1
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                    FORM 10-Q

         (Mark One)
         [ X ]  QUARTERLY  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
                  September 30, 1998
         [   ] 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
             (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 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 non  affiliates  of the
Registrant as of November 12, 1998 was approximately $1,541,750.

There were 117,941 shares of common stock outstanding at November 12, 1998.

                                       2
<PAGE>
Index                                                                      Page

Part I.  Financial Information

Item 1.  Financial Statements

Consolidated Balance Sheet as of September 30, 1998 and December 31, 1997.....3

Consolidated Statement of Income for the Nine Months Ended September 30, 1998
and 1997 and for the Three Months Ended September 30, 1998 and 1997...........4

Consolidated Statement of Changes in Stockholders' Equity for the Nine
Months Ended September 30, 1998 and 1997......................................5

Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 ..................................................6

Notes to Consolidated Financial Statements ...................................7

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................................8

Part II. Other Information...................................................15

Item 6. Exhibits and Reports on Form 8-K.....................................15

Signatures ..................................................................16


                                       3
<PAGE>
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES

Consolidated Balance Sheet (Unaudited)
                                                    September 30,  December 31,
Dollars in thousands, except per share data               1998           1997
================================================================================
Assets
Cash and due from banks ............................    $   3,503     $  13,260
Federal funds sold .................................        9,700          --
Interest bearing deposits with banks ...............        1,096            40
Investment securities available for sale ...........       31,092        32,694
Investment securities held to maturity
  (Market value of $26,840 at September
  30, 1998 and $29,638 at December 31,1997) ........       26,686        29,666
Loans held for sale ................................        1,813           807
Loans ..............................................       56,762        56,947
Less: Reserve for possible loan losses .............        1,400           825
                                                        ---------     ---------
Net loans ..........................................       55,362        56,122
                                                        ---------     ---------
Premises and equipment .............................        3,353         3,192
Accrued interest receivable ........................        1,009         1,112
Other real estate owned ............................          590           385
Other assets .......................................        1,858         1,590
                                                        ---------     ---------
Total assets .......................................    $ 136,062     $ 138,868
                                                        =========     =========
Liabilities and Stockholders' Equity

Deposits:
  Demand ...........................................    $  14,284     $  24,789
  Savings ..........................................       35,804        24,949
  Time .............................................       58,175        69,979
                                                        ---------     ---------
Total deposits .....................................      108,263       119,717
Short-term borrowings ..............................        1,500         4,213
Accrued expenses and other liabilities .............        1,351         1,157
Long-term debt .....................................       14,749         3,749
                                                        ---------     ---------
Total liabilities ..................................      125,863       128,836

Commitments and contingencies

Stockholders' equity
  Preferred stock, no par value:
    Authorized 100,000 shares;
    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
    3,208 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,
    117,941 shares outstanding in 1998
    and 114,141 shares outstanding in 1997 .........        1,188         1,150
  Surplus ..........................................          939           901
  Retained earnings ................................        6,581         6,497
  Accumulated other comprehensive income (loss) ....          (31)          (38)
  Treasury stock, at cost - 839 shares .............          (25)          (25)
                                                        ---------     ---------
Total stockholders' equity .........................       10,199        10,032
                                                        ---------     ---------
Total liabilities and stockholders' equity .........    $ 136,062     $ 138,868
                                                        =========     =========
See accompanying notes to consolidated financial statements.
                                       4
<PAGE>
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY

Consolidated Statement of Income (Unaudited)
                                     Nine months ended      Three months ended
Dollars in thousands,                   September 30,         September 30,
except per share data                1998        1997        1998         1997
===============================================================================
Interest income
Interest and fees on loans ......$   3,928   $   3,891   $   1,329    $   1,356
Interest on Federal funds
  sold and securities
  purchased under agreements
  to resell .....................      518         351         204          108
Interest on other short-term
  investments ...................        3          41        --              1
Interest and dividends on
  investment securities:
  Taxable .......................    2,540       2,787         816          930
  Tax-exempt ....................      167          87          60           29
                                 ---------   ---------   ---------    ---------
Total interest income ...........    7,156       7,157       2,409        2,424
                                 ---------   ---------   ---------    ----------
Interest expense
Interest on deposits ............    2,873       2,948         947        1,024
Interest on short-term borrowings      124         157          28           41
Interest on long-term debt ......      441         146         201           55
                                 ---------   ---------   ---------    ---------
Total interest expense ..........    3,438       3,251       1,176        1,120
                                 ---------   ---------   ---------    ---------
Net interest income .............    3,718       3,906       1,235        1,304
Provision (credit) for
  possible loan losses ..........      543          43          46           (7)
                                 ---------   ---------   ---------    ---------
Net interest income after
  provision for possible
  loan losses ...................    3,175       3,863       1,189        1,311
                                 ---------   ---------   ---------    ---------
Other operating income
Service charges on deposit
  accounts ......................      485         420         166          135
Other income ....................      514         442         148          138
Net gain (loss) on sales of
  investment securities
  available for sale ............        5          19          (4)         (21)
                                 ---------   ---------   ---------    ---------
Total other operating income ....    1,003         881         310          252
                                 ---------   ---------   ---------    ---------
Other operating expenses
Salaries and other employee
  benefits ......................    2,003       1,979         680          672
Occupancy expense ...............      273         245         105           80
Equipment expense ...............      281         280          98           90
Other expenses ..................    1,148       1,048         391          321
                                 ---------   ---------   ---------    ---------
Total other operating
  expenses ......................    3,705       3,552       1,274        1,163
                                 ---------   ---------   ---------    ---------
Income before income tax expense       473       1,192         225          400
Income tax expense ..............      108         432          57          145
                                 =========   =========   =========    =========
Net income ......................$     365   $     760   $     168    $     255
                                 =========   =========   =========    =========
Net income per common share
Basic ...........................$    2.48   $    6.27   $    1.47    $    2.23
Diluted .........................     2.28        5.66        1.33         2.02
                                 =========   =========   =========    =========
Basic average common
  shares outstanding ............  114,252     114,141     114,471      114,141
Diluted average common
shares outstanding ..............  128,102     127,991     128,321      127,991
                                 =========   =========   =========    =========
See accompanying notes to consolidated financial statements.
                                       5
<PAGE>
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES

<TABLE>
<CAPTION>
Consolidated Statement of Changes
in Stockholders' Equity
(Unaudited)
                                                                                                 Accumulated
                                                                                                       Other
                                                       Common            Preferred    Retained  Comprehensive   Treasury
Dollars in thousands, except per share data            Stock    Surplus     Stock     Earnings  Income (Loss)      Stock      Total
====================================================================================================================================
<S>                                                   <C>        <C>        <C>        <C>         <C>         <C>         <C>     
Balance, December 31, 1996 ........................   $  1,150   $    901   $    727   $  5,645    $   (111)   $    (25)   $  8,287
Net income ........................................       --         --         --          760        --          --           760
Unrealized gain, net of tax .......................       --         --         --         --            99        --            99
                                                                                                                           --------
  Total comprehensive income, net of tax ..........                                                                             859
Proceeds from issuance of preferred stock .........       --         --          820       --          --          --           820
Dividends paid on preferred stock .................       --         --         --          (44)       --          --           (44)
Dividends paid on common stock ....................       --         --         --         (173)       --          --          (173)
                                                      --------   --------   --------   --------    --------    --------    --------
Balance, September 30, 1997 .......................   $  1,150   $    901   $  1,547   $  6,188    $    (12)   $    (25)   $  9,749
                                                      ========   ========   ========   ========    ========    ========    ========
Balance, December 31, 1997 ........................   $  1,150   $    901   $  1,547   $  6,497    $    (38)   $    (25)   $ 10,032
Net income ........................................       --         --         --          365        --          --           365
Unrealized gain, net of tax .......................       --         --         --         --             7        --             7
                                                                                                                           --------
  Total comprehensive income, net of tax ..........                                                                             372
Proceeds from issuance of common stock ............         38         38       --         --          --          --            76
Dividends paid on preferred stock .................       --         --         --          (82)       --          --           (82)
Dividends paid on common stock ....................       --         --         --         (199)       --          --          (199)
                                                      --------   --------   --------   --------    --------    --------    --------
Balance, September 30, 1998 .......................   $  1,188   $    939   $  1,547   $  6,581    $    (31)   $    (25)   $ 10,199
                                                      ========   ========   ========   ========    ========    ========    ========
</TABLE>
See accompanying notes to consolidated financial statements.

                                       6
<PAGE>
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARIES

Consolidated Statement of Cash Flows (Unaudited)
                                                              Nine Months Ended
                                                                September 30,
In thousands                                                   1998        1997
================================================================================
Operating activities
Net income .............................................   $    365    $    760
Adjustments to reconcile net income to net
  cash from operating activities:
  Depreciation and amortization ........................        275         274
  Provision for possible loan losses ...................        543          43
  Accretion of discount, net of premium
    amortization on investment securities ..............         (7)         (1)
    Net gain on sales and calls of investment
      securities .......................................         (5)        (19)
    Gains and commissions on sales of loans
      held for sale ....................................        (24)        (28)
Decrease in accrued interest receivable ................        103         123
Deferred income tax benefit ............................        (20)        (80)
Increase in other assets ...............................       (248)     (1,224)
Increase (decrease) in accrued expenses
  and other liabilities ................................        241      (2,380)
                                                           --------    --------
Net cash provided by (used in) operating activities ....      1,223      (2,532)
                                                           --------    --------
Investing activities
Loans originated for sale ..............................     (1,562)     (1,393)
Proceeds from sales of loans held for sale .............        580         956
Increase in loans ......................................       (168)       (703)
Increase in interest bearing deposits with banks .......     (1,056)        (23)
Proceeds from sales of investment securities
  available for sale ...................................        331        --
Proceeds from maturities of investment
  securities available for sale, including
  principal payments and calls .........................     12,597      28,922
Proceeds from maturities of investment
  securities held to maturity, including
  principal payments and calls .........................     15,038       2,237
Purchases of investment securities
  available for sale ...................................    (11,414)    (37,379)
Purchases of investment securities
  held to maturity .....................................    (11,998)     (2,528)
Purchases of premises and equipment ....................       (436)       (186)
Decrease in other real estate owned ....................        180        --
                                                           --------    --------
Net cash provided by (used in)
  investing activities .................................      2,092     (10,097)
                                                           --------    --------
Financing activities
Increase in long-term debt .............................     11,000       2,000
(Decrease) increase in deposits ........................    (11,454)      6,633
(Decrease) increase in short-term borrowings ...........     (2,713)      2,604
Dividends paid on preferred stock ......................        (82)        (44)
Dividends paid on common stock .........................       (199)       (173)
Proceeds from issuance of preferred stock ..............       --           820
Proceeds from exercise of stock options ................         76        --
                                                           --------    --------
Net cash (used in) provided by
  financing activities .................................     (3,372)     11,840
                                                           --------    --------
Net decrease in cash and cash equivalents ..............        (57)       (789)

Cash and cash equivalents at beginning
  of period ............................................     13,260      11,667
                                                           --------    --------
Cash and cash equivalents at end of period .............   $ 13,203    $ 10,878
                                                           ========    ========
Cash paid during the year:
Interest ...............................................   $  2,892    $  3,146
Income taxes ...........................................        478         385

Noncash investing activities:
Transfer of loans to other real
  estate owned .........................................        385          49

See accompanying notes to consolidated financial statements.

                                       7
<PAGE>
CITY NATIONAL BANCSHARES CORPORATION
Notes to Consolidated Financial Statements (Unaudited)

1.  Principles of consolidation

The accompanying  consolidated financial statements include the accounts of City
National  Bancshares  Corporation (the  "Corporation") and its subsidiary,  City
National Bank of New Jersey (the "Bank"). All significant  intercompany accounts
and transactions have been eliminated in consolidation.

2.  Basis of presentation

The accompanying  unaudited consolidated financial statements have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial information.  Accordingly, they do not include all the information and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring  accruals)  considered  necessary for a fair presentation of
the  financial  statements  have been  included.  Operating  results for the six
months and three months ended September 30, 1998 are not necessarily  indicative
of the results that may be expected for the year ended December 31,1998.

3. 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 from the date of issue.

4. Recent accounting pronouncements

In June, 1997 the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards ("SFAS") No. 130,  "Reporting  Comprehensive
Income,"  effective for fiscal years beginning after December 15, 1997. SFAS 130
establishes  standards for reporting and displaying 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 Corporation adopted SFAS
No. 130 in the first quarter of 1998.

Total comprehensive income consists of net income and other comprehensive income
which is comprised of unrealized  holding  gains (loss) on securities  available
for sale, net of tax.

In February 1998, the FASB issued SFAS No. 132,  "Employers'  Disclosures  About
Pension and Other  Postretirement  Benefits."  This Statement  standardizes  the
disclosure  requirements  for  pension  and  other  postretirement  benefits  by
requiring additional  information that will facilitate  financial analysis,  and
eliminating  certain  disclosures that are considered no longer useful. SFAS No.
132  supersedes the  disclosure  requirements  in SFAS Nos. 87, 88 and 106. This
Statement is effective for fiscal years  beginning  after December 15, 1997, and
will be adopted December 31, 1998.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities." This statement  establishes  accounting and
reporting standards for derivative instruments, and for hedging activities. SFAS
No. 133 supersedes the disclosure  requirements in SFAS No. 80, 105, and 119 and
is effective  for periods  after June 15, 1999.  The adoption of SFAS No. 133 is
not expected to have a material  impact on the financial  position or results of
operations of the Corporation.

                                       8
<PAGE>
Management's  Discussion  and Analysis of Results of  Operations  and  Financial
Condition

Results of operations

Net income for the first nine months of 1998 was  $365,000  compared to $760,000
for the similar 1997 period due  primarily to a $405,000  provision for possible
loan  losses  recorded  in the  second  quarter  of 1998 in  connection  with an
overdraft  incurred  during that quarter,  which is more fully  discussed  under
"Nonperforming  loans"  below.  Related  earnings  per  common  share on a fully
diluted basis  decreased to $2.28 from $5.66 a year earlier.  1998 third quarter
net income was $168,000 compared to net income of $255,000 for the third quarter
of 1997. Related diluted per common share earnings were $1.33 compared to $2.02.
Higher other  operating  costs largely related to start-up costs of a new branch
office was the primary reason for the negative earnings performance in the third
quarter.

Net interest income

For the first nine months of 1998, net interest income on a tax equivalent basis
decreased 3.8%, to $3,804,000 from $3,951,000 in the comparable 1997 period. The
related net interest margin declined to 3.82% from 4.09% due largely to the high
cost of municipal time deposits.  Tax equivalent  interest income was relatively
unchanged  as was the mix in earning  assets  while the  average  rate earned on
earning  assets  fell  seven  basis  points,  to 7.39%  from  7.46%.  Negatively
impacting net interest  income was the  investment of proceeds from loan payoffs
and accelerated paydowns in the Bank's  mortgage-backed  security portfolio into
lower yielding  short-term  earning  assets in the absence of acceptable  higher
rates  available  on  longer-term  investments.   Interest  expense  rose  5.75%
primarily due to the aforementioned rates paid on municipal time deposits and an
increase of $11 million in Federal Home Loan Bank  advances,  which were used in
part to replace municipal time deposits.  The average rate paid to fund interest
earning assets rose from 3.37% to 3.51%.

Management has been actively reducing municipal time deposit levels by utilizing
these Federal Home Loan Bank advances,  which are included in long-term debt and
have allowed the  Corporation  to obtain more stable funding for longer terms at
no additional cost.

For the third quarter of 1998,  net interest  income on a tax  equivalent  basis
declined 1.7%, to $1,265,000 from $1,319,000 in the comparable 1997 period.  The
related net interest margin decreased to 3.80% from 3.97% due to the higher cost
of  funding  interest  earning  assets.  Tax  equivalent   interest  income  was
relatively  unchanged,  although the average rate earned  declined to 7.36% from
7.58% due to the  aforementioned  reinvestment of loan and investment  repayment
and maturity proceeds into lower-yielding  assets.  Interest expense rose 5% due
to the high  municipal  deposit  costs,  while the average rate to fund interest
earning assets rose slightly, from 3.49% to 3.51%.

Provision and reserve for possible loan losses

Changes in the reserve for possible loan losses are set forth below.

                                              Nine Months        Three Months
                                             Ended Sept. 30,    Ended Sept. 30,
                                    -------------------------------------------
(Dollars in thousands)                       1998      1997      1998      1997
-------------------------------------------------------------------------------
Balance at beginning of
  period ..............................    $  825    $  750    $1,275    $  800
Provision (credit) for possible
  loan  losses ........................       543        43        46        (7)

Recoveries of previous
  charge-offs .........................       141        63        88        34
                                           ------    ------    ------    ------
                                            1,509       856     1,409       827

Less: Charge-offs .....................       109        31         9         2
                                           ------    ------    ------    ------
Balance at end of period ..............    $1,400    $  825    $1,400    $  825
                                           ======    ======    ======    ======

                                       9
<PAGE>

Management  believes that the reserve for possible loan losses is adequate based
on an  ongoing  evaluation  of the  loan  portfolio.  This  evaluation  includes
consideration  of past  loan loss  experience,  the  level  and  composition  of
nonperforming  loans,  collateral  adequacy,  and general  economic  conditions,
including the effect of such conditions on particular industries.

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.
                                        September 30, December 31, September 30,
(Dollars in thousands)                     1998          1997          1997
--------------------------------------------------------------------------------
Reserve for possible loan losses as a percentage of:

Total loans .............................  2.47%        1.45%          1.42%

Total nonperforming loans ............... 58.43%       59.10%         60.97%

Total nonperforming assets
  (nonperforming loans and OREO) ........ 46.89%       53.78%         41.67%

Net charge-offs as a percentage
  of average loans (year-to-date) .......  N/A          0.15%           N/A

Nonperforming loans

Nonperforming  loans  include  loans on which the accrual of  interest  has been
discontinued  or loans  which are  contractually  past due 90 days or more as to
interest or principal  payments on which interest income is still being accrued.
Nonaccrual loans include loans where principal or interest income is still being
accrued Delinquent  interest payments are credited to income when received.  The
following table presents the principal  amounts of nonperforming  loans past due
90 days or more and accruing.

                                        September 30, December 31, September 30,
(Dollars in thousands)                       1998         1997         1997
--------------------------------------------------------------------------------

Nonaccrual loans
Commercial ..............................  $1,743       $  568       $  654
Installment .............................       6            1            7
Real estate .............................     306          597          616
                                           ------       ------       ------
Total ...................................   2,055        1,166        1,277
                                           ------       ------       ------

Loans past due 90 days
  or more and still accruing
Commercial ..............................     --            46          --
Installment .............................     --           --           --
Real estate .............................     341          184           76
                                           ------       ------       ------
Total ...................................     341          230           76
                                           ------       ------       ------
Total nonperforming loans ...............   2,396        1,396        1,353
                                           ------       ------       ------
Troubled debt restructurings ............   1,261        1,261         --   
                                           ------       ------       ------
Total nonperforming loans and
  troubled debt restructurings ..........  $3,657       $2,657       $1,353
                                           ======       ======       ======

During  April,  1998 a  customer  of  City  National  Bank  incurred  overdrafts
aggregating  approximately $805,000,  exceeding the customer's authorized limit.
This customer sells money orders issued by City National Bank as an agent of the
Bank. No further deposits have been made and the Bank has commenced legal action
to collect the overdraft,  and has made claims against a $300,000  fidelity bond
maintained by the customer, as well as its own blanket bond.

The customer has filed a defense against the claims made by the Bank, along with
a counterclaim.  While the Bank is confident of its claims, the ultimate outcome
of these  actions  cannot  be  determined  and the  complete  collection  of the
overdraft is  uncertain.  Based on an evaluation  of the  information  currently
available,  the second  quarter and first nine months of 1998 include a $405,000
addition to the reserve for possible  loan losses to provide for a possible loss
on this overdraft, which is included in nonaccrual commercial loans at September
30, 1998.

                                       10
<PAGE>
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 thought
June,  1997 when  construction  was  completed  and the loan was  converted to a
permanent commercial  mortgage,  at which time principal paydowns were scheduled
to  commence.  Prior to  becoming  90 days past due,  the terms of the loan were
modified to continue  interest only payments for a specified period of time. The
loan is  secured  by a  leasehold  mortgage  on the  financed  property  and the
borrower's  principals have provided joint and several personal  guarantees.  In
addition,  a $100,000 working capital loan secured by receivables was originated
in July, 1997.

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

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

At September 30, 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.

Other operating income

Other  operating  income,   including  the  results  of  investment   securities
transactions,  increased in both the first nine months and third quarter of 1998
compared to the similar 1997 periods due  primarily  to higher  service  charges
resulting  from  increased  transaction  volume  along with  higher  nonloan fee
income.

Other operating expenses

Other operating  expenses rose 5% for the first nine months of 1998 and 11.8% in
the third  quarter of 1998  compared to the similar 1997  periods.  Both periods
were affected by costs incurred in connection with the opening during the second
quarter of 1998 of a new branch office.

Income tax expense

Income tax expense as a percentage of pretax income declined to 22.8% from 36.2%
for the first nine months of 1998 compared to the first nine months of 1997 as a
result of lower levels of income  subject to both lower federal and state income
tax.  This tax rate  declined in the third  quarter of 1998 compared to the same
1997 quarter for similar reasons.

Short-term interest earning assets

Short-term  interest earning assets rose 30.4%,  averaging $12.6 million for the
first nine  months of 1998  compared  to $9.7  million  for the 1997  period due
primarily to the lack of acceptable alternative investment opportunities.

Investment securities

The available for sale portfolio declined $1.6 million,  totalling $31.1 million
at September 30, 1998 compared to $32.7 million at the end of 1997, as purchases
were limited to the  reinvestment  of portfolio  maturities  and calls.  Related
unrealized depreciation was $53,000 compared to $14,000 at 1997 year-end.

The held to maturity portfolio was virtually unchanged,  with related unrealized
depreciation  declining  from  $28,000 at  September  30, 1998 to an  unrealized
appreciation  of $154,000 at September  30, 1998 due to the bond market rally in
the 1998 third quarter, when long-term bond rates dropped to historical lows.

Loans

Loans held for sale rose to $1.8 million at September  30, 1998 from $807,000 at
December  31, 1997  reflecting  a 12.1%  increase in loans  originated  for sale
during the first nine months of 1998  compared to the first nine months of 1997.
Loans  totaled  $56.8 million at September 30, 1998 compared to $56.9 million at
December 31, 1997.

Deposits

Total deposits at September 30, 1998 totaled  $108.3 million  compared to $119.7
million at 1997 year-end,  while average  deposits  declined from $120.2 million
for the first nine months of 1997 to $115.3 million for the first nine months of
1998. The decrease in deposits resulted from management's decision to reduce the
levels of  short-term  municipal  time  deposits  through  more  stable  funding
sources. Total deposits were lower due to a nonrecurring $8 million nonrecurring
demand deposit from a U.S.  Government agency deposit which was on hand December
31, 1997.
                                       11
<PAGE>
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.

Total  certificates  of deposit  decreased  from $70 million at 1997 year-end to
$58.1  million  at the end of the  1998  third  quarter  due to a  reduction  in
certificates  of  deposit  of  $100,000  or more,  most of which  are  municipal
deposits,  which declined from $51 million at December 31, 1997 to $45.5 million
at September  30, 1998.  These  deposits were replaced by Federal Home Loan Bank
advances.

Short-term borrowings

Average short-term  borrowings declined 21.5% from the first nine months of 1997
compared to the  corresponding  1998  period,  reflecting  lower  levels of U.S.
Treasury tax and loan note option balances, while the average rate paid on these
borrowings rose by three basis points.

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  advance  program for its  liquidity
needs.

The major  contribution  during  the first  nine  months of 1998 from  operating
activities  to the  Corporation's  liquidity  come  from  net  income,  while an
increase in other assets represented the highest use of cash.

Sources of cash provided by investing  activities  were derived  primarily  from
proceeds from maturities, principal payments and early redemptions of investment
securities held to maturity,  which amounted to $15 million, while net cash used
was in investing activities primarily for the purchase of investment  securities
held to maturity, which totaled $12 million.

The primary source of funds from financing  activities resulted from an increase
in  long-term  debt,  which rose $11  million,  while the highest use of cash in
financing activities resulted from an $11.4 million decrease in deposits.

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 its interest rate changes in a time period
different  from that of an interest  earning  asset that it supports.  While the
Corporation  does not match  specific  assets and  liabilities,  total  earnings
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
the interest sensitivity 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  movement and variances in the effects of
rate  changes  on  the  Corporations'  mix  of  interest-sensitive   assets  and
liabilities.

                                       12
<PAGE>
At September 30,1998,  the Corporation had a cumulative one-year static gap of a
negative $12.6 million, representing 9.3% of total assets compared to a negative
$12.9 million gap at December 31,1997,  which represented 9.29% of total assets.
Utilizing a dynamic simulation model, management believes that this amount would
not result in a significant  change in net interest income should interest rates
rise or fall up to 200 basis points, which is the maximum change that management
uses to measure the Corporation's exposure to interest rate risk.

Capital

Stockholders'  equity  amounted  to  approximately  $10.2  million at  September
30,1998,  representing  7.5% of total assets,  compared to 7.22% at December 31,
1997.

Risk-based capital ratios are expressed as a percentage of risk-adjusted assets,
and  relate  capital  to the risk  factors  of a bank's  asset  base,  including
off-balance  sheet risk  exposures.  Various  weights are  assigned to different
asset  categories as well as off-balance  sheet exposures  depending on the risk
associated with each. In general, less capital is required for less risk.

At September 30,1998 the  Corporation's  core capital (Tier 1) and total (Tier 1
plus Tier 2) risked-based capital ratios were 14.75% and 18.48%, respectively.

Year 2000

During  1997,   the   Corporation   established   an  overall  plan  to  address
system-related Year 2000 issues. The plan calls for either system  modifications
to, or replacement of, existing business systems applications. A majority of the
systems are provided and maintained by outside  vendors with whom  management is
coordinating  the Year  2000  efforts.  The cost of this  Year  2000  compliance
program  related to system  modifications  is estimated to be $400,000,  most of
which represents capital expenditures that will be funded through operating cash
flows.  At September 30, 1998,  approximately  $130,000 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 Year  2000  compliant.  At
September 30, 1998,  the  Corporation  had contacted  its major  depositors  and
borrowers  in  order  to  assess  their  Year  2000  readiness.  Failure  of the
Corporation or third parties to correct Year 2000 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 Year 2000 issues,
credit  quality  could be  adversely  affected.  The  Corporation  is  preparing
contingency  plans in the  event of Year 2000  system  failures,  including  the
identification  of back-up  data  processing  vendors and  alternate  sources of
liquidity. Additionally, the Corporation is in process of obtaining the services
of a third party to provide independent  verification and validation of its Year
2000  efforts.  The  Corporation  believes  at this  time that its  efforts  are
adequate to address its Year 2000  concerns.  However,  since it cannot  predict
whether its vendors  and  customers  will be  successful  in becoming  Year 2000
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  Year  2000  examinations,  which are being
conducted to assess each financial institution's Year 2000 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.

The Corporation  currently  anticipates that substantially all of the work under
this program,  including testing of mission critical systems,  will be initially
completed by the end of 1998, with further testing to be performed  during 1999,
and remains on schedule.

                                       13
<PAGE>
PART II Other information

Item 6a. Exhibits

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

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

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

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

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

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

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

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

                  (10)(a) The  Employee's  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 by
                  reference to Exhibit 10 to the Corporation's  Quarterly Report
                  on Form 10-Q for the quarter ended June 30, 1997).

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

                  (10)(d) Asset Purchase and Sale Agreement between the Bank and
                  Carver  Federal  Savings  Bank  dated as of January  26,  1998
                  (incorporated  herein by  reference  to  Exhibit  10(d) to the
                  Corporation's  Annual  Report on Form 10-K for the year  ended
                  December 31, 1997).

SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.

         CITY NATIONAL BANCSHARES CORPORATION
         (Registrant)

         November 12, 1998          ____________________
                                    Edward R. Wright
                                    Senior Vice President and Chief Financial
                                    Officer (Principal Financial and Accounting
                                    Officer)