SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
[ ] 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: (201) 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 nonaffiliates of the
Registrant as of July 17, 1995 was approximately $1,448,840.
There were 111,141 shares of common stock outstanding at July 17, 1995.
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Income
Three months Six months
Ended June 30, Ended June 30,
Dollars in thousands,
except per share data 1995 1994 1995 1994
Interest income
Interest and fees on loans $895 $576 $1,646 $1,043
Interest on Federal funds sold and securities
purchased under agreements to resell 46 55 202 295
Interest on deposits with banks 1 - 2 -
Interest on other short-term investments 26 - 26 -
Interest and dividends on investment securities:
Taxable 853 748 1,655 1,102
Tax-exempt 29 24 55 35
Total interest income 1,850 1,403 3,586 2,475
Interest expense
Interest on deposits 644 445 1,263 752
Interest on short-term borrowings 32 37 81 68
Interest on long-term debt 5 5 10 10
Total interest expense 681 487 1,354 830
Net interest income 1,169 916 2,232 1,645
Provision (credit) for possible loan losses (3) (5) 119 (1,468)
Net interest income after provision (credit)
for possible loan losses 1,172 921 2,113 3,113
Other operating income
Service charges on deposit accounts 161 118 320 224
Other income 160 117 514 413
Net (loss) gain on sales of investment securities - - (1) 36
Total other operating income 321 235 833 673
Other operating expenses
Salaries and other employee benefits 609 453 1,198 855
Occupancy expense 40 26 56 55
Equipment expense 66 41 115 99
Other expenses 356 339 683 620
Total other operating expenses 1,071 859 2,052 1,629
Income before income tax expense 422 297 894 2,157
Income tax expense 156 88 331 633
Net income $266 $209 $563 $1,524
Net income per share
Primary: $2.39 $1.88 $5.07 $13.71
Fully diluted: 2.13 1.67 4.50 12.19
Primary average shares outstanding 111,141 111,141 111,141 111,141
Fully diluted average shares outstanding 124,991 124,991 124,991 124,991
See accompanying notes to consolidated financial statements.
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Changes
in Stockholders' Equity
Net Unrealized
Loss on Invest-
Dollars in thousands, Common Retained ment Securities Treasury
except per share data Stock Surplus Earnings Available for Sale Stock Total
Balance,
December 31, 1993 $1,120 $886 $2,581 $ - $(25) $4,562
Net income - - 1,524 - - 1,315
Net unrealized loss
on investment - - - (217) - (217)
available for sale
Dividends declared
($1.00 per share) - - (114) - - (114)
Balance,
June 30, 1994 $1,120 $886 $3,991 $ (217) $(25) 5,755
Balance,
December 31, 1994 $1,120 $886 $4,194 $ (587) $(25) $5,588
Net income - - 563 - - 563
Change in net
unrealized loss on
investment securities
available for sale - - - 184 - 184
Dividends declared
($1.25 per share) - - (140) - - (140)
Balance,
June 30, 1995 $1,120 $886 $4,617 $ (403) $(25) $6,195
See accompanying notes to consolidated financial statements.
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheet
June 30, December 31,
Dollars in thousands, except per share data 1995 1994
Assets
Cash and due from banks $ 3,140 $3,331
Federal funds sold 2.600 23,800
Interest bearing deposits with banks 93 -
Investment securities available for sale 8,745 7,173
Investment securities held to maturity (Market
value of $49,155 at June 30, 1995 and
$44,118 at December 31, 1994) 49,470 46,578
Loans held for sale 282 470
Loans 38,633 25,563
Less: Reserve for possible loan losses 750 625
Net loans 37,883 24,938
Premises and equipment 2,070 1,740
Accrued interest receivable 970 1,149
Other real estate owned 307 307
Other assets 287 1,576
Total assets $105,847 $111,062
Liabilities and Stockholders' Equity
Deposits:
Demand $13,645 $16,448
Savings 33,504 39,615
Time 47,339 47,878
Total deposits 94,488 103,941
Short-term borrowings 3,793 -
Accrued expenses and other liabilities 1,122 1,284
Long-term debt 249 249
Total liabilities 99,652 105,474
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value: Authorized 100,000 - -
Common stock, par value $10: Authorized 400,000 shares;
Issued 111,980 shares in 1995 and 1994 outstanding
111,141 shares in 1995 and 1994 1,120 1,120
Surplus 886 886
Retained earnings 4,617 4,194
Less:
Net unrealized loss on investment securities
available for sale 403 587
Treasury stock, at cost - 839 shares 25 25
Total stockholders' equity 6,195 5,588
Total liabilities and stockholders' equity $105,847 $111,062
See accompanying notes to consolidated financial statements.
CITY NATIONAL BANCSHARES CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows
Six Months Ended June 31,
In thousands 1995 1994
Operating activities
Net income $563 $1,524
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 62 55
Provision (credit) for possible loan losses 119 (1,468)
Amortization of premium, net of discount
accretion on investment securities 103 -
Gain on sales of investment securities
available for sale - (36)
Gains and commissions on loans held for sale (34) (26)
Loans originated for sale (2,140) (2,967)
Proceeds from sales of loans held for sale 2,362 2,993
Decrease (increase) in accrued interest
receivable 179 (186)
Decrease (increase) in other assets 1,289 (116)
(Decrease) increase in accrued expenses
and other liabilities (284) 417
Net cash provided by operating activities 2,219 190
Investing activities
Increase in interest bearing deposits with banks (93) -
Increase in loans (1,585) (2,859)
Purchase of loans from the RTC (11,479) -
Proceeds from sales of investment securities
available - 2,383
Proceeds from maturities of investment securities
available for sale, including principal
payments 175 675
Proceeds from maturities of investment securities
held to maturity, including principal
payments 2,501 3,841
Purchases of investment securities available
for sale (1,493) (7,947)
Purchases of investment securities held to
maturity (5,444) (14,326)
Purchases of premises and equipment (392) (209)
Net cash used in investing activities (17,810) (18,442)
Financing activities
Deposits acquired in branch acquisition - 25,209
(Decrease) increase in deposits (9,453) 9,514
Increase in short-term borrowings 3,793 -
Dividends paid (140) -
Net cash (used) provided by financing
activities (5,800) 34,723
Net (decrease) in cash and cash equivalents (21,391) 16,471
Cash and cash equivalents at beginning of
period 27,131 10,845
Cash and cash equivalents at end of period $ 5,740 $27,316
Cash paid during the year:
Interest $ 1,236 $ 666
Income taxes 601 76
See accompanying notes to consolidated financial statements.
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 ended June 30, 1995 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1995.
3. Loans
The Corporation adopted the provisions of Statement of Financial Accounting
Standards Statement No. 114 "Accounting by Creditors for Impairment of a Loan"
as of January 1, 1995 and Statement No. 118 "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure" resulting in no
material effect on its financial position or results of operations.
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Results of operations
Net income for the first half of 1995 was $563,000 compared to $1,524,000 for
the similar 1994 period, which included the benefits of a $1.6 million
recovery of a loan that was charged off in 1989. Returns on average
stockholders equity and average assets were 18.71% and 1.04% for the 1995 first
half and 58.37% and 3.11% for the corresponding 1994 period. Related earnings
per share on a fully diluted basis fell to $4.50 from $12.19. After giving
effect to nonrecurring items, operating earnings increased from $321,000 to
$563,000, reflecting a substantial improvement in net interest income, which
rose 38.7% .
1995 second quarter net income rose 33.2% to $266,000 from $209,000 a year
earlier. Returns on average shareholders' equity and average assets were
17.64% and .99% for the 1995 second quarter, while the corresponding 1994
returns were 13.86% and .76%. Related fully diluted per share earnings were
$2.13 compared to $1.67. Higher net interest income was also the primary
contributor to this increase.
Net interest income
Net interest income increased $623,000, from $1,645,000 in the first half of
1994 to $2,232,000 in the first half of 1995, as the net interest margin on a
tax equivalent basis increased from 3.59% to 4.47%. A higher level of interest
earning assets was the primary reason for the increase. Average interest
earning assets in the first half of 1995 rose to $101.9 million from $90.1
million in 1994. $10.6 million of this growth occurred within the investment
portfolio, while the loan portfolio averaged $9.6 million more due to the
purchase in January, 1995 of $11.5 million in residential mortgages from the
Resolution Trust Corporation ("RTC") in connection with the acquisition of a
branch of a failed saving and loan association in May 1994.
Deposits averaged $98.6 million for the first half of 1995 compared to $85.4
million for the 1994 first half, an increase of $13.2 million. Most of the
deposit growth occurred in time deposits acquired in the aforementioned branch
acquisition.
In the second quarter of 1995, net interest income grew to $1,169,000 from
$916,000 in the same 1994 quarter. Higher earning asset levels were also the
primary reason for this improvement.
Provision and reserve for possible loan losses
Changes in the reserve for possible loan losses are set forth below.
Six Months Three Months
Ended June 30, Ended June 30,
(Dollars in thousands) 1995 1994 1995 1994
Balance at beginning of period $ 625 $ 700 $ 750 $ 700
Provision (credit) for possible
loan losses 119 (1,468) (3) (5)
Recoveries of previous charge-offs 23 1,492 9 6
----- ----- ----- -----
767 724 756 701
Less: Charge-offs 17 24 6 1
----- ----- ----- -----
Balance at end of period $ 750 $ 700 $ 750 $ 700
The higher provision in the first half of 1995 resulted from the 1994 $1.6
million recovery of a loan that had been charged-off in 1989, along with a
special charge in the first quarter of 1995 of $115,000, representing an
addition to the reserve for possible loan losses of 1% of the balance of the
loan portfolio acquired from the RTC.
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.
June 30, December 31, June 30,
(Dollars in thousands) 1995 1994 1994
Reserve for possible loan losses
as a percentage of:
Total loans 1.93% 2.39% 2.51%
Total nonperforming loans 90.03 183.28 75.43
Total nonperforming assets
(nonperforming loans and OREO) 65.79 96.45 75.43
Net recoveries as a percentage of
average loans (year-to-date) .07 5.08 5.25
1994 includes the effects of the aforementioned $1.6 million loan recovery.
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 payment
are 90 days or more past due. 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.
June 30, December 31, June 30,
(Dollars in thousands) 1995 1994 1994
Nonaccrual loans
Commercial $ 19 $ 31 $ -
Installment 6 6 -
Real estate 764 285 780
Lease financing - - 11
----- ----- -----
Total 789 312 791
Loans past due 90
or more and accruing
Installment - - 6
Real estate 44 29 131
----- ----- -----
Total 44 29 137
----- ----- -----
Total nonperforming loans $ 833 $ 341 $ 928
Nonperforming assets are generally well secured by real estate and small
commercial buildings. 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 prices considered
reasonable under the circumstances.
The increase in nonaccrual loans occurred principally due to the addition of a
commercial real estate loan, which the Bank believes to be well secured.
Other operating income
Other operating income, including the results of investment securities
transactions, rose from $673,000 in the first half of 1994 to $833,000 in the
first half of 1995. Service charges on deposit accounts rose 42%, from
$224,000 to $320,000, due primarily due to a greater volume of transactions
subject to service charges.
Other income grew from $413,000 in the first half of 1994 to $514,000 in the
similar 1995 half, primarily as a result of $198,000 received from the RTC
representing earnings on funds allocated to purchase loans from the RTC.
Offsetting this income was a reduction of $175,000 from 1994, representing a
portion of the aforementioned $1.6 million loan loss recovery.
In the second quarter of 1995, other operating income rose 36.2% from $235,000
a year earlier to $320,000 primarily due to higher service charges and
increased gains from the sale of loans.
Other operating expenses
Other operating expenses rose $423,000, or 26% in the 1995 first half due
primarily to higher salaries and other employee benefits expense. This
category rose $343,000, or 40.1% from 1994, as the Bank increased its lending
staff in anticipation of expanding its lending efforts, in addition to
obtaining a chief financial officer.
Other expenses increased $63,000 or 10.1% from the first half of 1994 to the
similar 1995 period primarily due to higher marketing expenses and carrying
costs of foreclosed properties.
In the second quarter of 1995, other operating expenses were up 24.7% from a
year earlier, rising from $859,000 to $1,071,000. Most of this increase
resulted from higher salaries and other employee benefits expense due to the
aforementioned increased staffing.
Income tax expense
Income tax expense decreased from $633,000 in the first half of 1994 to
$331,000 in the 1995 first half reflecting lower levels of taxable
income, while in the second quarter of 1995, income tax expense was higher than
in the similar 1994 quarter due to greater amounts of such income.
Federal funds sold
Federal funds sold at June 30, 1995 was $2.6 million compared to $23.8 million
at 1994 year-end. The reduction reflected the aforementioned loan purchase
during the first quarter of 1995.
Investment securities available for sale
Investment securities available for sale rose from $7.2 million at December 31,
1994 to $8.7 million at June 30, 1995. Unrealized depreciation in the
portfolio dropped from $504,000 to $155,000 at those dates.
Investment securities held to maturity
Investment securities held to maturity increased from $46.6 million at 1994
year-end to $49.5 million at the end of the 1995 first half reflecting the
purchase during the half of primarily floating rate U.S. Government agency
securities. As a result of a flattening of the yield curve, the unrealized
depreciation in the held to maturity portfolio fell from $2,460,000 at
December 31, 1994 to $315,000 at the end of the 1995 first half.
Loans
Loans held for sale decreased from $470,000 at December 31, 1994 to $282,000 at
June 30, 1995 as loans originated for sale fell from $3 million during the
1994 first half to $2.1 million in the 1995 first half. In addition, loans
sold decreased from $3 million in the first half of 1994 to $2.4 million in
the 1995 first half, although related gains and commissions were higher due to
higher premiums earned in the secondary market. The increase in loans from
$25.6 million at December 31, 1994 to $38.6 million at June 30, 1995 resulted
primarily from the aforementioned loan acquisition from the RTC.
Deposits
At June 30, 1995, deposits totalled $94.4 million compared to $103.9 million at
the end of 1994, with most of the reduction attributable to nonrecurring U.S.
Treasury tax and loan and municipal government deposits at December 31, 1994.
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
deposits and credit customers. Liquidity needs arise principally to
accommodate possible deposit outflows and to meet customers' request for
loans. Such needs can be satisfied by maturing loans and investments, short
- -term liquid assets and the ability to raise short-term funds from external
sources.
The Corporation 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.
It is the responsibility of senior management to monitor and oversee all
activities relating to liquidity management and the protection of net interest
income from fluctuations in interest rates.
The major contribution for the first six months from operating activities to
the Corporation's liquidity came from the $2.4 million proceeds from sales of
loans held for sale, the primary use for operating activities was for loans
originated for sale, totalling $2.1 million.
Most of the cash received from investing activities came from proceeds from
maturities of investment securities held to maturity, which totalled $2.1
million. The primary use for investing activities was the $11.5 million
purchase of RTC loans.
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 asset
exceeds its interest-sensitive liabilities or in a liability-sensitive
position, whereby its interest-sensitive liabilities exceeds its interest
- -sensitive assets, depending on management's judgment as to projected interest
rate trends.
At June 30, 1995, the Corporation had a cumulative one-year gap of a negative
$8.3 million, representing 7.9% of total assets compared to a positive $9.3
million gap at December 31, 1994. The change occurred primarily as a result
of increases in the fixed rate component of the loan portfolio.
If the weighted average interest rates in effect at June 30, 1995 increased by
1%, annual net interest income would fall by $83,000 since in a rising rate
environment, interest-sensitive liabilities will reprice faster than assets.
A 1% decrease in the weighted average interest rates would improve net
interest income by $83,000.
The Corporation is presently refining its interest rate sensitivity management
methods to give effect to variations in interest rate changes depending on the
asset and liability mix.
Capital
Stockholders' equity amounted to $6.2 million at June 30, 1995 compared to $5.6
million at December 31, 1994. Stockholders' equity as a percentage of total
assets was 5.78% at June 30, 1995, while the leverage ratio was also 6.08%,
which compares with existing guidelines established by the Federal Reserve
Bank for bank holding companies of 3%.
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 weighings 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 June 30, 1995, the Corporation's core capital (Tier 1) and total (Tier 1
plus Tier 2) risked-based capital ratios were 18.92% and 20.89%, respectively.
PART II Other information
Item 4. Submission of matters to a Vote of Security Holders
a) The Annual Meeting of Stockholders of City National Bancshares Corporation
was held on June 8, 1995. The stockholders voted upon the election of two
persons, named in the proxy statement, to serve as directors of the
Corporation for the ensuing three years. The following directors were elected
at the Annual Meeting with the number of votes "For" and "Withheld" indicated.
There were no abstentions.
Number of Votes
Name For Withheld
Norman Jeffries 65,715 522
Lemar C. Whigham 65,881 356
b) In addition, stockholders voted upon the ratification of the appointment of
KPMG Peat Marwick as independent auditors for the fiscal year ended December
31, 1995. Shareholders voted 66,023 shares "For" the proposal and 15 shares
"Against".
Item 5. Other Matters
a) On March 23, 1995, the board approved the declaration of a $1.25 per share
dividend, payable on May 1, 1995 to stockholders of record on March 31, 1995.
Item 6a. Exhibits
(11) Statement re computation of per share earnings
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)
August 12, 1995 __________________________
Edward R. Wright
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
City National Bancshares Corporation
Computation of Earnings Per Common Share on a
Primary & Fully Diluted Basis
In thousands, except per share data
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Net income
Net income applicable to
primary common shares $266 $209 $563 $1,524
Interest expense on convertible
subordinated debentures, net of
income tax 3 3 6 6
----- ----- ----- -----
Net income applicable to fully
diluted common shares $263 $206 $557 $1,518
----- ----- ----- -----
Number of average shares
Primary 111,141 111,141 111,141 111,141
Fully diluted:
Average common shares outstanding 111,141 111,141 111,141 111,141
Average convertible subordinated
debentures converted to common
shares 13,850 13,850 13,850 13,850
------ ------ ------ ------
124,991 124,991 124,991 124,991
------- ------- ------- -------
Net income per share
Primary $5.07 $13.71 $2.39 $1.88
Fully diluted 4.50 12.19 2.13 1.67