##### 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 September 30, 2010
 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 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 900 Broad Street,
    
    07102Newark, New Jersey
(Address of principal executive offices)
    
    (Zip Code)
    
  þ o
  Large filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



Index
    
    PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets as of September 30, 2010 (Unaudited) and December 31, 2009
    
    
    3Consolidated Statements of Operations (Unaudited) for the Three Months and Nine Months Ended
September 30, 2010 and 2009
    
    
    4Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended
September 30, 2010 and 2009
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    30Item 4. Controls and Procedures
    
    
    31Part II Other Information
    
    
    31Item 1. Legal proceedings
    
    
    31Item 3. Default Upon Senior Securities
    
    
    33Item 6. Exhibits
    
    
    34Signatures
    
    
    35EX-31EX-32
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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Balance Sheets (Unaudited)
 September 30,
    
    
    December 31,Dollars in thousands, except per share data
    
    2010
    
    
    2009AssetsCash and due from banks
    
    $
    7,948
    
    
    $
    6,808Federal funds sold
    
    
    43,000
    
    
    
    5,500Interest bearing deposits with banks
    
    
    549
    
    
    
    609Investment securities available for sale
    
    
    133,586
    
    
    
    122,006Investment securities held to maturity (Market value of $0
at Septmeber 30, 2010 and $41,782 at December 31,2009 )
    
    
    
    
    
    
    40,395Loans held for sale
    
    
    
    
    
    
    190Loans
    
    
    252,704
    
    
    
    276,242Less: Allowance for loan losses
    
    
    9,254
    
    
    
    8,650Net loans
    
    
    243,450
    
    
    
    267,592Premises and equipment
    
    
    3,067
    
    
    
    2,949Accrued interest receivable
    
    
    2,069
    
    
    
    2,546Bank-owned life insurance
    
    
    5,682
    
    
    
    5,537Other real estate owned
    
    
    1,753
    
    
    
    2,352Other assets
    
    
    7,118
    
    
    
    9,855Total assets
    
    $
    448,222
    
    
    $
    466,339Liabilities and Stockholders EquityDeposits:Demand
    
    $
    30,478
    
    
    $
    29,304Savings
    
    
    153,865
    
    
    
    149,853Time
    
    
    180,494
    
    
    
    201,119Total deposits
    
    
    364,837
    
    
    
    380,276Accrued expenses and other liabilities
    
    
    6,429
    
    
    
    5,950Short-term portion of long-term debt
    
    
    5,000
    
    
    
    5,000Short-term borrowings
    
    
    870
    
    
    
    100Long-term debt
    
    
    42,000
    
    
    
    44,000Total liabilities
    
    
    419,136
    
    
    
    435,326Commitments and contingenciesStockholders equityPreferred stock, no par value: Authorized 100,000 shares ;Series A , issued and outstanding 8 shares in
2010 and 2009
    
    
    200
    
    
    
    200Series C , issued and outstanding 108 shares in
2010 and 2009
    
    
    27
    
    
    
    27Series D , issued and outstanding 3,280 shares in
2010 and 2009
    
    
    820
    
    
    
    820Preferred
stock, no par value, perpetual noncumulative: Authorized 200 shares;Series E, issued and outstanding 49 shares in
2010 and 2009
    
    
    2,450
    
    
    
    2,450Preferred
stock, no par value, perpetual noncumulative: Authorized 7,000 shares;Series F, issued and outstanding 7,000 shares in
2010 and 2009
    
    
    6,790
    
    
    
    6,790Preferred
stock, no par value, perpetual cumulative: Authorized 9,439 shares;Series G, issued and outstanding 9,439 shares in
2010 and 2009
    
    
    9,867
    
    
    
    9,499Common stock, par value $10: Authorized 400,000 shares;134,530 shares issued in 2010 and 2009131,290 shares outstanding in 2010 and 2009
    
    
    1,345
    
    
    
    1,345Surplus
    
    
    1,115
    
    
    
    1,115Retained earnings
    
    
    4,868
    
    
    
    8,462Accumulated other comprehensive loss
    
    
    1,832
    
    
    
    533Treasury stock, at cost - 3,240 common shares in 2010 and
2009, respectively
    
    
    (228
    )
    
    
    (228
    )Total stockholders equity
    
    
    29,086
    
    
    
    31,013Total liabilities and stockholders equity
    
    $
    448,222
    
    
    $
    466,339
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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Statements of Operations (Unaudited)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,Dollars in thousands, except per share data
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Interest incomeInterest and fees on loans
    
    $
    3,426
    
    
    $
    4,234
    
    
    $
    10,905
    
    
    $
    12,098Interest on Federal funds sold and securities
purchased under agreements to resell
    
    
    11
    
    
    
    5
    
    
    
    32
    
    
    
    48Interest on deposits with banks
    
    
    8
    
    
    
    38
    
    
    
    22
    
    
    
    43Interest and dividends on investment securities:Taxable
    
    
    1,286
    
    
    
    1,605
    
    
    
    4,044
    
    
    
    5,133Tax-exempt
    
    
    133
    
    
    
    311
    
    
    
    656
    
    
    
    968Total interest income
    
    
    4,864
    
    
    
    6,193
    
    
    
    15,659
    
    
    
    18,290Interest expenseInterest on deposits
    
    
    1,406
    
    
    
    1,941
    
    
    
    4,447
    
    
    
    5,971Interest on short-term borrowings
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    3Interest on long-term debt
    
    
    433
    
    
    
    449
    
    
    
    1,285
    
    
    
    1,378Total interest expense
    
    
    1,839
    
    
    
    2,391
    
    
    
    5,732
    
    
    
    7,352Net interest income
    
    
    3,025
    
    
    
    3,802
    
    
    
    9,927
    
    
    
    10,938Provision for loan losses
    
    
    2,825
    
    
    
    1,674
    
    
    
    5,216
    
    
    
    2,611Net interest income after provision
for loan losses
    
    
    200
    
    
    
    2,128
    
    
    
    4,711
    
    
    
    8,327Other operating incomeService charges on deposit accounts
    
    
    303
    
    
    
    380
    
    
    
    1,005
    
    
    
    1,110ATM fees
    
    
    89
    
    
    
    111
    
    
    
    279
    
    
    
    365Award income
    
    
    25
    
    
    
    21
    
    
    
    1,075
    
    
    
    46Other income
    
    
    160
    
    
    
    247
    
    
    
    552
    
    
    
    924Net gains on sales of investment securities
    
    
    137
    
    
    
    2
    
    
    
    666
    
    
    
    12Other than temporary impairment losses on securities
    
    
    
    
    
    
    (1,256
    )
    
    
    
    
    
    
    (3,571
    )Portion of loss recognized in other comprehensive income, before tax
    
    
    
    
    
    
    149
    
    
    
    
    
    
    
    1,277Net impairment losses on securities recognized in earnings
    
    
    
    
    
    
    (1,107
    )
    
    
    
    
    
    
    (2,294
    )Total other operating income
    
    
    714
    
    
    
    (346
    )
    
    
    3,577
    
    
    
    163Other operating expensesSalaries and other employee benefits
    
    
    1,503
    
    
    
    1,644
    
    
    
    4,646
    
    
    
    4,869Occupancy expense
    
    
    503
    
    
    
    341
    
    
    
    1,340
    
    
    
    993Equipment expense
    
    
    131
    
    
    
    201
    
    
    
    431
    
    
    
    541Audit fees
    
    
    82
    
    
    
    64
    
    
    
    339
    
    
    
    182Legal fees
    
    
    47
    
    
    
    44
    
    
    
    246
    
    
    
    153Marketing expense
    
    
    60
    
    
    
    82
    
    
    
    225
    
    
    
    256Management consulting fees
    
    
    378
    
    
    
    214
    
    
    
    732
    
    
    
    392FDIC insurance expense
    
    
    219
    
    
    
    244
    
    
    
    687
    
    
    
    831Data processing expense
    
    
    83
    
    
    
    74
    
    
    
    260
    
    
    
    218Amortization of core deposit intangible
    
    
    491
    
    
    
    46
    
    
    
    566
    
    
    
    148Other expenses
    
    
    687
    
    
    
    546
    
    
    
    1,900
    
    
    
    1,667Total other operating expenses
    
    
    4,184
    
    
    
    3,500
    
    
    
    11,372
    
    
    
    10,250Loss before income tax expense
    
    
    (3,270
    )
    
    
    (1,718
    )
    
    
    (3,084
    )
    
    
    (1,760
    )Income tax expense
    
    
    74
    
    
    
    (1,209
    )
    
    
    142
    
    
    
    (928
    )Net loss
    
    $
    (3,344
    )
    
    $
    (509
    )
    
    $
    (3,226
    )
    
    $
    (832
    )Net loss per common shareBasic
    
    $
    (26.43
    )
    
    $
    (6.36
    )
    
    $
    (27.37
    )
    
    $
    (13.08
    )Diluted
    
    
    (26.43
    )
    
    
    (6.36
    )
    
    
    (27.37
    )
    
    
    (13.08
    )Basic average common shares outstanding
    
    
    131,290
    
    
    
    131,290
    
    
    
    131,290
    
    
    
    131,303Diluted average common shares outstanding
    
    
    131,290
    
    
    
    131,290
    
    
    
    131,290
    
    
    
    131,303
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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Statements of Cash Flows (Unaudited)
 Nine Months EndedSeptember 30,Dollars in thousands
    
    2010
    
    
    2009Operating activitiesNet loss
    
    $
    (3,226
    )
    
    $
    (832
    )Adjustments to reconcile net loss to net cash from operating activities:Depreciation and amortization
    
    
    309
    
    
    
    325Provision for loan losses
    
    
    5,216
    
    
    
    2,611Premium amortization on investment securities
    
    
    124
    
    
    
    5Amortization of intangible assets
    
    
    566
    
    
    
    148Net impairment losses on securities
    
    
    
    
    
    
    2,294Net gains on securities transactions
    
    
    (666
    )
    
    
    (12
    )Net gains on sales of loans held for sale
    
    
    (6
    )
    
    
    (5
    )Net gains (losses) on sales of other real estate owned
    
    
    (17
    )
    
    
    42Writedowns of OREO peoperties
    
    
    60
    
    
    
    Loans originated for sale
    
    
    
    
    
    
    (122
    )Proceeds from sales and principal payments from loans held for sale
    
    
    196
    
    
    
    273Decrease in accrued interest receivable
    
    
    477
    
    
    
    220Deferred taxes
    
    
    845
    
    
    
    912Net increase in bank-owned life insurance
    
    
    (145
    )
    
    
    (144
    )Decrease (increase) in other assets
    
    
    496
    
    
    
    (3,241
    )Increase in accrued expenses and other liabilities
    
    
    479
    
    
    
    771Net cash provided by operating activities
    
    
    4,708
    
    
    
    3,245Investing activitiesDecrease (increase) in loans, net
    
    
    18,926
    
    
    
    (14,681
    )Decrease in interest bearing deposits with banks
    
    
    60
    
    
    
    124Proceeds from maturities of investment securities available for sale,
including principal payments and early redemptions
    
    
    35,126
    
    
    
    22,234Proceeds from maturities of investment securities held to maturity,
including principal payments and early redemptions
    
    
    1,247
    
    
    
    10,084Proceeds from sales of investment securities available for sale
    
    
    18,498
    
    
    
    692Purchases of investment securities available for sale
    
    
    (23,385
    )
    
    
    (14,155
    )Purchases of investment securities held to maturity
    
    
    
    
    
    
    (1,462
    )Proceeds from sale of other real estate owned
    
    
    556
    
    
    
    Purchases of premises and equipment
    
    
    (427
    )
    
    
    (94
    )Net cash used in investing activities
    
    
    50,601
    
    
    
    2,742Financing activitiesDecrease in deposits
    
    
    (15,439
    )
    
    
    (12,361
    )Increase (decrease) in short-term borrowings
    
    
    770
    
    
    
    (1,850
    )Decrease in long-term debt
    
    
    (2,000
    )
    
    
    (2,500
    )Issuance of preferred stock
    
    
    
    
    
    
    9,439Purchases of treasury stock
    
    
    
    
    
    
    (3
    )Dividends paid on preferred stock
    
    
    
    
    
    
    (825
    )Dividends paid on common stock
    
    
    
    
    
    
    (263
    )Net cash used by financing activities
    
    
    (16,669
    )
    
    
    (8,363
    )Net increase (decrease) in cash and cash equivalents
    
    
    38,640
    
    
    
    (2,376
    )Cash and cash equivalents at beginning of period
    
    
    12,308
    
    
    
    25,813Cash and cash equivalents at end of period
    
    $
    50,948
    
    
    $
    23,437Cash paid during the yearInterest
    
    $
    5,416
    
    
    $
    9,612Income taxes
    
    
    60
    
    
    
    1,254Non-cash transactionsTransfer of investments held to maturity to available for sale
    
    
    39,144
    
    
    
    183Transfer of loans to other real estate owned
    
    
    
    
    
    
    939
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,In thousands, except per share data
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (3,344
    )
    
    $
    (509
    )
    
    $
    (3,226
    )
    
    $
    (832
    )Dividends on preferred stock
    
    
    127
    
    
    
    326
    
    
    
    368
    
    
    
    885Net loss applicable to basic
common shares
    
    
    (3,471
    )
    
    
    (835
    )
    
    
    (3,594
    )
    
    
    (1,717
    )Dividends applicable to convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147Net loss applicable to diluted
common shares
    
    $
    (3,471
    )
    
    $
    (835
    )
    
    $
    (3,594
    )
    
    $
    (1,570
    )Number of average common sharesBasic
    
    
    131,290
    
    
    
    131,290
    
    
    
    131,290
    
    
    
    131,303Diluted
    
    
    131,290
    
    
    
    131,290
    
    
    
    131,290
    
    
    
    131,303Net loss per common shareBasic
    
    $
    (26.43
    )
    
    $
    (6.36
    )
    
    $
    (27.37
    )
    
    $
    (13.08
    )Diluted
    
    
    (26.43
    )
    
    
    (6.36
    )
    
    
    (27.37
    )
    
    
    (13.08
    )
       10




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Gross
    
    
    GrossSeptember 30, 2010
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairIn thousands
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury securities
and obligations of U.S.
government agencies
    
    $
    15,957
    
    
    $
    464
    
    
    $
    36
    
    
    $
    16,385Obligations of U.S.
government sponsored
entities
    
    
    20,078
    
    
    
    245
    
    
    
    56
    
    
    
    20,267Obligations of state and
political subdivisions
    
    
    11,302
    
    
    
    489
    
    
    
    12
    
    
    
    11,779Mortgage-backed
securities
    
    
    67,494
    
    
    
    3,538
    
    
    
    20
    
    
    
    71,012Other debt securities
    
    
    11,705
    
    
    
    438
    
    
    
    1,983
    
    
    
    10,160Equity securities:Marketable securities
    
    
    740
    
    
    
    
    
    
    
    13
    
    
    
    727Nonmarketable
securities
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    115Federal Reserve Bank
and Federal Home Loan Bank stock
    
    
    3,141
    
    
    
    
    
    
    
    
    
    
    
    3,141Total
    
    $
    130,532
    
    
    $
    5,174
    
    
    $
    2,120
    
    
    $
    133,586
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Gross
    
    
    GrossDecember 31, 2009
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairIn thousands
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury securities
and obligations of U.S.
government agencies
    
    $
    12,518
    
    
    $
    231
    
    
    $
    49
    
    
    $
    12,700Obligations of U.S.
government sponsored
entities
    
    
    17,289
    
    
    
    222
    
    
    
    187
    
    
    
    17,324Obligations of state and
political subdivisions
    
    
    546
    
    
    
    7
    
    
    
    
    
    
    
    553Mortgage-backed
securities
    
    
    74,417
    
    
    
    2,797
    
    
    
    76
    
    
    
    77,138Other debt securities
    
    
    12,269
    
    
    
    266
    
    
    
    2,267
    
    
    
    10,268Equity securities:Marketable securities
    
    
    713
    
    
    
    
    
    
    
    18
    
    
    
    695Nonmarketable
securities
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    115Federal Reserve Bank
and Federal Home Loan Bank stock
    
    
    3,213
    
    
    
    
    
    
    
    
    
    
    
    3,213Total
    
    $
    121,080
    
    
    $
    3,523
    
    
    $
    2,597
    
    
    $
    122,006
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##### Table of Contents



September 30, 2010
    
    Amortized
    
    
    FairIn thousands
    
    Cost
    
    
    ValueDue within one year:Obligations of U.S. government sponsored
entities
    
    $
    147
    
    
    $
    150Mortgage-backed securities
    
    
    60
    
    
    
    60Other debt securities
    
    
    975
    
    
    
    1,000Due after one year but within five years:Obligations of state and political
subdivisions
    
    
    3,509
    
    
    
    3,685Obligations of U.S. government sponsored
entities
    
    
    2,100
    
    
    
    2,141Mortgage-backed securities
    
    
    712
    
    
    
    751Other debt securities
    
    
    1,499
    
    
    
    1,364Due after five years but within ten years:U.S. Treasury securities and
obligations of U.S. government
agencies
    
    
    5,323
    
    
    
    5,516Obligations of state and political
subdivisions
    
    
    4,162
    
    
    
    4,387Obligations of U.S. government sponsored
entities
    
    
    3,299
    
    
    
    3,376Mortgage-backed securities
    
    
    1,276
    
    
    
    1,324Due after ten years:U.S. Treasury securities and
obligations of U.S. government
agencies
    
    
    10,634
    
    
    
    10,869Obligations of state and political
subdivisions
    
    
    3,631
    
    
    
    3,707Obligations of U.S. government sponsored
entities
    
    
    14,532
    
    
    
    14,600Mortgage-backed securities
    
    
    65,446
    
    
    
    68,877Other debt securities
    
    
    9,231
    
    
    
    7,796Total debt securities
    
    
    126,536
    
    
    
    129,603Equity securities
    
    
    3,996
    
    
    
    3,983Total
    
    $
    130,532
    
    
    $
    133,586
  Less than 12 Months
    
    
    12 Months or More
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossSeptember 30, 2010
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedIn thousands
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. Treasury securities and
obligations of U.S. government
agencies
    
    $
    945
    
    
    $
    13
    
    
    $
    167
    
    
    $
    
    
    
    $
    1,112
    
    
    $
    13Obligations of U.S. government
sponsored entities
    
    
    4,598
    
    
    
    67
    
    
    
    2,142
    
    
    
    12
    
    
    
    6,740
    
    
    
    79Obligations of state and
political subdivisions
    
    
    606
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    606
    
    
    
    13Mortgage-backed securities
    
    
    1,997
    
    
    
    18
    
    
    
    15
    
    
    
    1
    
    
    
    2,012
    
    
    
    19Other debt securities
    
    
    
    
    
    
    
    
    
    
    4,905
    
    
    
    1,983
    
    
    
    4,905
    
    
    
    1,983Marketable equity securities
    
    
    
    
    
    
    
    
    
    
    713
    
    
    
    13
    
    
    
    713
    
    
    
    13Total
    
    $
    8,146
    
    
    $
    111
    
    
    $
    7,942
    
    
    $
    2,009
    
    
    $
    16,088
    
    
    $
    2,120
 14




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Less than 12 Months
    
    
    12 Months or More
    
    
    TotalDecember 31, 2009
    
    
    
    
    
    Gross Unrealized
    
    
    
    
    
    
    Gross Unrealized
    
    
    
    
    
    
    Gross UnrealizedIn thousands
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. Treasury securities and
obligations of U.S. government
agencies
    
    $
    2,050
    
    
    $
    14
    
    
    $
    2,598
    
    
    $
    35
    
    
    $
    4,648
    
    
    $
    49Obligations of U.S. Government
sponsored entities
    
    
    2,822
    
    
    
    143
    
    
    
    2,323
    
    
    
    44
    
    
    
    5,145
    
    
    
    187Mortgaged-backed securities
    
    
    4,947
    
    
    
    73
    
    
    
    248
    
    
    
    3
    
    
    
    5,195
    
    
    
    76Other debt securities
    
    
    43
    
    
    
    1
    
    
    
    4,352
    
    
    
    2,266
    
    
    
    4,395
    
    
    
    2,267Equity securities
    
    
    
    
    
    
    
    
    
    
    713
    
    
    
    18
    
    
    
    713
    
    
    
    18Total
    
    $
    9,862
    
    
    $
    231
    
    
    $
    10,234
    
    
    $
    2,366
    
    
    $
    20,096
    
    
    $
    2,597
  For the Nine MonthsEnded SeptemberIn thousands
    
    30, 2010Balance, December 31, 2009
    
    $
    2,489Add: Initial credit impairments
    
    
    Additional credit impairments
    
    
    Less: Sale of investment securities
    
    
    (2,489
    )Balance, September 30, 2010
    
    $
    
     15




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Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairIn thousands
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury securities
and obligations of U.S.
government agencies
    
    $
    1,585
    
    
    $
    62
    
    
    $
    
    
    
    $
    1,647Obligations of U.S.
government
sponsored entities
    
    
    2,459
    
    
    
    19
    
    
    
    73
    
    
    
    2,405Obligations of state and
political subdivisions
    
    
    27,979
    
    
    
    1,135
    
    
    
    72
    
    
    
    29,042Mortgage-backed
securities
    
    
    7,877
    
    
    
    309
    
    
    
    
    
    
    
    8,186Other debt securities
    
    
    495
    
    
    
    7
    
    
    
    
    
    
    
    502Total
    
    $
    40,395
    
    
    $
    1,532
    
    
    $
    145
    
    
    $
    41,782
   Less than 12 Months
    
    12 Months or More
    
    TotalGross Unrealized
    
    
    
    
    
    
    Gross Unrealized
    
    
    
    
    
    
    Gross UnrealizedIn thousands
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesObligations of state and political
subdivisions
    
    $
    2,268
    
    
    $
    22
    
    
    $
    672
    
    
    $
    50
    
    
    $
    2,940
    
    
    $
    72Obligations of U.S.
government
sponsored entities
    
    
    1,351
    
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    1,351
    
    
    
    73Total
    
    $
    3,619
    
    
    $
    95
    
    
    $
    672
    
    
    $
    50
    
    
    $
    4,291
    
    
    $
    145
      17




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September 30, 2010(Dollars in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment
securities
available for sale
    
    $
    133,586
    
    
    $
    16,385
    
    
    $
    116,741
    
    
    $
    460Loans held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    $
    133,586
    
    
    $
    16,385
    
    
    $
    116,741
    
    
    $
    460
 December 31, 2009(Dollars in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment
securities
available for sale
    
    $
    122,006
    
    
    $
    12,700
    
    
    $
    108,804
    
    
    $
    502Loans held for sale
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    190Total assets
    
    $
    122,196
    
    
    $
    12,700
    
    
    $
    108,804
    
    
    $
    692
       18




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Cash, short-term investments and interest-bearing deposits with banks
 Investment securities
 Loans
 Loans held for sale
 Deposit liabilities
  Short-term borrowings
 Long-term debt
 Commitments to extend credit and letters of credit
 19




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September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairIn thousands
    
    Value
    
    
    Value
    
    
    Value
    
    
    ValueFinancial assetsCash and other short-term
Investments
    
    $
    50,948
    
    
    $
    50,948
    
    
    $
    12,308
    
    
    $
    12,308Interest-bearing deposits
with banks
    
    
    549
    
    
    
    550
    
    
    
    609
    
    
    
    607Investment securities AFS
    
    
    133,586
    
    
    
    133,586
    
    
    
    122,006
    
    
    
    122,006Investment securities HTM
    
    
    
    
    
    
    
    
    
    
    40,395
    
    
    
    41,782Loans
    
    
    252,704
    
    
    
    246,103
    
    
    
    276,242
    
    
    
    270,054Financial liabilitiesDeposits
    
    
    364,837
    
    
    
    359,805
    
    
    
    380,276
    
    
    
    369,758Short-term borrowings
    
    
    870
    
    
    
    870
    
    
    
    100
    
    
    
    100Long-term debt
    
    
    47,000
    
    
    
    48,683
    
    
    
    49,000
    
    
    
    49,664
  Subsequent Events
         20




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Cautionary statement concerning forward-looking statements
  Executive summary
       Financial Condition
 21




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22




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Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Balance at beginning of period
    
    $
    7,934
    
    
    $
    4,500
    
    
    $
    8,650
    
    
    $
    3,800Provision for loan losses
    
    
    2,825
    
    
    
    1,674
    
    
    
    5,216
    
    
    
    2,611Recoveries of previous charge-offs
    
    
    3
    
    
    
    
    
    
    
    41
    
    
    
    1510,762
    
    
    
    6,174
    
    
    
    13,907
    
    
    
    6,426Less: Charge-offs
    
    
    1,508
    
    
    
    174
    
    
    
    4,653
    
    
    
    426Balance at end of period
    
    $
    9,254
    
    
    $
    6,000
    
    
    $
    9,254
    
    
    $
    6,000
       23




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September 30,
    
    
    June 30,
    
    
    December 31,2010
    
    
    2010
    
    
    2009Allowance for loan losses as a
percentage of:Total loans
    
    
    3.66
    %
    
    
    3.02
    %
    
    
    3.13
    %Total nonperforming loans
    
    
    28.56
    %
    
    
    24.58
    %
    
    
    48.35
    %Year-to-date net charge-offs as a
percentage of average loans
(annualized)
    
    
    2.31
    %
    
    
    1.15
    %
    
    
    1.17
    %
   September 30,
    
    
    June 30,
    
    
    December 31,(Dollars in thousands)
    
    2010
    
    
    2010
    
    
    2009Loans past due 90 days
or more and still accruingCommercial
    
    $
    
    
    
    $
    335
    
    
    $
    555Real estate
    
    
    2,593
    
    
    
    3,462
    
    
    
    1,012Installment
    
    
    1
    
    
    
    1
    
    
    
    Total
    
    
    2,594
    
    
    
    3,798
    
    
    
    1,567Nonaccrual loansCommercial
    
    
    2,574
    
    
    
    3,047
    
    
    
    1,237Real estate
    
    
    27,229
    
    
    
    25,438
    
    
    
    15,080Installment
    
    
    
    
    
    
    
    
    
    
    6Total
    
    
    29,803
    
    
    
    28,485
    
    
    
    16,323Total nonperforming loans
    
    
    32,397
    
    
    
    32,283
    
    
    
    17,890Other real estate owned
    
    
    1,753
    
    
    
    1,813
    
    
    
    2,352Total nonperforming assets
    
    $
    34,150
    
    
    $
    34,096
    
    
    $
    20,242
    24




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26




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Consolidated
    
    
    Bank OnlySeptember 30,
    
    
    December 31,
    
    
    September 30,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Risk-based capital ratios:Tier 1 capital to risk-adjusted assets
    
    
    10.32
    %
    
    
    10.45
    %
    
    
    10.29
    %
    
    
    10.62
    %Minimum to be considered well-capitalized
    
    
    6.00
    
    
    
    6.00
    
    
    
    6.00
    
    
    
    6.00Minimum to be considered well-capitalized under OCC
requirements
    
    
    N/A
    
    
    
    N/A
    
    
    
    10.00
    
    
    
    10.00Total capital to risk-adjusted assets
    
    
    13.31
    
    
    
    13.32
    
    
    
    13.22
    
    
    
    13.44Minimum to be considered well-capitalized
    
    
    10.00
    
    
    
    10.00
    
    
    
    10.00
    
    
    
    10.00Minimum to be considered well-capitalized under OCC
requirements
    
    
    N/A
    
    
    
    N/A
    
    
    
    12.00
    
    
    
    12.00Leverage ratio
    
    
    7.01
    
    
    
    6.96
    
    
    
    6.99
    
    
    
    7.08Minimum to be considered well-capitalized
    
    
    5.00
    
    
    
    5.00
    
    
    
    5.00
    
    
    
    5.00Minimum to be considered well-capitalized under OCC
requirements
    
    
    N/A
    
    
    
    N/A
    
    
    
    8.00
    
    
    
    8.00
       27




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28




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Liquidity
   29




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Item 3
 Quantitative and Qualitative Disclosures about Market Risk
      30




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Item 4
 Controls and Procedures
   
 PART II Other information
 
    The Bank was subject to a formal written agreement with the OCC that required it to take specific
remediation actions, among other things, and as of December 22, 2010 is subject to a Consent Order
with the OCC which places further restrictions upon us.
    The Corporations financial results and the Banks failure to comply with the Formal Agreement, the
Consent Order with the OCC and the Agreement with the Federal Reserve Bank of New York raise
substantial doubt about the Corporations and the Banks ability to continue as going concerns.
 31




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The Corporation has deferred payment of dividends on its Series G Preferred Stock and certain
debentures and may not pay dividends on its common or other preferred stock until such Series G
dividends and interest on debentures are paid and may not pay any dividends unless allowed by
regulators.
  Financial reform legislation recently enacted will, among other things, create a new Consumer
Financial Protection Bureau, tighten capital standards and result in new laws and regulations that
are expected to increase our costs of operations.
      32




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Item 3. Defaults Upon Senior Securities.
   Series
    
    Amount Deferred in Third Quarter
    
    Total Deferred to DateA
    
    $
    
    
    
    $
    12,000C
    
    
    
    
    
    
    2,160D
    
    
    
    
    
    
    3,300E
    
    
    
    
    
    
    147,000F
    
    
    149,318
    
    
    
    447,956
 33




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##### Table of Contents



(10.1)
    
    Consent Order dated December 22, 2010 between the Bank and the OCC (incorporated by reference to Exhibit 10.1 to the Corporations Form 8-K filed on December 29, 2010).(10.2)
    
    Agreement dated December 14, 2010 between the Corporation and the Federal Reserve Bank of New York (incorporated by reference to Exhibit 10.2 to the Corporations Form 8-K filed on December 29, 2010).(31)
    
    Certifications of Principal Executive Officer and Principal Financial
Officer (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith).(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)
(filed herewith). 34




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January 11, 2011
    /s/ Edward R. WrightEdward R. WrightSenior Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer) 35




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(10.1)
    
    Consent Order dated December 22, 2010 between the Bank and the OCC (incorporated by reference to Exhibit 10.1 to the Corporations Form 8-K filed on December 29, 2010).(10.2)
    
    Agreement dated December 14, 2010 between the Corporation and the Federal Reserve Bank of New York (incorporated by reference to Exhibit 10.2 to the Corporations Form 8-K filed on December 29, 2010).(31)
    
    Certifications of Principal Executive Officer and Principal Financial
Officer (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith).(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)
(filed herewith). 36