depreciation and amortization ..................     376        367        339
 Provision  for possible loan losses ............   1,016        159         91
 Premium amortization, net of discount accretion
  on investment securities ......................      73         12        (15)
 Net losses (gains) on sales and calls of 
  investment securities .........................      13        (18)        (7)
 Gains on loans held for sale ...................     (64)       (57)      (170)
Loans originated for sale .......................  (2,307)    (1,611)    (3,776)
Proceeds from sales and principal payments from 
 loans held for sale ............................   1,152      1,152      4,210
Decrease (increase) in accrued interest receivable      2        (33)      (123)
Deferred income tax  benefit ....................    (409)      (112)       (53)
Increase in other assets ........................    (343)    (1,135)        (4)
Increase (decrease)  in accrued expenses and other
 liabilities ....................................     327     (2,525)     2,702
                                                 --------   --------    --------
Net cash provided by (used in) operating activities    62     (2,732)     4,139
                                                 --------   --------    --------
Investing activities
Decrease (increase) in loans, net ...............     361         48     (8,805)
Purchases of loans .............................. (15,665)      --       (4,035)
Decrease in interest-bearing deposits with banks       15         34        247
Proceeds from maturities of investment securities
 available for sale, including sales, principal 
 payments and early redemptions .................  18,882     41,011     20,917
Proceeds from maturities of investment securities
 held to maturity, including principal payments 
 and early redemptions ..........................  18,255      3,718      4,643
Purchases of investment securities available for 
 sale ........................................... (18,472)   (42,570)   (21,221)
Purchases of investment securities held to 
 maturity ....................................... (20,252)    (3,529)   (10,025)
Decrease in other real estate owned, net ........     180        336       --
Purchases of premises and equipment .............    (492)      (227)    (1,382)
                                                 --------   --------    --------
Net cash used in investing activities ........... (17,188)    (1,179)   (19,661)
                                                 --------   --------    --------
Financing activities
Deposits assumed in branch acquisitions .........    --         --        7,661
Increase in deposits ............................  18,226      3,863      7,304
(Decrease) increase in short-term borrowings ....  (4,195)      (962)     1,514
Proceeds from issuance of long-term debt ........  12,000      2,000       --
Proceeds from issuance of common stock ..........      83       --           45
Proceeds from issuance of preferred stock .......    --          820        527
Dividends paid on preferred stock ...............     (82)       (44)        (2)
Dividends paid on common stock ..................    (199)      (173)      (154)
                                                 --------   --------    --------
Net cash provided by financing activities .......  25,833      5,504     16,895
                                                 --------   --------    --------
Net increase in cash and cash equivalents .......   8,707      1,593      1,373
Cash and cash equivalents at beginning of year ..  13,260     11,667     10,294
                                                 --------   --------    --------
Cash and cash equivalents at end of year ........$ 21,967   $ 13,260   $ 11,667
                                                 ========   ========   ========
Cash paid during the year:
Interest ........................................$  4,173   $  4,321   $  3,960
Income taxes ....................................     539        538    (335.00)
Supplemental schedule for noncash investing
 activities:
Real estate acquired in settlement of loans .....     385         49    (460.00)

See accompanying notes to consolidated financial statements.
<PAGE>
                                       22

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

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

Cash and cash equivalents
For purposes of the  presentation of the Statement of Cash Flows,  Cash and cash
equivalents includes Cash and due from banks and Federal funds sold.

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 and is included in investment securities available
for sale.

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  and  accretion  of  discount  to the earlier of
maturity or call date using the level yield method.

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,  net of  deferred  tax  reported  as a component  of  accumulated  other
comprehensive  income,  which is included  in  stockholders'  equity.  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
Loans held for sale  include  residential  mortgage  loans  originated  with the
intent to sell.  Loans held for sale are carried at the lower of aggregate  cost
or fair value.

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

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.
<PAGE>
                                       23

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 "Other expenses" 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
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.

Comprehensive income
In June 1997,  the FASB issued SFAS No. 130  "Reporting  Comprehensive  Income".
SFAS 130 establishes standards for reporting and display of comprehensive income
and 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 Bank adopted SFAS 130 in
1998  and  included  required   disclosures  in  the  Statement  of  Changes  in
Stockholders' Equity.

Reclassifications
Certain  reclassifications  have  been  made to the 1997  and 1996  consolidated
financial statements in order to conform with the 1998 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 $800,000 in 1998 and $662,000 in 1997.

At December 31, 1998,  Cash and due from banks and savings  deposits  included a
$15.9 million nonrecurring  municipal deposit, which was withdrawn on January 4,
1999.
<PAGE>
                                       24
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  $11.7 million during 1998 and $7.8 million in 1997,
while the maximum  balance  outstanding at any month-end  during 1998,  1997 and
1996 was $30.5  million,  $7.3 million and $11.6 million,  respectively.  During
1998 and 1997, securities purchased under agreements to resell averaged $537,000
and $27,000  respectively.  There were no such  transactions  outstanding at any
month-end during 1998, 1997 or 1996. 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
1998 In thousands           Cost      Gains      Losses    Value
-------------------------  -------- ---------  --------- --------
U.S. Treasury securities
 and obligations of U.S.
 government agencies       $ 5,605   $    92    $     -  $ 5,697
Obligations of states and 
 political subdivisions      2,747        84          -    2,831
Other securities:
 Mortgage-backed
  securities                19,997        63        288   19,772
 Other debt securities       2,688        70         14    2,744
 Equity securities           1,177        40          7    1,210
-------------------------  -------- ---------  --------- --------
Total                      $32,214   $   349    $   309  $32,254
-------------------------  -------- ---------  --------- --------
                                     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  $10,451
Obligations of state and
 political subdivisions      2,251        11         13    2,249
Other securities:
 Mortgage-backed
  securities                18,620       144        178   18,586
 Other debt securities         262         -          -      262
 Equity securities           1,143         3          -    1,146
-------------------------  -------- ---------  --------- --------
Total                      $32,708  $   233     $   247  $32,694
-------------------------  -------- ---------  --------- --------

The  amortized  cost and the market  values of  investments  in debt  securities
available for sale  presented  below as of December 31, 1998 are  distributed by
contractual  maturity,  including  mortgage-backed  securities,  which  may have
shorter estimated lives as a result of prepayments of the underlying mortgages. 

                                            Amortized   Market
In thousands                                   Cost     Value
------------------------------------------- --------- ---------
Due within one year:
  U.S. Treasury securities and obligations
    of U.S. government agencies             $  1,666  $  1,674
  Mortgage-backed securities                      52        53
Due after one year but within five years:
  U.S. Treasury securities and obligations
    of U.S. government agencies                3,007     3,040
  Mortgage-backed securities                   2,649     2,633
Due after five years but within ten years:
  Mortgage-backed securities                   3,486     3,486
  Other debt securities                          260       260
Due after ten years:
  U.S. Treasury securities and obligations
    of U.S. government agencies                  932       983
  Mortgage-backed securities                  13,810    13,600
  Obligations of state and political 
    subdivisions                               2,747     2,831
  Other debt securities                        2,428     2,484
------------------------------------------- --------- ---------
Total debt securities                         31,037    31,044
Equity securities                              1,177     1,210
------------------------------------------- --------- ---------
Total                                        $32,214   $32,254
------------------------------------------- --------- ---------
<PAGE>
                                       25
Sales of investment securities available for sale totalled $3.9 million in 1998,
$3.7 million in 1997 and none in 1996.

Interest  and  dividends  on  investment  securities  available  for sale was as
follows:
In thousands                      1998       1997      1996
------------------------------- ---------- --------- ----------
Taxable                          $ 1,760    $ 1,999   $ 1,949
Tax-exempt                           116          9         -
------------------------------- ---------- --------- ----------
Total                            $ 1,876    $ 2,008   $ 1,949
------------------------------- ---------- --------- ----------

Investment  securities  available for sale with an amortized cost of $23,689,000
were pledged to secure public funds at December 31, 1998.

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
1998 In thousands         Value     Gains     Losses    Value
----------------------- --------- --------- --------- ---------
U.S. Treasury securities
  and obligations of U.S.
  government agencies    $22,125  $     56   $   143   $22,038
Obligations of state and
  political subdivisions   2,414        60         -     2,474
Other securities:
  Mortgage-backed          7,173         4       109     7,068
----------------------- --------- --------- --------- ---------
Total                    $31,712   $   120   $   252   $31,580
----------------------- --------- --------- --------- ---------

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

At  December  31,  1998,  the  Corporation  held  structured  notes with a total
amortized  cost  of  $2,750,000  and  a  related  market  value  of  $2,725,000,
reflecting gross unrealized depreciation of $25,000.  Comparable amounts as of a
year earlier were $2,750,000, $2,667,000 and $83,000, respectively.

The book value and the market value of  investment  securities  held to maturity
presented below as of December 31, 1998 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               $  1,144   $  1,144
  Mortgage-backed securities                    521        523
  Obligations of state and political
    subdivisions                                 99        101
Due after one year but within five years:
  U.S. Treasury securities and obligations
    of U.S. government agencies               3,750      3,732
  Mortgage-backed securities                  3,800      3,788
  Obligations of state and political
   subdivisions                               2,315      2,373
Due after five years but within ten years:
  U.S. Treasury securities and obligations
    of U.S. government agencies               7,231      7,237
  Mortgage-backed securities                    891        892
Due after ten years:
  U.S. Treasury securities and obligations
    of U.S. government agencies              10,000      9,925
  Mortgage-backed securities                  1,961      1,865
------------------------------------------ ---------- ---------
Total                                       $31,712    $31,580
------------------------------------------ ---------- ---------

There were no sales of securities held to maturity in 1998 or 1997.
<PAGE>
                                       26

Interest and dividends on investment securities held to maturity was as follows:
In thousands                    1998        1997       1996
----------------------------- ---------- ----------- ----------
Taxable                         $ 1,630    $ 1,719      $1,628
Tax-exempt                          110        116         116
----------------------------- ---------- ----------- ----------
Total                           $ 1,740    $ 1,835      $1,744
----------------------------- ---------- ----------- ----------

Investment  securities  held to maturity with a book value of  $16,920,000  were
pledged to secure public funds at December 31, 1998.

Note 6                                        Loans
Loans, net of unearned discount and net deferred origination fees and costs at 
December 31, were as follows:
In thousands                          1998           1997
-------------------------------- --------------- --------------
Commercial                            $22,591         $18,988
Real estate                            48,274          37,521
Installment                               841             750
-------------------------------- --------------- --------------
Total loans                            71,706          57,529
Less: Unearned income                     266             312
-------------------------------- --------------- --------------
Loans                                 $71,440         $56,947
-------------------------------- --------------- --------------

Loans guaranteed by the Small Business Administration  totalling $2,154,000 were
pledged as collateral  for borrowings  under a note issued to the U.S.  Treasury
Department at December 31, 1998.

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                               1998        1997
---------------------------------------- ---------- -----------
Nonaccrual loans                           $ 1,455    $ 1,166
Loans with interest or principal 90
  days or more past due and still accruing     341        230
---------------------------------------- ---------- -----------
Total nonperforming loans                    1,796      1,396
Troubled debt restructurings                 1,261      1,261
---------------------------------------- ---------- -----------
Total nonperforming loans
  and troubled debt restructurings         $ 3,057    $ 2,657
---------------------------------------- ---------- -----------

The effect of nonaccrual loans on income before taxes is presented below.
In thousands                    1998       1997        1996
---------------------------- ----------- ---------- -----------
Interest income foregone     $      (81) $      (67)  $    (61)
Interest income received            104         101        106
---------------------------- ----------- ---------- -----------
                             $       23   $      34   $     45
---------------------------- ----------- ---------- -----------

In May of 1998, CNB commenced a lawsuit against an entity that acted as an agent
for CNB in the sale of CNB's money orders, and certain affiliates of such entity
for fraud and other damages.  CNB alleges,  among other things,  that at various
times during its  business  relationship  with the  defendants,  the  defendants
stole,  misappropriated,  hypothecated  or  embezzled  a  sum  of  approximately
$805,000 from CNB. The defendants have responded  alleging CNB records regarding
these  transactions are in error and in fact CNB is liable to the defendants for
amounts  due as a  result  of  these  errors  and for  damages  incurred  by the
defendants  as  a  result  of  CNB's  collection  efforts.  The  amount  of  the
defendants' counterclaim has not been quantified.

This litigation is in the midst of discovery. The likelihood of CNB's success in
this  litigation  and its  ability  to  recover  any amount for which it obtains
judgment, cannot be predicted in any meaningful way at this stage.

CNB has filed  appropriate  proofs of loss  under  various  insurance  policies,
including  CNB's fidelity bond. It is also too early to determine the amount CNB
will ultimately recover, if any, under these insurance policies.

Based on an  evaluation of the  information  currently  available,  the Bank has
provided an $805,000 addition to the reserve for possible loan losses.  $405,000
was charged off during the fourth quarter and the remaining  balance of $400,000
is  included  in  nonaccrual  commercial  loans at  December  31,  1998 and also
represented the only impaired loan at December 31, 1998. This loan had a related
specific reserve of $400,000.

The average balance of impaired loans during 1998 was $569,000 and there were no
impaired loans during 1997.
<PAGE>
                                       27

Troubled  debt  restructurings  includes  two loans to one  commercial  borrower
totaling $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, during which the
loan performed in accordance  with the modified terms. In October 1998, the loan
terms were again modified to extend the amortization  period from five to thirty
years and reduce the maturity from July 1, 2003 to July 1, 1999.

While payments are being made for the revised amount, they are consistently paid
subsequent to their due date. 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 drawn down under a credit line
secured by receivables was originated in July,  1997. No principal  amortization
is currently required. While the working capital loan is currently performing in
accordance with its original  terms, at December 31, 1998, the interest  payment
was thirty days past due.

Nonperforming  assets  are  generally  well  secured  by  residential  and small
commercial  real  estate.  It is the Bank's  intent to dispose of all other real
estate  owned  ("OREO")  properties  at the  earliest  possible  date at or near
current market value.

At December 31, 1998,  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.

Note 7   Reserve for possible loan losses
Transactions in the reserve for possible loan losses are summarized as follows:
In thousands                      1998       1997      1996
------------------------------- ---------- --------- ----------
Balance, January 1               $   825    $   750   $   650
Provision for possible loan
 losses                            1,016        159        91
Recoveries of loans
 previously charged off              153         74       107
------------------------------- ---------- --------- ----------
                                   1,994        983       848
Less: Charge-offs                    579        158        98
------------------------------- ---------- --------- ----------
Balance, December 31             $ 1,415    $   825   $   750
------------------------------- ---------- --------- ----------

Note 8   Premises and equipment
A summary of premises and equipment at December 31 follows:
In thousands                                    1998     1997
---------------------------------------------- -------- -------
Land                                           $  274   $  274
Premises                                        1,035    1,035
Furniture and equipment                         2,007    1,778
Building improvements                           2,132    1,900
---------------------------------------------- -------- -------
Total cost                                      5,448    4,987
Less: Accumulated depreciation and amortization 2,140    1,795
---------------------------------------------- -------- -------
Total premises and equipment                   $3,308   $3,192
---------------------------------------------- -------- -------

Depreciation  and  amortization   expense  charged  to  operations  amounted  to
$376,000, $367,000, and $339,000 in 1998, 1997, and 1996, respectively.
<PAGE>
                                       28

Note 9   Deposits
Deposits at December 31 are presented below.
In thousands                               1998        1997
---------------------------------------- ---------- -----------
Noninterest bearing:
  Demand                                 $  16,919  $  24,789
  Savings                                      469        469
  Time                                       1,918     10,635
---------------------------------------- ---------- -----------
Total noninterest bearing deposits          19,306     35,893
---------------------------------------- ---------- -----------
Interest bearing:
  Savings                                   57,054     24,480
  Time                                      61,583     59,344
---------------------------------------- ---------- -----------
Total interest bearing deposits            118,637     83,824
---------------------------------------- ---------- -----------
Total deposits                           $ 137,943  $ 119,717
---------------------------------------- ---------- -----------

Time deposits issued in amounts of $100,000 or more have the following 
maturities at December 31:
In thousands                                1998       1997
----------------------------------------- ---------- ----------
Three months or less                       $ 36,885   $ 40,701
Over three months but within six months       2,339      5,315
Over six months but within twelve months      2,857      2,956
Over twelve months                              841      2,037
----------------------------------------- ---------- ----------
Total deposits                             $ 42,922   $ 51,009
----------------------------------------- ---------- ----------

Interest expense on certificates of deposits of $100,000 or more was $1,974,000,
$2,369,000 and $1,850,000 in 1998, 1997 and 1996, respectively.

Note 10  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
-------------------- -------- ------- -------- ------- --------
1998
Federal funds purchased and securities
  sold under repurchase
  agreements           $    -      -%   $   23   5.76%  $    -
Demand note issued
 to the U.S. Treasury      18   4.12     3,045   5.19    6,000
---------------------- ------- -------- ------- ------- -------
Total                  $    18  4.12%   $3,068   5.19%  $6,000
---------------------- ------- -------- ------- ------- -------
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   5.30%  $8,800
---------------------- ------- -------- ------- ------- -------

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  $10,171,000,  along with  loans  guaranteed  by the Small
Business Administration totalling $2,154,000.

Note 11 Long-term debt
Long-term debt at December 31 is summarized as follows:
In thousands                                 1998       1997
------------------------------------------ ---------- ---------
FHLB convertible advances due from
  August 28, 2000 through April 7, 2008      $14,000   $ 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                                        $15,749   $ 3,749
------------------------------------------ ---------- ---------
<PAGE>
                                       29
Interest is payable  quarterly on most of the FHLB advances.  $12 million of the
advances are callable at various dates from April 6, 1999 to April 7, 2003.  The
advances  bear  interest  rates  ranging  from 5.00% to 5.93% and are secured by
residential  mortgages and certain obligations of U.S. Government agencies under
a blanket collateral agreement.

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.

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.

Note 12  Other operating income and expenses
The following table presents the major items of other operating income and
expenses:
In thousands                           1998    1997     1996
------------------------------------- ------- -------- --------
Other operating income
Agency fees on commercial loans       $  255   $ 253    $ 221
Other operating expenses
Audit fees                               119      79       86
Legal fees                               163      81       73
FDIC deposit insurance                    22       -      141
Stationery and supplies expense          100      88      141
Data processing                          144     125      157
------------------------------------- ------- -------- --------
Note 13  Income taxes
The components of income tax expense are as follows:
In thousands                               1998   1997    1996
----------------------------------------- ------ ------- ------
Current expense
Federal                                   $ 399  $ 581   $ 476
State                                        23    113      81
----------------------------------------- ------ ------- ------
Total current income tax expense            422    694     557
----------------------------------------- ------ ------- ------
Deferred
Federal                                    (364)   (90)    (45)
State                                       (45)   (22)     (8)
----------------------------------------- ------ ------- ------
Total deferred income tax benefit          (409)  (112)    (53)
----------------------------------------- ------ ------- ------
Total income tax expense                  $  13  $ 582   $ 504
----------------------------------------- ------ ------- ------

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                              1998    1997   1996
---------------------------------------- ------- ------ -------
Federal income tax at statutory rate      $  81   $ 561  $ 493
Increase (decrease) in income tax
  expense resulting from:
 State income taxes, net of federal benefit (15)     60     48
 Tax-exempt income                          (66)    (43)   (39)
 Life insurance                             (13)    (15)   (10)
 Change in valuation allowance               23      (7)     -
 Other, net                                   3      26     12
---------------------------------------- ------- ------ -------
Total income tax expense                  $  13   $ 582  $ 504
---------------------------------------- ------- ------ -------
<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                               1998        1997
---------------------------------------- ---------- -----------
Deferred tax assets
Unrealized loss on investment securities
 available for sale                         $    -    $     6
Reserve for possible loan losses               163          -
Reserve for other real estate owned             14         12
Deferred compensation                           93         60
Other                                           34         32
---------------------------------------- ---------- -----------
Total deferred tax assets                      304        110
Less: Valuation allowance                       23          -
---------------------------------------- ---------- -----------
Deferred tax asset                             281        110
---------------------------------------- ---------- -----------
Deferred tax liabilities
Unrealized gains on investment securities
 available for sale                             15          -
Reserve for possible loan losses                 -        243
Premises and equipment                          31         20
Investment securities held to maturity           3          3
---------------------------------------- ---------- -----------
Deferred tax liability                          49        266
---------------------------------------- ---------- -----------
Net deferred tax asset (liability)          $  232    $  (156)
---------------------------------------- ---------- -----------

The net deferred asset (liability)  represents the anticipated federal and state
tax asset to be realized or  liability  to be incurred in future  years upon the
utilization of the underlying tax attributes comprising this balance. Management
believes, based upon estimates of future taxable earnings, that more likely than
not there will be  sufficient  taxable  income in future  years to  realize  the
deferred tax assets, net of deferred valuation allowance,  although there can be
no assurance about the level of future earnings.

Note 14  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  participant  salaries  along  with  a  1%  discretionary
contribution,  subject to a vesting schedule.  Contribution  expense amounted to
$52,000 in 1998, $49,000 in 1997 and $55,000 in 1996.

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 1998,  1997 and 1996  amounted  to  $68,000  $119,000,  and  $90,000,
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 $39,000 in 1998 and $26,000 in
1997. The Bank also has a director  retirement  plan ("DRIP").  DRIP expense was
$17,000 in 1998, $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  $1.5  million  and  $1.3  million  at  December  31,  1998  and  1997,
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 $85,000 in 1998,  $72,000 in 1997 and $3,000 in 1996, while the related
life insurance expense was $40,000 in 1998, $28,000 in 1997 and $7,000 in 1996.

Stock options
No stock options were issued in 1998. 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.  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 1998 and 1997,  which would have  decreased
the reported basic and diluted earnings per share by $.02 in both years.

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.  Note 15 Preferred  stock

<PAGE>
                                       31
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      1998      1997
---------- ------ -------- ------- ------- ----------- ----------
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    820,000
---------- ------ -------- ------- ------- ----------- ----------
                                            $1,547,000 $1,547,000
---------- ------ -------- ------- ------- ----------- ----------
Note 16  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 $862,000 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 11.

Note 17  Net income per common share
The following table presents the computation of net income per common share.
In thousands, except per share data   1998     1997     1996
------------------------------------ -------- -------- --------
Net income                            $  226  $ 1,069   $  945
Dividends paid on preferred stock        (82)     (44)      (2)
------------------------------------ -------- -------- --------
Net income applicable to basic
  common shares                          144    1,025      943
Interest expense on convertible
  subordinated debentures, net of
  income taxes                            13       13       13
------------------------------------ -------- -------- --------
Net income applicable to diluted
  common shares                       $  157  $ 1,038   $  956
------------------------------------ -------- -------- --------
Number of average common shares
Basic                                115,189  114,141  113,498
------------------------------------ -------- -------- --------
Diluted:
 Average common shares outstanding   115,189  114,141  113,498
 Average common shares converted from
  convertible subordinate debentures  13,850   13,850   13,850
------------------------------------ -------- -------- --------
                                     129,039  127,991  127,348
------------------------------------ -------- -------- --------
Net income per common share
Basic                                 $ 1.25   $ 8.98   $ 8.31
Diluted                                 1.22     8.11     7.51

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

Note 18  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
1998 and 1997. Such transactions were on substantially the same terms, including
interest rates and collateral with respect to loans, as those  prevailing at the
time of comparable  transactions with others. Further, such transactions did not
involve  more than the normal  risk of  collectibility  and did not  include any
unfavorable features.

Total loans to the  aforementioned  individuals  and  organizations  amounted to
$304,000 and $336,000 at December 31, 1998 and 1997,  respectively.  The highest
amount of such  indebtedness  during 1998 was $336,000  and in 1997  amounted to
$357,000. During 1998, no new loans were made and paydowns totalled $32,000.
<PAGE>
                                       32

Note 19  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, 1998 and 1997.

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, 1998 and 1997. 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, 1998 and 1997.

The following table presents the carrying amounts and fair values of financial
instruments at December 31:
                                1998              1997
                            Carrying   Fair   Carrying   Fair
In thousands                 Value    Value    Value    Value
--------------------------- --------- ------- -------- --------
Financial assets
Cash and other short-term
 investments               $ 21,992  $ 21,992 $ 13,300 $ 13,300
Investment securities AFS    32,254    32,254   32,694   32,694
Investment securities HTM    31,712    31,580   29,666   29,638
Loans                        70,025    70,907   56,122   58,607
Loans held for sale           2,026     2,026      807      807

Financial liabilities
Deposits                   $137,943  $138,598 $119,717 $117,965
Short-term borrowings            18        18    4,213    4,213
Long-term debt               15,749    16,555    3,749    3,726
--------------------------- --------- ------- -------- --------
<PAGE>
                                       33

Note 20  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 21  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 31,1998 and 1997 the Bank had mortgage commitments of $7,731,000 and
$7,187,000, unused corporate lines of credit of $30,569,000 and $23,100,000, and
$10,000 and $257,000 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.

Note 22  Parent Company Information
Condensed financial statements of the parent company only are presented below.

Condensed Balance Sheet
                                           December 31,
In thousands                              1998        1997
-------------------------------------- ----------- ------------
Assets
Cash and cash equivalents              $        9  $       21
Investment securities held to maturity        244         100
Investment securities available for sale      779         773
Investment in subsidiary                   10,598      10,627
Due from subsidiary                           249         249
Other assets                                   20          20
-------------------------------------- ----------- ------------
Total assets                           $   11,899  $   11,790
-------------------------------------- ----------- ------------
Liabilities and stockholders' equity
Other liabilities                      $       27  $        9
Long-term debt                              1,749       1,749
-------------------------------------- ----------- ------------
Total liabilities                           1,776       1,758
Stockholders' equity                       10,123      10,032
-------------------------------------- ----------- ------------
Total liabilities and stockholders'      
  equity                               $   11,899  $   11,790
-------------------------------------- ----------- ------------
<PAGE>
                                       34
Condensed Statement of Income
                                       Year Ended December 31,
------------------------------------ -------- -------- --------
In thousands                          1998     1997     1996
------------------------------------ -------- -------- --------
Income
Interest income                      $    52  $    29  $     -
Dividends from subsidiary                340      271      194
Interest from subsidiary                  20       20       20
------------------------------------ -------- -------- --------
Total income                             412      320      214
------------------------------------ -------- -------- --------
Expenses
Interest expense                          99       99       99
Other operating expenses                   4        1        7
Net losses on sales of investment
  securities                             (27)       -        -
------------------------------------ -------- -------- --------
Income tax benefit                       (19)     (12)     (34)
------------------------------------ -------- -------- --------
Total expenses                           111       88       72
------------------------------------ -------- -------- --------
Income before equity in undistributed
  (loss) income of subsidiary            301      232      142
Equity in undistributed (loss) income
  of subsidiary                          (75)     837      803
------------------------------------ -------- -------- --------
Net income                           $   226   $1,069  $   945
------------------------------------ -------- -------- --------
Condensed Statement of Cash Flows
                                       Year Ended December 31,
In thousands                             1998     1997    1996
--------------------------------------- -------- ------- --------
Operating activities
Net income                              $   226  $ 1,069  $  945
Adjustments to reconcile net income
 to cash used in operating activities:
 Premium amortization on investment 
  securities                                  2        -       -
 Net losses on sales of investment
  securities available for sale              27        -       -
 Equity in undistributed loss (income)
  of subsidiary                              75     (837)   (803)
Decrease (increase) in other assets           -       25     (34)
Increase (decrease) in other liabilities     18       (1)      -
--------------------------------------- -------- ------- --------
Net cash provided by operating activities   348      256     108
--------------------------------------- -------- ------- --------
Investing activities
Proceeds from sales of investment
  securities available for sale             416        -       -
Proceeds from maturities of investment
  securities held to maturity               111        -       -
Purchases of investment securities
  available for sale                       (433)    (764)      -
Purchases of investment securities
  held to maturity                         (256)    (100)      -
Capital contribution to subsidiary            -        -    (500)
--------------------------------------- -------- ------- --------
Net cash used in investing activities      (162)    (864)   (500)
--------------------------------------- -------- ------- --------
Financing activities
Proceeds from issuance of common stock       83        -      45
Proceeds from issuance of preferred stock     -      820     527
Dividends paid                             (281)    (217)   (156)
--------------------------------------- -------- ------- --------
Net cash (used in) provided by
 financing activities                      (198)     603     416
--------------------------------------- -------- ------- --------
(Decrease) increase in cash and
  cash equivalents                          (12)      (5)     24
Cash and cash equivalents at
  beginning of year                          21       26       2
--------------------------------------- -------- ------- --------
Cash and cash equivalents at end of year $    9  $    21 $    26
--------------------------------------- -------- ------- --------
Note 23  Regulatory Capital Requirements
FDIC regulations require banks to maintain minimum levels of regulatory capital.
Under the  regulations  in effect at December 31, 1998, 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
<PAGE>
                                       35

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, 1998,  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.

The following is a summary of the Bank's actual capital amounts and ratios as of
December  31,  1998 and 1997,  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, 1998
Leverage (Tier 1)
  capital          $10,552   7.42%  $5,687    4.00% $4,213   5.00%
Risk-based capital:
  Tier 1            10,552  12.52    3,371    4.00   5,056   6.00
  Total             11,859  14.07    6,741    8.00   8,426  10.00
December 31, 1997
Leverage (Tier1)
  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
------------------  ------ ------  ------- -------  ------ ------

Note 24   Summary of quarterly financial information (unaudited)
                                         1998
---------------------------- ------- -------- -------- --------
Dollars in thousands,        First   Second   Third    Fourth
  except per share data      Quarter Quarter  Quarter  Quarter
---------------------------- ------- -------- -------- --------
Interest income               $2,331  $2,414   $2,409   $2,401
Interest expense               1,097   1,165    1,176    1,160
---------------------------- ------- -------- -------- --------
Net interest income            1,234   1,249    1,233    1,241
Provision  for
  possible loan losses            38     459       46      473
Net gains (losses) on sales
  of investment securities         8       1       (4)     (18)
Other operating income           336     349      314      311
Other operating expenses       1,138   1,293    1,274    1,294
---------------------------- ------- -------- -------- --------
Income (loss) before
  income tax expense             402    (153)     223     (233)
Income tax expense
  (benefit)                      136     (85)      57      (95)
---------------------------- ------- -------- -------- --------
Net income (loss)             $  266  $  (68)  $  166   $ (138)
---------------------------- ------- -------- -------- --------
Net income (loss) per share-
  basic                       $ 1.61  $ (.60)  $ 1.45   $(1.17)
---------------------------- ------- -------- -------- --------
Net income (loss)per share-
  diluted                     $ 1.46  $ (.60)  $ 1.32   $(1.17)
---------------------------- ------- -------- -------- --------
<PAGE>
                                       36

                                        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
--------------------------- -------- -------- -------- --------
<PAGE>
                                       37

                          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, 1998
and  1997,  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, 1998. 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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our 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 City  National
Bancshares  and  subsidiary as of December 31, 1998 and 1997, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.

KPMG LLP

Short Hills, New Jersey
February 12, 1999
<PAGE>
                                       38

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial  Disclosure  There were no changes in or  disagreements  with accounts
during 1998.

Part III

Item 10.      Directors and Executive Officers of the Registrant
The  information  required is  incorporated  herein by reference to the material
responsive  to such item in the  Corporation's  Proxy  Statement  for the Annual
Meeting of Stockholders to be held on May 20, 1999.

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

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

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

Part IV

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

The following  exhibits are  incorporated  herein by reference or are annexed to
this Annual Report:

(a) The required  financial  statements  and the related  independent  auditor's
report are included in Item 8.

(b)      The required exhibits are included as follows:

         (3)(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  Annual  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>
                                       39

         (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  Quarterly Report on Form 10-Q for the year
                  ended March 31, 1994).

         (10)(e)  Group Term Life Insurance Replacement Plan dated January 1, 
                  1997.

         (10)(f)  Salary Continuation Agreement dated January 1, 1997 among the
                  Bank, the Corporation and Mr. Prezeau.

         (10)(g)  Salary Continuation Agreement dated January 1, 1997 among the
                  Bank, the Corporation and Mr. Weeks.

         (10)(h)  Director Retirement Agreement dated January 1, 1997 among the
                  Bank, the Corporation and Douglas E. Anderson.

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

         (13)  Annual  Report to  security  holders  for the  fiscal  year ended
               December 31, 1998.

         (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,
1998.
<PAGE>
                                       40

                                   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                       Director               March 26, 1998
Barbara Bell


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


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


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


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

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