##### 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, 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,
    
    07102Newark, New Jersey
    
    (Zip Code)(Address of principal executive offices)
    
 þ o
  Large accelerated 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, 2008 (Unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Income (Unaudited) for the Three Months and Nine Months Ended September 30, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2008 and 2007
    
    
    5Notes to Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    14Item 4. Controls and Procedures
    
    
    14Part II Other Information
    
    
    15Item 1. Legal proceedings
    
    
    15Item 1A. Risk factors
    
    
    15Item 6. Exhibits and Reports on Form 8-K
    
    
    15Signatures
    
    
    17EX-31: CERTIFICATIONSEX-32: CERTIFICATIONS
  2




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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
    
    2008
    
    2007AssetsCash and due from banks
    
    $
    7,540
    
    
    $
    22,819Federal funds sold
    
    
    6,040
    
    
    
    22,000Interest bearing deposits with banks
    
    
    205
    
    
    
    278Investment securities available for sale
    
    
    123,843
    
    
    
    103,618Investment securities held to maturity (Market value of $55,225
at September 30, 2008 and $54,005 at December 31,2007)
    
    
    55,979
    
    
    
    53,938Loans held for sale
    
    
    189
    
    
    
    226Loans
    
    
    263,053
    
    
    
    232,824Less: Allowance for loan losses
    
    
    3,350
    
    
    
    3,000Net loans
    
    
    259,703
    
    
    
    229,824Premises and equipment
    
    
    3,357
    
    
    
    3,601Accrued interest receivable
    
    
    2,722
    
    
    
    2,672Bank-owned life insurance
    
    
    5,297
    
    
    
    4,928Other assets
    
    
    6,908
    
    
    
    5,844Total assets
    
    $
    471,783
    
    
    $
    449,748Liabilities and Stockholders EquityDeposits:Demand
    
    $
    43,190
    
    
    $
    34,543Savings
    
    
    152,932
    
    
    
    200,996Time
    
    
    198,234
    
    
    
    159,317Total deposits
    
    
    394,356
    
    
    
    394,856Accrued expenses and other liabilities
    
    
    4,610
    
    
    
    5,070Short-term borrowings
    
    
    1,150
    
    
    
    1,150Long-term debt
    
    
    44,700
    
    
    
    19,800Total liabilities
    
    
    444,816
    
    
    
    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 2007131,524 shares outstanding in 2008 and 131,987 shares outstanding in 2007
    
    
    1,345
    
    
    
    1,345Surplus
    
    
    1,115
    
    
    
    1,115Retained earnings
    
    
    17,201
    
    
    
    16,922Accumulated other comprehensive loss
    
    
    (2,769
    )
    
    
    (623
    )Treasury stock, at cost - 3,006 and 2,543 common shares in 2008 and 2007, respectively
    
    
    (212
    )
    
    
    (174
    )Total stockholders equity
    
    
    26,967
    
    
    
    28,872Total liabilities and stockholders equity
    
    $
    471,783
    
    
    $
    449,748
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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Statements of Income (Unaudited)
 Three months ended
    
    Nine months endedSeptember 30,
    
    September 30,Dollars in thousands, except per share data
    
    2008
    
    2007
    
    2008
    
    2007Interest incomeInterest and fees on loans
    
    $
    4,229
    
    
    $
    4,224
    
    
    $
    12,615
    
    
    $
    12,038Interest on Federal funds sold and securities
purchased under agreements to resell
    
    
    9
    
    
    
    429
    
    
    
    183
    
    
    
    982Interest on deposits with banks
    
    
    1
    
    
    
    13
    
    
    
    17
    
    
    
    39Interest and dividends on investment securities:Taxable
    
    
    1,904
    
    
    
    1,639
    
    
    
    5,480
    
    
    
    4,930Tax-exempt
    
    
    324
    
    
    
    341
    
    
    
    967
    
    
    
    1,048Total interest income
    
    
    6,467
    
    
    
    6,646
    
    
    
    19,262
    
    
    
    19,037Interest expenseInterest on deposits
    
    
    2,418
    
    
    
    3,421
    
    
    
    7,368
    
    
    
    9,599Interest on short-term borrowings
    
    
    44
    
    
    
    4
    
    
    
    59
    
    
    
    16Interest on long-term debt
    
    
    400
    
    
    
    305
    
    
    
    1,097
    
    
    
    1,016Total interest expense
    
    
    2,862
    
    
    
    3,730
    
    
    
    8,524
    
    
    
    10,631Net interest income
    
    
    3,605
    
    
    
    2,916
    
    
    
    10,738
    
    
    
    8,406Provision for loan losses
    
    
    189
    
    
    
    10
    
    
    
    622
    
    
    
    306Net interest income after provision
for loan losses
    
    
    3,416
    
    
    
    2,906
    
    
    
    10,116
    
    
    
    8,100Other operating incomeService charges on deposit accounts
    
    
    346
    
    
    
    351
    
    
    
    1,032
    
    
    
    955Agency fees on commercial loans
    
    
    78
    
    
    
    77
    
    
    
    252
    
    
    
    254Other income
    
    
    380
    
    
    
    244
    
    
    
    951
    
    
    
    739Net (losses) gains on sales of investment securities
    
    
    (1,429
    )
    
    
    10
    
    
    
    (1,473
    )
    
    
    10Total other operating income
    
    
    (625
    )
    
    
    682
    
    
    
    762
    
    
    
    1,958Other operating expensesSalaries and other employee benefits
    
    
    1,369
    
    
    
    1,560
    
    
    
    4,657
    
    
    
    4,460Occupancy expense
    
    
    344
    
    
    
    326
    
    
    
    969
    
    
    
    893Equipment expense
    
    
    165
    
    
    
    138
    
    
    
    488
    
    
    
    414Data processing expense
    
    
    57
    
    
    
    67
    
    
    
    190
    
    
    
    232Other expenses
    
    
    926
    
    
    
    858
    
    
    
    2,838
    
    
    
    2,376Total other operating expenses
    
    
    2,861
    
    
    
    2,949
    
    
    
    9,142
    
    
    
    8,375Income before income tax expense
    
    
    (70
    )
    
    
    639
    
    
    
    1,736
    
    
    
    1,683Income tax expense
    
    
    (120
    )
    
    
    95
    
    
    
    321
    
    
    
    283Net income
    
    $
    50
    
    
    $
    544
    
    
    $
    1,415
    
    
    $
    1,400Net income per common shareBasic
    
    $
    (0.75
    )
    
    $
    2.99
    
    
    $
    5.72
    
    
    $
    5.88Diluted
    
    
    (0.75
    )
    
    
    2.66
    
    
    
    5.72
    
    
    
    5.88Basic average common shares outstanding
    
    
    131,616
    
    
    
    132,024
    
    
    
    131,784
    
    
    
    132,409Diluted average common shares outstanding
    
    
    131,616
    
    
    
    148,341
    
    
    
    131,784
    
    
    
    132,409
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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY
 
 Consolidated Statements of Cash Flows (Unaudited)
 Nine Months EndedSeptember 30,Dollars in thousands
    
    2008
    
    2007Operating activitiesNet income
    
    $
    1,415
    
    
    $
    1,400Adjustments to reconcile net income to net cash from operating activities:Depreciation and amortization
    
    
    372
    
    
    
    318Provision for loan losses
    
    
    622
    
    
    
    306Discount accretion on investment securities
    
    
    (77
    )
    
    
    (227
    )Amortization of intangible assets
    
    
    160
    
    
    
    144Net losses (gains) on securities transactions
    
    
    44
    
    
    
    (10
    )Writedowns of investment securities
    
    
    1,429
    
    
    
    Net gains on sales of loans held for sale
    
    
    (10
    )
    
    
    (66
    )Loans originated for sale
    
    
    (501
    )
    
    
    (3,086
    )Proceeds from sales and principal payments from loans held for sale
    
    
    548
    
    
    
    3,499(Increase) decrease in accrued interest receivable
    
    
    (50
    )
    
    
    1Net increase in bank-owned life insurance
    
    
    (369
    )
    
    
    (143
    )Deferred taxes
    
    
    (1,445
    )
    
    
    (194
    )Decrease (increase) in other assets
    
    
    1,665
    
    
    
    (948
    )(Decrease) increase in accrued expenses and other liabilities
    
    
    (460
    )
    
    
    79Net cash provided by operating activities
    
    
    3,343
    
    
    
    1,073Investing activitiesPurchase of loans
    
    
    
    
    
    
    (18,734
    )Increase in loans, net
    
    
    (30,500
    )
    
    
    (5,221
    )Decrease (increase) in interest bearing deposits with banks
    
    
    73
    
    
    
    (128
    )Proceeds from maturities of investment securities available for sale,
including principal payments and early redemptions
    
    
    18,000
    
    
    
    33,683Proceeds from maturities of investment securities held to maturity,
including principal payments and early redemptions
    
    
    8,708
    
    
    
    991Proceeds from sales of investment securities available for sale
    
    
    4,807
    
    
    
    3,178Purchases of investment securities available for sale
    
    
    (46,494
    )
    
    
    (20,638
    )Purchases of investment securities held to maturity
    
    
    (12,274
    )
    
    
    (4,280
    )Purchases of premises and equipment
    
    
    (128
    )
    
    
    (290
    )Net cash used in investing activities
    
    
    (57,808
    )
    
    
    (11,439
    )Financing activitiesPurchase of deposits
    
    
    
    
    
    
    11,016(Decrease) increase in deposits
    
    
    (500
    )
    
    
    60,281Decrease in short-term borrowings
    
    
    
    
    
    
    (400
    )Increase in long-term debt
    
    
    24,900
    
    
    
    214Purchases of treasury stock
    
    
    (38
    )
    
    
    (62
    )Dividends paid on preferred stock
    
    
    (662
    )
    
    
    (622
    )Dividends paid on common stock
    
    
    (474
    )
    
    
    (464
    )Net cash provided by financing activities
    
    
    23,226
    
    
    
    69,963Net (decrease) increase in cash and cash equivalents
    
    
    (31,239
    )
    
    
    59,597Cash and cash equivalents at beginning of period
    
    
    44,819
    
    
    
    12,231Cash and cash equivalents at end of period
    
    $
    13,580
    
    
    $
    71,828Cash paid during the yearInterest
    
    $
    8,487
    
    
    $
    10,384Income taxes
    
    
    1,424
    
    
    
    734Noncash transactionsTransfer of investments from held to maturity to available for sale
    
    
    70
    
    
    
    
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Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,In thousands, except per share data
    
    2008
    
    2007
    
    2008
    
    2007Net income
    
    $
    50
    
    
    $
    544
    
    
    $
    1,415
    
    
    $
    1,400Dividends declared on preferred stock
    
    
    149
    
    
    
    149
    
    
    
    662
    
    
    
    622Net (loss) income applicable to
basic common
shares
    
    
    (99
    )
    
    
    395
    
    
    
    753
    
    
    
    778Dividends applicable to convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    106Net (loss) income applicable to
diluted common
shares
    
    $
    (99
    )
    
    $
    395
    
    
    $
    900
    
    
    $
    884Number of average common sharesBasic
    
    
    131,616
    
    
    
    132,024
    
    
    
    131,784
    
    
    
    132,409Diluted
    
    
    131,616
    
    
    
    148,341
    
    
    
    131,784
    
    
    
    132,409Net(loss) income per common shareBasic
    
    $
    (.75
    )
    
    $
    2.99
    
    
    $
    5.72
    
    
    $
    5.88Diluted
    
    
    (.75
    )
    
    
    2.66
    
    
    
    5.72
    
    
    
    5.88
     5.
    
    Reclassifications
 6




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7




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(Dollars in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment securities available for sale
    
    $
    123,843
    
    
    $
    2,006
    
    
    $
    120,482
    
    
    $
    1,355Loans held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    $
    123,843
    
    
    $
    2,006
    
    
    $
    120,482
    
    
    $
    1,355Total liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
 8




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Managements Discussion and Analysis of Financial Condition and Results of Operations
  Cautionary statement concerning forward-looking statements
  Executive summary
   Financial Condition
       9




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Three Months
    
    
    Nine MonthsEnded September 30,
    
    
    Ended September 30,(Dollars in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Balance at beginning of period
    
    $
    3,350
    
    
    $
    2,600
    
    
    $
    3,000
    
    
    $
    2,400Provision for loan losses
    
    
    189
    
    
    
    10
    
    
    
    622
    
    
    
    306Recoveries of previous charge-offs
    
    
    
    
    
    
    3
    
    
    
    6
    
    
    
    343,539
    
    
    
    2,613
    
    
    
    3,628
    
    
    
    2,740Less: Charge-offs
    
    
    189
    
    
    
    13
    
    
    
    278
    
    
    
    140Balance at end of period
    
    $
    3,350
    
    
    $
    2,600
    
    
    $
    3,350
    
    
    $
    2,600
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September 30,
    
    December 31,
    
    September 30,2008
    
    2007
    
    2007Allowance for loan
losses as a percentage of:Total loans
    
    
    1.27
    %
    
    
    1.29
    %
    
    
    1.17
    %Total nonperforming loans
    
    
    43.07
    %
    
    
    37.67
    %
    
    
    38.26
    %Total nonperforming assets
(nonperforming loans and OREO)
    
    
    43.07
    %
    
    
    37.67
    %
    
    
    38.26
    %Net charge-offs as a percentage
of average loans (year-to-date)
    
    
    .11
    %
    
    
    .08
    %
    
    
    .05
    %
   September 30,
    
    
    December 31,
    
    
    September 30,(Dollars in thousands)
    
    2008
    
    
    2007
    
    
    2007Loans past due 90 days
or more and still accruingCommercial
    
    $
    
    
    
    $
    43
    
    
    $
    398Real estate
    
    
    511
    
    
    
    377
    
    
    
    330Installment
    
    
    8
    
    
    
    18
    
    
    
    21Total
    
    
    519
    
    
    
    438
    
    
    
    749Nonaccrual loansCommercial
    
    
    2,032
    
    
    
    1,996
    
    
    
    1,604Real estate
    
    
    5,203
    
    
    
    5,485
    
    
    
    4,386Installment
    
    
    24
    
    
    
    45
    
    
    
    57Total
    
    
    7,259
    
    
    
    7,526
    
    
    
    6,047Total nonperforming loans
    
    $
    7,778
    
    
    $
    7,964
    
    
    $
    6,796
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12




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Results of Operations
            13




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Liquidity
     
  Quantitative and Qualitative Disclosures about Market Risk
  14




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PART II Other information
 
 Item 1. Legal Proceedings
  
 Item 1a. Risk Factors
  Changes in the fair value of securities may reduce stockholders equity and net income
   
 Item 6. Exhibits
   15




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November 12, 2008
    
    /s/ Edward R. Wright

Edward R. WrightSenior Vice President and Chief FinancialOfficer (Principal Financial and Accounting Officer)
 17