##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from      to
 Commission file number 0-11535
 CITY NATIONAL BANCSHARES CORPORATION
  New Jersey
    
    22-2434751(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)900 Broad Street,Newark, New Jersey
    
    07102(Address of principal executive offices)
    
    (Zip Code)
    
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



Index
    
    PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets as of June 30, 2008 (Unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Income (Unaudited) for the Three Months and Six Months Ended June 30, 2008 
and 2007
    
    
    4Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2008 and 2007
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations .
    
    
    8Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    13Item 4. Controls and Procedures.
    
    
    14Part II Other Information
    
    
    14Item 1. Legal proceedings
    
    
    14Item 6. Exhibits and Reports on Form 8-K
    
    
    14Signatures
    
    
    17EX-31: CERTIFICATIONSEX-32: CERTIFICATIONS
  2




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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Balance Sheets (Unaudited)
 June 30,
    
    December 31,Dollars in thousands, except per share data
    
    2008
    
    2007AssetsCash and due from banks
    
    $
    9,526
    
    
    $
    22,819Federal funds sold
    
    
    540
    
    
    
    22,000Interest bearing deposits with banks
    
    
    217
    
    
    
    278Investment securities available for sale
    
    
    113,500
    
    
    
    103,618Investment securities held to maturity (Market value of $56,675
at June 30, 2008 and $54,005 at December 31,2007 )
    
    
    57,256
    
    
    
    53,938Loans held for sale
    
    
    
    
    
    
    226Loans
    
    
    251,852
    
    
    
    232,824Less: Allowance for loan losses
    
    
    3,350
    
    
    
    3,000Net loans
    
    
    248,502
    
    
    
    229,824Premises and equipment
    
    
    3,466
    
    
    
    3,601Accrued interest receivable
    
    
    2,732
    
    
    
    2,672Bank-owned life insurance
    
    
    5,240
    
    
    
    4,928Other assets
    
    
    7,116
    
    
    
    5,844Total assets
    
    $
    448,095
    
    
    $
    449,748Liabilities and Stockholders EquityDeposits:Demand
    
    $
    35,272
    
    
    $
    34,543Savings
    
    
    163,547
    
    
    
    200,996Time
    
    
    172,227
    
    
    
    159,317Total deposits
    
    
    371,046
    
    
    
    394,856Accrued expenses and other liabilities
    
    
    6,290
    
    
    
    5,070Short-term borrowings
    
    
    7,070
    
    
    
    1,150Long-term debt
    
    
    35,800
    
    
    
    19,800Total liabilities
    
    
    420,206
    
    
    
    420,876Commitments and contingenciesStockholders equityPreferred stock, no par value: Authorized 100,000 shares ;Series A , issued and outstanding 8 shares in 2008 and 2007
    
    
    200
    
    
    
    200Series C , issued and outstanding 108 shares in 2008 and 2007
    
    
    27
    
    
    
    27Series D , issued and outstanding 3,280 shares in 2008 and 2007
    
    
    820
    
    
    
    820Preferred stock, no par value, perpetual noncumulative: Authorized 200 shares;Series E, issued and outstanding 49 shares in 2008 and 2007
    
    
    2,450
    
    
    
    2,450Preferred stock, no par value, perpetual noncumulative: Authorized 7,000 shares;Series F, issued and outstanding 7,000 shares in 2008 and 2007
    
    
    6,790
    
    
    
    6,790Common stock, par value $10: Authorized 400,000 shares;134,530 shares issued in 2008 and 2007

131,692 shares outstanding in 2008 and 131,987 shares outstanding in 2007
    
    
    1,345
    
    
    
    1,345Surplus
    
    
    1,115
    
    
    
    1,115Retained earnings
    
    
    17,300
    
    
    
    16,922Accumulated other comprehensive loss
    
    
    (1,958
    )
    
    
    (623
    )Treasury stock, at cost - 2,838 and 2,543 common shares in 2008 and 2007,
respectively
    
    
    (200
    )
    
    
    (174
    )Total stockholders equity
    
    
    27,889
    
    
    
    28,872Total liabilities and stockholders equity
    
    $
    448,095
    
    
    $
    449,748
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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Statements of Income (Unaudited)
 Three months ended
    
    Six months endedJune 30,
    
    June 30,Dollars in thousands, except per share data
    
    2008
    
    2007
    
    2008
    
    2007Interest incomeInterest and fees on loans
    
    $
    4,138
    
    
    $
    4,039
    
    
    $
    8,386
    
    
    $
    7,814Interest on Federal funds sold and securities
purchased under agreements to resell
    
    
    39
    
    
    
    301
    
    
    
    174
    
    
    
    553Interest on deposits with banks
    
    
    5
    
    
    
    12
    
    
    
    16
    
    
    
    26Interest and dividends on investment securities:Taxable
    
    
    1,838
    
    
    
    1,631
    
    
    
    3,576
    
    
    
    3,291Tax-exempt
    
    
    321
    
    
    
    357
    
    
    
    643
    
    
    
    707Total interest income
    
    
    6,341
    
    
    
    6,340
    
    
    
    12,795
    
    
    
    12,391Interest expenseInterest on deposits
    
    
    2,297
    
    
    
    3,188
    
    
    
    4,950
    
    
    
    6,178Interest on short-term borrowings
    
    
    11
    
    
    
    6
    
    
    
    15
    
    
    
    12Interest on long-term debt
    
    
    345
    
    
    
    375
    
    
    
    697
    
    
    
    711Total interest expense
    
    
    2,653
    
    
    
    3,569
    
    
    
    5,662
    
    
    
    6,901Net interest income
    
    
    3,688
    
    
    
    2,771
    
    
    
    7,133
    
    
    
    5,490Provision for loan losses
    
    
    265
    
    
    
    71
    
    
    
    433
    
    
    
    296Net interest income after provision
for loan losses
    
    
    3,423
    
    
    
    2,700
    
    
    
    6,700
    
    
    
    5,194Other operating incomeService charges on deposit accounts
    
    
    335
    
    
    
    334
    
    
    
    686
    
    
    
    604Agency fees on commercial loans
    
    
    93
    
    
    
    114
    
    
    
    174
    
    
    
    177Other income
    
    
    330
    
    
    
    223
    
    
    
    571
    
    
    
    495Net losses on sales of investment securities
    
    
    (50
    )
    
    
    
    
    
    
    (44
    )
    
    
    Total other operating income
    
    
    708
    
    
    
    671
    
    
    
    1,387
    
    
    
    1,276Other operating expensesSalaries and other employee benefits
    
    
    1,683
    
    
    
    1,521
    
    
    
    3,288
    
    
    
    2,900Occupancy expense
    
    
    301
    
    
    
    313
    
    
    
    625
    
    
    
    567Equipment expense
    
    
    157
    
    
    
    137
    
    
    
    323
    
    
    
    276Data processing expense
    
    
    55
    
    
    
    81
    
    
    
    133
    
    
    
    165Other expenses
    
    
    978
    
    
    
    758
    
    
    
    1,912
    
    
    
    1,518Total other operating expenses
    
    
    3,174
    
    
    
    2,810
    
    
    
    6,281
    
    
    
    5,426Income before income tax expense
    
    
    957
    
    
    
    561
    
    
    
    1,806
    
    
    
    1,044Income tax expense
    
    
    257
    
    
    
    77
    
    
    
    441
    
    
    
    188Net income
    
    $
    700
    
    
    $
    484
    
    
    $
    1,365
    
    
    $
    856Net income per common shareBasic
    
    $
    4.18
    
    
    $
    2.52
    
    
    $
    6.46
    
    
    $
    2.89Diluted
    
    
    3.72
    
    
    
    2.25
    
    
    
    6.46
    
    
    
    2.89Basic average common shares outstanding
    
    
    131,793
    
    
    
    132,470
    
    
    
    131,869
    
    
    
    132,605Diluted average common shares outstanding
    
    
    148,110
    
    
    
    148,787
    
    
    
    131,869
    
    
    
    132,605
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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Statements of Cash Flows (Unaudited)
 Six Months EndedJune 30,Dollars in thousands
    
    2008
    
    2007Operating activitiesNet income
    
    $
    1,365
    
    
    $
    856Adjustments to reconcile net income to net cash from operating activities:Depreciation and amortization
    
    
    259
    
    
    
    215Provision for loan losses
    
    
    433
    
    
    
    296Discount accretion on investment securities
    
    
    (69
    )
    
    
    (143
    )Amortization of intangible assets
    
    
    106
    
    
    
    91Net losses on securities transactions
    
    
    43
    
    
    
    Net gains on sales of loans held for sale
    
    
    (10
    )
    
    
    (32
    )Loans originated for sale
    
    
    (312
    )
    
    
    (1,906
    )Proceeds from sales and principal payments from loans held for sale
    
    
    548
    
    
    
    1,722Increase in accrued interest receivable
    
    
    (60
    )
    
    
    (91
    )Deferred taxes
    
    
    (826
    )
    
    
    (372
    )Net increase in bank-owned life insurance
    
    
    (312
    )
    
    
    (100
    )(Decrease) increase in other assets
    
    
    274
    
    
    
    (1,545
    )Increase in accrued expenses and other liabilities
    
    
    1,220
    
    
    
    986Net cash (used) provided by operating activities
    
    
    2,659
    
    
    
    (23
    )Investing activitiesPurchase of loans
    
    
    
    
    
    
    (18,734
    )Increase in loans, net
    
    
    (19,111
    )
    
    
    (4,745
    )Decrease (increase) in interest bearing deposits with banks
    
    
    61
    
    
    
    (17
    )Proceeds from maturities of investment securities available for sale,
including principal payments and early redemptions
    
    
    14,385
    
    
    
    28,110Proceeds from maturities of investment securities held to maturity,
including principal payments and early redemptions
    
    
    8,448
    
    
    
    341Proceeds from sales of investment securities available for sale
    
    
    4,698
    
    
    
    264Purchases of investment securities available for sale
    
    
    (31,086
    )
    
    
    (11,989
    )Purchases of investment securities held to maturity
    
    
    (11,780
    )
    
    
    (4,280
    )Purchases of premises and equipment
    
    
    (124
    )
    
    
    (232
    )Net cash used in investing activities
    
    
    (34,509
    )
    
    
    (11,282
    )Financing activitiesPurchase of deposits
    
    
    
    
    
    
    11,016Decrease in deposits
    
    
    (23,810
    )
    
    
    (7,536
    )Increase in short-term borrowings
    
    
    5,920
    
    
    
    740Increase in long-term debt
    
    
    16,000
    
    
    
    4,938Purchases of treasury stock
    
    
    (26
    )
    
    
    (56
    )Dividends paid on preferred stock
    
    
    (513
    )
    
    
    (473
    )Dividends paid on common stock
    
    
    (474
    )
    
    
    (463
    )Net cash provided (used) by financing activities
    
    
    (2,903
    )
    
    
    8,166Net decrease cash and cash equivalents
    
    
    (34,753
    )
    
    
    (3,139
    )Cash and cash equivalents at beginning of period
    
    
    44,819
    
    
    
    12,231Cash and cash equivalents at end of period
    
    $
    10,066
    
    
    $
    9,092Cash paid during the yearInterest
    
    $
    1,481
    
    
    $
    6,464Income taxes
    
    
    902
    
    
    
    662
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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,In thousands, except per share data
    
    2008
    
    2007
    
    2008
    
    2007Net income
    
    $
    700
    
    
    $
    484
    
    
    $
    1,365
    
    
    $
    856Dividends declared on preferred stock
    
    
    149
    
    
    
    149
    
    
    
    513
    
    
    
    472Net income applicable to basic common
shares
    
    
    551
    
    
    
    335
    
    
    
    852
    
    
    
    384Dividends applicable to convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    106Net income applicable to diluted common
shares
    
    $
    551
    
    
    $
    335
    
    
    $
    999
    
    
    $
    490Number of average common sharesBasic
    
    
    131,793
    
    
    
    132,470
    
    
    
    131,869
    
    
    
    132,605Diluted
    
    
    148,110
    
    
    
    148,787
    
    
    
    131,869
    
    
    
    132,605Net income per common shareBasic
    
    $
    4.18
    
    
    $
    2.52
    
    
    $
    6.46
    
    
    $
    2.89Diluted
    
    
    3.72
    
    
    
    2.25
    
    
    
    6.46
    
    
    
    2.89
       6




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7




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(Dollars in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment securities available for sale
    
    $
    113,500
    
    
    $
    4,883
    
    
    $
    106,682
    
    
    $
    1,935Loans held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    $
    113,500
    
    
    $
    4,883
    
    
    $
    106,682
    
    
    $
    1,935Total liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
      
 Item 2
 Managements Discussion and Analysis of Financial Condition and Results of Operations
 8




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Cautionary statement concerning forward-looking statements
  Executive summary
   Financial Condition
        9




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Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,(Dollars in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Balance at beginning of period
    
    $
    3,100
    
    
    $
    2,500
    
    
    $
    3,000
    
    
    $
    2,400Provision for loan losses
    
    
    265
    
    
    
    71
    
    
    
    433
    
    
    
    296Recoveries of previous charge-offs
    
    
    
    
    
    
    29
    
    
    
    6
    
    
    
    313,365
    
    
    
    2,600
    
    
    
    3,439
    
    
    
    2,727Less: Charge-offs
    
    
    15
    
    
    
    
    
    
    
    89
    
    
    
    127Balance at end of period
    
    $
    3,350
    
    
    $
    2,600
    
    
    $
    3,350
    
    
    $
    2,600
  June 30,
    
    December 31,
    
    June 30,2008
    
    2007
    
    2007Allowance for loan
losses as a percentage of:Total loans
    
    
    1.33
    %
    
    
    1.29
    %
    
    
    1.17
    %Total nonperforming loans
    
    
    32.82
    %
    
    
    37.67
    %
    
    
    31.37
    %Total nonperforming assets
(nonperforming loans and OREO)
    
    
    32.82
    %
    
    
    37.67
    %
    
    
    31.37
    %Net charge-offs as a percentage
of average loans (year-to-date)
    
    
    .03
    %
    
    
    .08
    %
    
    
    .05
    %
   10




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June 30,
    
    
    December 31,
    
    
    June 30,(Dollars in thousands)
    
    2008
    
    
    2007
    
    
    2007Loans past due 90 days
or more and still accruingCommercial
    
    $
    69
    
    
    $
    43
    
    
    $
    Real estate
    
    
    2,436
    
    
    
    377
    
    
    
    902Installment
    
    
    4
    
    
    
    18
    
    
    
    28Total
    
    
    2,509
    
    
    
    438
    
    
    
    930Nonaccrual loansCommercial
    
    
    2,293
    
    
    
    1,996
    
    
    
    1,474Real estate
    
    
    5,383
    
    
    
    5,485
    
    
    
    5,839Installment
    
    
    21
    
    
    
    45
    
    
    
    45Total
    
    
    7,697
    
    
    
    7,526
    
    
    
    7,538Total nonperforming loans
    
    $
    10,206
    
    
    $
    7,964
    
    
    $
    8,288
          11




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Results of Operations
      12




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Liquidity
    13




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Quantitative and Qualitative Disclosures about Market Risk
      
 PART II Other information
 
 Item 1. Legal Proceedings
  Item 1a. Risk Factors
  Item 4. Submission for Matters to a Vote of Security Holders
  
 Item 6. Exhibits
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(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 (3)(i) filed with the Corporations Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997).(3)(f)

    Amendments to the Corporations Articles of Incorporation establishing the
Corporations Non-cumulative Perpetual Preferred Stock, Series E (incorporated
herein by reference to Exhibit (3)(i) filed with the Corporations Quarterly
Report on Form 10-Q filed on March 4, 2005).(3)(g)

    Amendments to the Corporations Articles of Incorporation establishing the
Corporations MultiMode Series F Non-cumulative Redeemable Preferred Stock
(incorporated herein by reference to Exhibit (3)(f) to the Corporations
Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).(3)(h)

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

    The By-Laws of the Corporation (incorporated herein by reference to Exhibit
(3)(b) of the Corporations Annual Report on Form 10-K for the year ended
December 31, 1988).(10)(a)

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

    The Employment Agreement among the Corporation, the Bank and Louis E. Prezeau
dated May 26, 2006 (incorporated herein by reference to Exhibit (10.1) to the
Corporations Current Report on Form 8-K dated December 4, 2006).(10)(d)

    Amended and Restated Asset Purchase and Sale Agreement between the Bank and
Carver Federal Savings Bank dated as of February 27, 2001 (incorporated by
reference to Exhibit 10(d) to the Corporations Annual Report on Form 10-K for
the year ended December 31, 2000).(10)(f)

    Loan Agreement dated December 28, 2001 by and between the Corporation and
National Community Investment Fund (incorporated by reference to Exhibit 10(f) to
the Corporations Annual Report on Form 10-K for the year ended December 31,
2001).(10)(g)

    Pledge Agreement dated December 28, 2001 by and between the Corporation and
National Community Investment Fund (incorporated by reference to Exhibit (g) to
the Corporations Annual Report on Form 10-K for the year ended December 31,
2001).(10)(h)

    Asset Purchase and Sale Agreement between City National Bank of New Jersey and
Carver Federal Savings Bank dated as of January 26, 1998 (incorporated by
reference to Exhibit 10(h) to the Corporations Annual Report on Form 10-K for
the year ended December 31, 1998).
 15




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(10)(i)
    
    Promissory Note dated May 6, 2002 payable to United Negro College Fund, Inc.,
in the principal amount of $200,000 (incorporated by reference to Exhibit 10(i)
to the Corporations Quarterly Report on Form 10-Q for quarter ended March 31,
2002).(10)(l)
    
    Purchase and Assumption Agreement dated as of March 31, 2004, by and among The
Prudential Savings Bank, F.S.B., The Prudential Bank and Trust Company and City
National Bank of New Jersey (incorporated herein by reference to Exhibit 10(l) to
the Corporations Quarterly Report on Form 10-Q for the quarter ended March 31,
2004).(10)(m)
    
    Guarantee Agreement dated March 17, 2004 from the Corporation in favor of U.S.
Bank, N.A., as trustee for holders of securities issued by City National Bank of
New Jersey Capital Statutory Trust II (incorporated herein by reference to
Exhibit (10)(m) to the Corporations Quarterly Report on Form 10-Q for the
quarter ended March 31, 2004).(10)(n)
    
    Purchase Agreement dated September 27, 2005 by and between Sandler ONeil &
Partners, L.P., and the Corporation with respect to issue and sale of 7,000
shares of the Corporations MultiMode Series F Non-cumulative Redeemable
Preferred Stock (incorporated herein by reference to Exhibit (10)(n) to the
Corporations Quarterly Report on Form 10-Q for the quarter ended September 30,
2005).(10)(o)
    
    Credit Agreement dated February 21, 2007 by and between The Prudential
Insurance Company of America and the Corporation with respect to a $5,000,000
loan to the Corporation (incorporated by reference to Exhibit 10.1 to the
Corporations Current Report on Form 8-K dated February 23, 2007).(10)(p)
    
    Branch Purchase and Assumption Agreement, dated as of November 1, 2006, by and
between City National Bank of New Jersey (CNB) and Sun National Bank (Sun),
as amended by Amendment to Branch Purchase and Assumption Agreement, dated as of
March 8, 2007, by and between CNB and Sun (incorporated by reference to Exhibit
10.1 to the Corporations Current Report on Form 8-K dated March 14, 2007).(11)
    
    Statement regarding computation of per share earnings. The required
information is included on page 6.(31)
    
    Certifications of Principal Executive Officer and Principal Financial
Officer (Section 302 of the Sarbanes-Oxley Act of 2002).(32)
    
    Certifications of Principal Executive Officer and Principal Financial
Officer under 18 U.S.C.Section 1350 (Section 906 of the Sarbanes-Oxley Act of
2002).
   
   CITY NATIONAL BANCSHARES CORPORATION
     (Registrant)August 13, 2008
    /s/ Edward R. WrightEdward R. WrightSenior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) 16