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

RFor ~~QUARTERLY~~the ~~REPORT~~quarterly ~~PURSUANT~~period TOended ~~SECTION~~March 1331, ~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~2012

For the quarterly period ended September 30, 2011



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

(Exact name of registrant as specified in its charter)

New Jersey(State or other jurisdiction ofincorporation or organization)		22-2434751(I.R.S. EmployerIdentification No.)
New Jersey	22-2434751
900 Broad Street,Newark, New Jersey(Address of principal executive offices)		07102(Zip Code)
(State or other jurisdiction ofincorporation or organization)	(I.R.S. EmployerIdentification No.)
900 Broad Street,Newark, New Jersey	07102
(Address of principal executive offices)	(Zip Code)

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 R x No o

Indicate by check mark whether the ~~registrant~~Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the ~~registrant~~Registrant was required to submit and post such files).

Yes R x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer ~~R(Do~~x ~~not check if a smaller reporting company)~~ Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No R x

~~The~~On ~~aggregate~~March ~~market~~30, ~~value~~2012 (the last business day of ~~voting~~the registrant's most recently completed first fiscal quarter), there was no public trading market for the registrant's common stock, consequently, the registrant was not able to determine the aggregate market value held by non-affiliates as of such date, based upon the ~~Registrant~~price at which its common equity was last sold or the average bid and ask price of such common equity as of such date. ~~December~~There 23were 142,842 ~~2011~~shares ~~was~~of ~~approximately~~common ~~$406~~stock outstanding at August 2,~~605~~ 2012.

There were 131,326 shares of common stock outstanding at December 23, 2011.

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Index		Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010		3
Consolidated Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011		3
Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2011 and 2010		4
Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2012 and 2011		4
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2011 and 2010		5
Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2012 and 2011		5
Notes to Consolidated Financial Statements (Unaudited)		6
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2012 and 2011		6
Notes to Consolidated Financial Statements (Unaudited)		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		24
Item 3. Quantitative and Qualitative Disclosures about Market Risk		3234
Item 4. Controls and Procedures		3234
Part II Other Information		33
Part II. Other Information		36
Item 1. Legal proceedings		33
Item 1. Legal Proceedings		36
Item 1a. Risk Factors		33
Item 1A. Risk Factors		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3436
Item 3. Defaults Upon Senior Securities		34
Item 3. Default Upon Senior Securities		37
Item 6. Exhibits		34
Item 4. Mine Safety Disclosures		37
Signatures		35
Item 5. Other Information		37
EX-31
Item 6. Exhibits		37
EX-32
Signatures		38

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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY

Consolidated Balance Sheets

	(Unaudited)
Dollars in thousands, except per share data	~~September~~March 3031, ~~2011~~2012			December 31, 2011	~~December 31, 2010~~
Assets
Cash and due from banks	$	648,~~381~~622		$	$5,960	~~7,228~~
Federal funds sold	~~18,000~~—			32,600	~~13,550~~
Interest-bearing deposits with banks	21,~~135~~652			1,940	~~3,289~~
Investment securities available for sale	9699,~~343~~043			95,058	~~105,420~~
Loans	~~218~~201,~~504~~977			208,715	~~244,955~~
Less: Allowance for loan losses	10,~~603~~610			10,870	~~10,626~~
Net loans	~~207~~191,~~901~~367			197,845	~~234,329~~
Premises and equipment	2,~~718~~659			2,686	~~2,974~~
Accrued interest receivable	1,~~772~~550			1,561	~~1,933~~
Bank-owned life insurance	5,~~872~~967			5,920	~~5,730~~
Other real estate owned	12,~~524~~101			1,524	~~1,997~~
Other assets	6,~~521~~437			13,348	~~10,817~~
Total assets	$	~~349~~359,~~167~~398		$	$358,442	~~387,267~~
Liabilities and Stockholders’ Equity
Liabilities and Stockholders' Equity
Deposits:
Demand	$	3532,~~185~~528		$	$37,379	~~35,132~~
Savings	~~111~~132,~~680~~141			114,675	~~130,663~~
Time	~~157~~151,~~618~~461			147,217	~~172,756~~
Total deposits	~~304~~316,~~483~~130			299,271	~~338,551~~
Accrued expenses and other liabilities	4,~~542~~573			20,200	~~6,620~~
Short-term portion of long-term debt	5,000			5,000	~~5,000~~
Long-term debt	14,200			14,200	~~14,200~~
Total liabilities	~~328~~339,~~225~~903			338,671	~~364,371~~
Commitments and contingencies
Stockholders’ equity
Stockholders' equity
Preferred stock, no par value: Authorized 100,000 shares ;
Series A, issued and outstanding 8 shares in 2011 and 2010	200				200
Series A , issued and outstanding 8 shares in 2012 and 2011	200			200
Series C, issued and outstanding 108 shares in 2011 and 2010	27				27
Series C , issued and outstanding 108 shares in 2012 and 2011	27			27
Series D, issued and outstanding 3,280 shares in 2011 and 2010	820				820
Series D , issued and outstanding 3,280 shares in 2012 and 2011	820			820
Preferred stock, no par value, perpetual noncumulative: Authorized 200 shares;
Series E, issued and outstanding 49 shares in 2011 and 2010	2,450				2,450
Series E, issued and outstanding 49 shares in 2012 and 2011	2,450			2,450
Preferred stock, no par value, perpetual noncumulative: Authorized 7,000 shares;
Series F, issued and outstanding 7,000 shares in 2011 and 2010	6,790				6,790
Series F, issued and outstanding 7,000 shares in 2012 and 2011	6,790			6,790
Preferred stock, no par value, perpetual noncumulative: Authorized 9,439 shares;
Series G, issued and outstanding 9,439 shares	10,374				9,990
Series G, issued and outstanding 9,439 shares,	10,637			10,504
Common stock, par value $10: Authorized 400,000 shares;
Common stock, par value $10: Authorized 400,000 shares
134,530 shares issued in 2011 and 2010
134,530 shares issued in 2012 and 2011,
131,326 shares outstanding in 2011 and 131,290 in 2010	1,345				1,345
131,326 shares outstanding in 2012 and 2011	1,345			1,345
Surplus	~~1,115~~468			601	~~1,115~~
Retained earnings (deficit)	(3,883		)		514
(Accumulated deficit) retained earnings	(3,807		)	(3,163		)
Accumulated other comprehensive income (loss)	1,930				(127		)
Accumulated other comprehensive income	791			423
Treasury stock, at cost — 3,204 and 3,240 common shares in 2011 and 2010, respectively	(226		)		(228		)
Treasury stock, at cost - 3,204 common shares in 2012 and 2011, respectively	(226		)	(226		)
Total stockholders’ equity	20,942				22,896
Total stockholders' equity	19,495			19,771
Total liabilities and stockholders’ equity	$	349,167			$	387,267
Total liabilities and stockholders' equity	$	359,398		$	358,442

See accompanying notes to unaudited consolidated financial statements.

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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY

Consolidated Statements of Operations (Unaudited)

	Three months ended September 30,							Nine months ended September 30,
	Three Months Ended
Dollars in thousands, except per share data	2011				2010			2011			2010
	March 31,
Interest income
Dollars in thousands, except per share data	2012			2011
Interest and fees on loans	$	2,725			$	3,426		$	8,670		$	10,905
Interest income
Interest on Federal funds sold	3				11			22			32
Interest and fees on loans	$	2,516		$	2,961
Interest on deposits with banks	59				8			177			22
Interest on Federal funds sold and securities purchased under agreements to resell	4			11
Interest and dividends on investment securities:
Interest on deposits with banks	60			59
Taxable	880				1,286			2,808			4,044
Interest and dividends on investment securities:
Tax-exempt	62				133			185			656
Taxable	753			983
Total interest income	3,729				4,864			11,862			15,659
Tax-exempt	—			62
Interest expense
Total interest income	3,333			4,076
Interest on deposits	1,025				1,406			3,220			4,447
Interest expense
Interest on long-term debt	203				433			604			1,285
Interest on deposits	858			1,121
Total interest expense	1,228				1,839			3,824			5,732
Interest on long-term debt	216			200
Net interest income	2,501				3,025			8,038			9,927
Total interest expense	1,074			1,321
Provision for loan losses	500				2,825			2,514			5,216
Net interest income	2,259			2,755
Net interest income after provision for loan losses	2,001				200			5,524			4,711
Provision for loan losses	125			1,200
Other operating income
Net interest income after provision for loan losses	2,134			1,555
Service charges on deposit accounts	324				303			895			1,005
Other operating income
ATM fees	71				89			222			279
Service charges on deposit accounts	253			282
Award income	25				25			75			1,075
ATM fees	68			76
Other income	225				160			708			552
Undistributed income from unconsolidated subsidary	204			98
Net gains on securities transactions (Notes 4 and 5)	—				137			—			666
Earnings from cash surrender of life insurance	63			63
Total other operating income	645				714			1,900			3,577
Other income	184			118
Other operating expenses
Total other operating income	772			637
Salaries and other employee benefits	1,527				1,503			4,445			4,646
Other operating expenses
Occupancy expense	285				503			911			1,340
Salaries and other employee benefits	1,567			1,435
Equipment expense	119				131			364			431
Occupancy expense	358			368
Data processing expense	96				83			284			260
Equipment expense	131			133
Professional fees	211				129			590			585
Data processing expense	128			94
Marketing expense	104				60			226			225
Professional fees	178			194
Management consulting fees	437				378			1,476			732
Marketing expense	119			59
Regulatory expense	259				219			949			827
Management consulting fees	374			485
Amortization of core deposit intangible	—				491			—			566
Regulatory expense	251			295
OREO expense	482				43			725			79
Insurance claim recovery	(150		)	—
Other expenses	443				644			1,412			1,681
OREO expense	93			103
Total other operating expenses	3,963				4,184			11,382			11,372
Other expenses	479			569
Loss before income tax expense	(1,317		)		(3,270		)	(3,958		)	(3,084		)
Total other operating expenses	3,528			3,735
Income tax expense	25				74			56			142
Loss before income tax expense	(622		)	(1,543		)
Net loss	$	(1,342	)		$	(3,344	)	$	(4,014	)	$	(3,226	)
Income tax expense	22			12
Net loss per common share
Net loss	$	(644	)	$	(1,555	)
Basic	$	(11.20	)		$	(26.43	)	$	(33.48	)	$	(27.37	)
Net loss per common share
Diluted	(11.20		)		(26.43		)	(33.48		)	(27.37		)
Basic	$	(5.91	)	$	(12.80	)
Basic average common shares outstanding	131,326				131,290			131,318			131,290
Diluted	(5.91		)	(12.80		)
Diluted average common shares outstanding	131,326				131,290			131,318			131,290
Basic average common shares outstanding	131,326			131,300
Diluted average common shares outstanding	131,326			131,300

See accompanying notes to unaudited consolidated financial statements.

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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY

Consolidated Statements of ~~Cash~~Comprehensive ~~Flows~~Income (Unaudited)

	Nine Months Ended
	Three Months Ended
	September 30,
	March 31,
In thousands	~~2011~~2012			2011	~~2010~~
Operating activities
Net loss	$	(644	)	$	(1,555	)
Net loss	$	(4,014	)		$	(3,226	)
Other comprehensive income (loss), net of tax
Adjustments to reconcile net loss to net cash from operating activities:
Unrealized gains and losses on securities available for sale	368			(259		)
Depreciation and amortization	304				309
Total other comprehensive income (loss)	368			(259		)
Provision for loan losses	2,514				5,216
Total comprehensive loss	$	(276	)	$	(1,814	)
Premium amortization of investment securities	93				124
Amortization of intangible assets	—				566
Net gains on securities transactions	—				(666		)
Net gains on sales of loans held for sale	—				(6		)
Net gains on sales of real estate owned	—				(17		)
Writedowns of OREO properties	613				60
Proceeds from sales and principal payments from loans held for sale	—				196
Decrease in accrued interest receivable	161				477
Deferred taxes	—				845
Net increase in bank-owned life insurance	(142		)		(145		)
Decrease in other assets	4,251				496
(Decrease) increase in accrued expenses and other liabilities	(2,078		)		479
Net cash provided by operating activities	1,702				4,708
Investing activities
Decrease in loans, net	23,774				18,926
Decrease in interest-bearing deposits with banks	1,154				60
Proceeds from maturities of investment securities available for sale, including principal repayments and early redemptions	14,614				35,126
Proceeds from maturities of investment securities held to maturity, including principal repayments and early redemptions	—				1,247
Proceeds from sales of investment securities available for sale	—				18,498
Purchases of investment securities available for sale	(3,527		)		(23,385		)
Proceeds from sales of other real estate owned	—				556
Purchases of premises and equipment	(48		)		(427		)
Net cash provided by investing activities	35,967				50,601
Financing activities
Decrease in deposits	(34,068		)		(15,439		)
Increase in short-term borrowings	—				770
Decrease in long-term debt	—				(2,000		)
Issuance of treasury stock	2				—
Net cash used by financing activities	(34,066		)		(16,669		)
Net increase in cash and cash equivalents	3,603				38,640
Cash and cash equivalents at beginning of period	20,778				12,308
Cash and cash equivalents at end of period	$	24,381			$	50,948
Cash paid during the year
Interest	$	3,675			$	5,416
Income taxes	99				60
Non-cash transactions
Transfer of held to maturity investment portfolio to available for sale portfolio	—				39,144
Transfer of loans to other real estate owned	140				—

See accompanying notes to unaudited consolidated financial statements.

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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)



	Three Months Ended
	March 31,
In thousands	2012			2011
Operating activities
Net loss	$	(644	)	$	(1,555	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation and amortization	92			123
Provision for loan losses	125			1,200
Premium amortization of investment securities	203			28
Net gain on sales of OREO	(2		)	—
Decrease (increase) in accrued interest receivable	11			(48		)
Deferred taxes	—			(46		)
Increase in bank-owned life insurance	(47		)	(47		)
Decrease in other real estate owned	48			84
Decrease in other assets	6,911			4,345
Decrease in accrued expenses and other liabilities	(15,627		)	(272		)
Net cash (used in) provided by operating activities	(8,930		)	3,812
Investing activities
Decrease in loans, net	5,730			8,687
Decrease in interest-bearing deposits with banks	288			2,149
Proceeds from maturities of investment securities available for
sale, including principal repayments and early redemptions	8,733			5,132
Purchases of investment securities available for sale	(12,553		)	(3,246		)
Purchases of premises and equipment	(65		)	—
Net cash provided by investing activities	2,133			12,722
Financing activities
Increase in deposits	16,859			13,413
Issuance of treasury stock	—			2
Net cash provided by financing activities	16,859			13,415
Net increase in cash and cash equivalents	10,062			29,949
Cash and cash equivalents at beginning of period	38,560			20,778
Cash and cash equivalents at end of period	$	48,622		$	50,727
Cash paid during the year
Interest	$	974		$	1,282
Income taxes	14			41
Non-cash transactions
Transfer of loans to other real estate owned	$	623		$	—

See accompanying notes to unaudited consolidated financial statements.

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CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY

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” or “CNBC"”) and its subsidiaries, City National Bank of New Jersey (the "“Bank"” or “CNB”) and City National Bank of New Jersey Capital Trust II. All intercompany accounts and transactions have been eliminated in consolidation.

The words “we,” “our” and “us” refer to City National Bancshares Corporation and its wholly-owned subsidiaries, unless we indicate otherwise.

2. Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and assuming the Corporation and Bank will continue as going concerns. See Note 3 for discussion with respect to going concern. Accordingly, they do not include all the information required by U.S. generally accepted accounting principles for complete financial statements. These consolidated financial statements should be reviewed in conjunction with the financial statements and notes thereto included in the Corporation's December 31, ~~2010~~2011 Annual Report to Stockholders.

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 three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2011~~2012. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities as of the date of the balance sheet and revenues and expenses for related periods. Actual results could differ significantly from those estimates.

3. Going concern/regulatory compliance

The consolidated financial statements of the Corporation as of and for the three months ~~and nine months~~ ended ~~September~~March 3031, ~~2011~~2012 have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

The Bank was subject to a Formal Agreement with the ~~OCC (“~~Office of the Comptroller of the Currency (the “OCC”) entered into on June 29, 2009 (the “Formal Agreement”). The ~~Consent~~Formal ~~Order~~Agreement required, among other things, the enhancement and implementation of certain programs to reduce the Bank's credit risk, along with the development of a capital and profit plan, the development of a contingency funding plan and the correction of deficiencies in the Bank's loan administration. The Bank failed to comply with certain provisions of the Formal Agreement and failed to comply with the higher leverage ratio of 8% required to be maintained.

Due to the Bank's condition, the OCC has required that the Board of Directors of the Bank (the “Bank Board”) sign a formal enforcement action with the OCC, which mandates specific actions by the Bank to address certain findings from ~~the~~ OCC's examination and to address the Bank's current financial condition. The Bank entered into a Consent Order (“Order” or “Consent Order”) with the OCC on December 22, 2010, which contains a list of requirements. The Order supersedes and replaces athe Formal Agreement. The Order also contains restrictions on future extensions of credit and requires the development of various programs and procedures to improve the Bank's asset quality as well as routine reporting on the Bank's progress toward compliance with the Order to the Bank Board and the OCC. As a result of the Order, the Bank may not be deemed “well capitalized.” The description of the Consent Order is only a summary.

Specifically, the Order imposes the following requirements on the Bank:


•	within five (5) days of the Order, the Bank Board must appoint a Compliance Committee to be comprised of at least three directors, none of whom may be an employee, former employee or controlling shareholder of the Bank or any of its affiliates, to monitor and coordinate the Bank's adherence to the Order.

• within ninety (90) days of the Order, the Bank Board must develop and submit to the OCC for review a written strategic plan covering at least a three-year period, establishing objectives for the overall risk profile, earnings performance, growth, balance sheet mix, off-balance sheet activities, liability structure, capital adequacy, reduction in ~~the~~ volume of nonperforming assets, product ~~line development, and market segments that the Bank intends to promote or develop, together with strategies to achieve those objectives.~~

• by March 31, 2011, and thereafter the Bank must maintain total capital at least equal to 13% of risk-weighted assets and Tier 1 capital at least equal to 9% of adjusted total assets; this requirement means that the Bank may not be considered “well capitalized” as otherwise defined in applicable regulations.7

• within ninety (90) days of the Order, the Bank Board must submit to the OCC a written capital plan for the Bank covering at least a three-year period, including specific plans for the achievement and maintenance of adequate capital and projections for growth and capital requirements, based upon a detailed analysis of the Bank's assets, liabilities, earnings, fixed assets and off-balance sheet activities; identification of the primary sources from which the Bank will maintain an appropriate capital

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~~structure~~line todevelopment ~~meet~~and ~~the~~market ~~Bank's~~segments ~~future~~that ~~needs, as set forth in~~ the ~~strategic plan; specific plans detailing how the~~ Bank ~~will~~intends ~~comply~~to ~~with~~promote ~~restrictions~~ or ~~requirements~~develop, ~~set~~together ~~forth in the Order and~~ with ~~the~~strategies ~~restrictions against brokered deposits in 12 C.F.R. § 337.6; contingency plans that identify alternative methods~~ to ~~strengthen~~achieve ~~capital,~~those should the primary source(s) not be available; and a prohibition on the payment of director fees unless the Bank is in compliance with the minimum capital ratios previously identified in the prior paragraph or express written authorization is provided by the OCCobjectives.


•	by March 31, 2011, and thereafter, the Bank must maintain total capital at least equal to 13% of risk-weighted assets and tier 1 leverage capital at least equal to 9% of adjusted total assets; this requirement means that the Bank may not be considered “well capitalized” as otherwise defined in applicable regulations.

•

within ninety (90) days of the Order, the Bank Board must submit to the OCC a written capital plan for the Bank covering at least a three-year period, including specific plans for the achievement and maintenance of adequate capital, projections for growth and capital requirements, based upon a detailed analysis of the Bank's assets, liabilities, earnings, fixed assets and off-balance sheet activities; identification of the primary sources from which the Bank will maintain an appropriate capital structure to meet the Bank's future needs, as set forth in the strategic plan; specific plans detailing how the Bank will comply with restrictions or requirements set forth in the Order and with the restrictions against brokered deposits in 12 C.F.R. § 337.6; contingency plans that identify alternative methods to strengthen capital, should the primary source(s) not be available; and a prohibition on the payment of director fees unless the Bank is in compliance with the minimum capital ratios previously identified in the prior paragraph or express written authorization is provided by the OCC.


•	the Bank is restricted on the payment of dividends.

•

to ensure the Bank has competent management in place at all times, including: within ninety (90) days of the Order, the Bank Board shall provide to the OCC qualified and capable candidates for the positions of President, Senior Credit Officer, Consumer Compliance Officer and Bank Secrecy Officer; within ninety (90) days of the date of the Order, the Bank Board (with the exception of Bank executive officers) shall prepare a written assessment of the Bank's executive officers to perform present and anticipated duties; prior to appointment of any individual to an executive position provide notice to the OCC, who shall have the power to veto such appointment; and the Bank Board shall at least annually perform a written performance appraisal for each Bank executive officer.


•	within sixty (60) days of the Order, the Bank Board shall develop and the Bank shall implement, and thereafter ensure compliance with, a written credit policy to ensure the Bank's compliance with written programs to improve the Bank's loan portfolio management.

• within ninety (90) days of the Order, the Bank Board shall develop, implement and thereafter ensure Bank adherence to a written program to improve the Bank's loan portfolio management, including: requiring that extensions of credit are granted, by renewal or otherwise, to any borrower only after obtaining, performing, and documenting a global analysis of current and satisfactory credit information; requiring that existing extensions of credit structured as single pay notes are revised upon maturity to conform to the Bank's revised loan policy; ensuring satisfactory and perfected collateral documentation; tracking and analyzing credit, collateral, and policy exceptions; providing for accurate risk ratings consistent with the classification standards contained in the Comptroller's Handbook on "“Rating Credit Risk"”; providing for identification, measurement, monitoring, and control of concentrations of credit; ensuring compliance with Call Report instructions, the Bank's lending policies, and laws, rules, and regulations pertaining to the Bank's lending function; ensuring the accuracy of internal management information systems; and providing adequate training of Bank personnel performing credit analyses in cash flow analysis, particularly analysis using information from tax returns, and implement processes to ensure that additional training is provided as needed.

• within sixty (60) days of the Order, the Bank Board must establish a written performance appraisal and salary administration process for loan officers that adequately consider performance relative to job descriptions, policy compliance, documentation standards, accuracy in credit grading, and other loan administration matters.

• the Bank must implement and maintain an effective, independent, and ongoing loan review program to review, at least quarterly, the Bank's loan and lease portfolios, to assure the timely identification and categorization of problem credits.


•	the Bank is also required to implement and adhere to a written program for the maintenance of an adequate Allowance for Loan and Lease Losses, providing for review of the allowance by the Bank Board at least quarterly.

• within sixty (60) days of the Order, the Bank Board shall adopt and the Bank (subject to Bank Board review and ongoing monitoring) shall implement and thereafter ensure adherence to a written program designed to protect the Bank's interest in those assets criticized in the most recent Report of Examination ("“ROE"”) by the OCC, in any subsequent ROE, by any internal or external loan review, or in any list provided to management by the national bank examiners during any examination as "“doubtful,"” "“substandard," or "“special mention."”

• within one hundred twenty (120) days of the Order, the Bank Board must revise and maintain a comprehensive liquidity risk management program, which assesses, on an ongoing basis, the Bank's current and projected funding needs, and ensures that sufficient funds or access to funds exist to meet those needs, and that includes effective methods to achieve and maintain sufficient liquidity and to measure and monitor liquidity risk.

• within ninety (90) days of the Order, the Bank Board shall identify and propose for appointment a minimum of two (2) new independent directors that have a background in banking, credit, accounting, or financial reporting, and such appointment will be subject to veto power of the OCC.

• within ninety (90) days of the Order, the Bank Board shall adopt, implement, and thereafter ensure adherence to a written consumer compliance program designed to ensure that the Bank is operating in compliance with all applicable consumer protection laws, rules, and regulations.

• within ninety (90) days of the Order, the Bank Board shall develop, implement, and thereafter ensure Bank adherence to a written program of policies and procedures to provide for compliance with the Bank Secrecy Act, as amended (31 U.S.C. §§ 5311 et seq.), the regulations promulgated thereunder and regulations of the Office of Foreign Assets Control ("OFAC"), 31

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C.F.R. Chapter V, as amended (collectively referred to as the "Bank Secrecy Act" or "BSA") and for the appropriate identification and monitoring of transactions that pose greater than normal risk for compliance with the BSA.

• within ninety (90) days of the Order, the Bank Board shall develop, implement, and thereafter ensure Bank adherence to an independent, internal audit program sufficient to detect irregularities and weak practices in the Bank's operations; determine the Bank's level of compliance with all applicable laws, rules, and regulations; assess and report the effectiveness of policies, procedures, controls, and management oversight relating to accounting and financial reporting; evaluate the Bank's adherence to established policies and procedures, with particular emphasis directed to the Bank's adherence to its loan, consumer compliance, and BSA policies and procedures; evaluate and document the root causes for exceptions; and establish an annual audit plan using a risk-based approach sufficient to achieve these objectives.

• within ninety (90) days of the Order, the Bank Board must develop and implement a comprehensive compliance audit function to include an independent review of all products and services offered by the Bank, including without limitation, a risk-based audit program to test for compliance with consumer protection laws, rules, and regulations that includes an adequate level of transaction testing; procedures to ensure that exceptions noted in the audit reports are corrected and responded to by the appropriate Bank personnel; and periodic reporting of the results of the consumer compliance audit to the Bank Board or a committee thereof.

• the Bank Board shall require and the Bank shall immediately take all necessary steps to correct each violation of law, rule, or regulation cited in any ROE, or brought to the Bank Board's or Bank's attention in writing by management, regulators, auditors, loan review, or other compliance efforts.

The Order permits the OCC to extend the time periods under the Order upon written request. Any material failure to comply with the Order could result in further enforcement actions by the OCC. In addition, if the OCC does not accept the capital plan or the Bank fails to achieve and maintain the minimum capital levels, the Order specifically states that the OCC may require the Corporation to sell, merge, or liquidate the Bank.

As a result of the Consent Order, the Bank may not accept, renew, or roll over any brokered deposit. This affects the Bank's ability to obtain funding. In addition, the Bank may not solicit deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in such institution's normal market area or in the market area in which such deposits are being solicited.

As of September 30, 2011, when considering deadline extensions granted, the Corporation believes it has substantially complied with the requirements of the Consent Order as of such date with the exception of the capital ratio requirements and the appointment of outside director.

On December 14, 2010, the Corporation entered into a written agreement (the “FRBNY Agreement”) with the Federal Reserve Bank of New York (“FRBNY”). The following is only a summary of the FRBNY Agreement. Pursuant to the FRBNY Agreement, the Corporation's board of directors is to take appropriate steps to utilize fully the Corporation's financial and managerial resources to serve as a source of strength to the Bank, including causing the Bank to comply with the Formal Agreement (now superseded) and any other supervisory action taken by the OCC, such as the Order.

In the FRBNY Agreement, the Corporation agreed that it would not declare or pay any dividends without prior written approval of the FRBNY and the Director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System (the “Banking Director”). It further agreed that it would not take dividends or any other form of payment representing a reduction in capital from the Bank without the FRBNY's prior written approval. The FRBNY Agreement also provides that neither the Corporation nor its nonbank subsidiary will make any distributions of interest, principal or other amounts on subordinated debentures or trust preferred securities without the prior written approval of the FRBNY and the Banking Director.

The FRBNY Agreement further provides that in appointing any new director or senior executive officer or changing the responsibilities of any senior executive officer so that the officer would assume a different senior position, the Corporation must notify the Board of Governors of the Federal Reserve System and such board or the FRBNY or the OCC may veto such appointment or change.

The FRBNY Agreement further provides that the Corporation is restricted in making certain severance and indemnification payments.

The failure of the Corporation to comply with the FRBNY Agreement could have severe adverse consequences on the Bank and the Corporation.

The Corporation recorded a net loss of $4.0 million in the 2011 first nine months compared to a net loss of $3.2 million in the

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~~comparable~~management ~~2010 period~~program, ~~primarily~~which ~~due~~assesses, toon ~~significant~~an ~~declines~~ongoing inbasis, ~~net~~the ~~interest~~Bank's ~~income~~current and ~~other~~projected ~~operating~~funding ~~income~~needs, ~~along~~and ~~with~~ensures ~~higher~~that ~~costs~~sufficient ~~for~~funds ~~consultants~~or ~~retained~~access to ~~achieve~~funds ~~compliance~~exist ~~with~~to ~~the~~meet ~~provisions~~those ~~of the Consent Order~~needs, ~~offset~~and bywhich ~~a reduction~~includes ineffective ~~the provision~~methods ~~for~~to ~~loan~~achieve ~~losses.~~and ~~However,~~maintain ~~we are currently not generating~~ sufficient ~~operating~~liquidity ~~income~~and to ~~cover~~measure ~~operating~~and ~~expenses~~monitor ~~before~~liquidity ~~consideration of the provision for loan losses, a condition which is worsening~~risk.

• ~~The~~within ~~decrease~~ninety in(90) ~~real~~days estate values and instability in the Bank's market, as well as other macroeconomic factors such as unemployment levels, have contributed to a decrease in credit quality and continued elevated loan loss provisions. While the Bank and Corporation are implementing steps to improve their financial performance, there can be no assurance they will be successful. These deteriorating financial results and the failure of the ~~Bank to comply with the OCC's higher mandated capital ratios under the Consent~~ Order, ~~and~~ the ~~actions that the OCC may take as a result thereof, raise substantial doubt about the Corporation's and the~~ Bank's ~~ability~~Board toshall ~~continue~~identify ~~as going concerns. Management has developed a plan to address the compliance matters raised by the OCC~~ and ~~the~~propose ~~ability to maintain future financial viability and submitted the plan to the OCC~~ for ~~approval.~~appointment ~~The plan provides for the addition of new lines of business and strategic growth initiatives,~~ a ~~restructuring~~minimum of ~~staff~~two ~~where~~(2) ~~necessary,~~new ~~and~~independent ~~the~~directors ~~preparation~~who ~~and use of an Investor Presentation to assist in a capital raise. We~~ have ~~formed~~ a ~~strategic~~background ~~alliance~~in ~~with~~banking, ~~a third-party online deposit vendor~~credit, ~~which~~accounting weor ~~believe~~financial ~~will attract new sources of deposits~~reporting, and ~~have~~such ~~completed~~appointment ~~the~~will ~~staff~~be ~~restructuring. We~~subject ~~are also in process of our capital raise and expect~~ to ~~expand~~veto ~~into~~power ~~new lines~~ of ~~business upon completion of~~ the ~~capital raise in 2012~~OCC. ~~However, there can be no assurances that this plan can be successfully achieved.~~


•	within ninety (90) days of the Order, the Bank Board shall adopt, implement and thereafter ensure adherence to a written consumer compliance program designed to ensure that the Bank is operating in compliance with all applicable consumer protection laws, rules and regulations.

•

within ninety (90) days of the Order, the Bank Board shall develop, implement and thereafter ensure Bank adherence to written program of policies and procedures to provide for compliance with the Bank Secrecy Act, as amended (31 U.S.C. §§ 5311 et seq.), the regulations promulgated there under and regulations of the Office of Foreign Assets Control (“OFAC”), 31 C.F.R. Chapter V, as amended (collectively referred to as the “Bank Secrecy Act” or “BSA”) and for the appropriate identification and monitoring of transactions that pose greater than normal risk for compliance with the BSA.

•

within ninety (90) days of the Order, the Bank Board shall develop, implement, and thereafter ensure Bank adherence to an independent, internal audit program sufficient to detect irregularities and weak practices in the Bank's operations; determine the Bank's level of compliance with all applicable laws, rules and regulations; assess and report the effectiveness of policies, procedures, controls and management oversight relating to accounting and financial reporting; evaluate the Bank's adherence to established policies and procedures, with particular emphasis directed to the Bank's adherence to its loan, consumer compliance and BSA policies and procedures; evaluate and document the root causes for exceptions; and establish an annual audit plan using a risk-based approach sufficient to achieve these objectives.

•

within ninety (90) days of the Order, the Bank Board must develop and implement a comprehensive compliance audit function to include an independent review of all products and services offered by the Bank, including without limitation, a risk-based audit program to test for compliance with consumer protection laws, rules and regulations that include an adequate level of transaction testing; procedures to ensure that exceptions noted in the audit reports are corrected and responded to by the appropriate Bank personnel; and periodic reporting of the results of the consumer compliance audit to the Bank Board or a committee thereof.


•	the Bank Board shall require and the Bank shall immediately take all necessary steps to correct each violation of law, rule or regulation cited in any ROE, or brought to the Bank Board's or Bank's attention in writing by management, regulators, auditors, loan review or other compliance efforts.

As a result of the Consent Order, the Bank may not accept, renew or roll over any brokered deposit. This affects the Bank's ability to obtain funding. In addition the Bank may not solicit deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in such institution's normal market area or in the market area in which such deposits are being solicited.

As of March 31, 2012, when considering deadline extensions granted, the Corporation has been informed by the OCC that it has fully complied with two of the thirteen articles of the Consent Order. The two articles in full compliance are Article II - Compliance Committee and Article XIII - Internal Audit Program. The remaining articles are in various stages of compliance and management continues to work diligently to achieve full compliance. Refer to the capital section of the Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion.

On December 14, 2010, the Corporation entered into a written agreement (the “FRBNY Agreement”) with the Federal Reserve Bank of New York (“FRBNY”). The following is only a summary of the FRBNY Agreement. Pursuant to the FRBNY Agreement, the Corporation's Board of Directors is to take appropriate steps to utilize fully the Corporation's financial and managerial resources to serve as a source of strength to the Bank, including causing the Bank to comply with the Formal Agreement (now superseded) and any other supervisory action taken by the OCC, such as the Order.

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System (the “Banking Director”). It further agreed that it would not take dividends or any other form of payment representing a reduction in capital from the Bank without the FRBNY's prior written approval. The FRBNY Agreement also provides that neither the Corporation nor its nonbank subsidiary will make any distributions of interest, principal or other amounts on subordinated debentures or trust preferred securities without the prior written approval of the FRBNY and the Banking Director.

The FRBNY Agreement further provides that the Corporation shall not incur, increase or guarantee any debt without FRBNY approval. In addition, the Corporation must obtain the prior approval of the FRBNY for the repurchase or redemption of its shares of stock. Additionally, the FRBNY Agreement further provides that in appointing any new director or senior executive officer or changing the responsibilities of any senior executive officer so that the officer would assume a different senior position, the Corporation must notify the Board of Governors of the Federal Reserve System and such board or the FRBNY or the OCC may veto such appointment or change. Finally, the FRBNY Agreement further provides that the Corporation is restricted in making certain severance and indemnification payments. The failure of the Corporation to comply with the FRBNY Agreement could have severe adverse consequences on the Bank and the Corporation.

The Corporation recorded a net loss of $644,000 in the first three months of 2012 compared to a net loss of $1.6 million in the comparable 2011 period primarily due to a reduction in the provision for loan losses, offset in part by a decline in net interest income. However, we are currently not generating sufficient operating income to cover operating expenses before consideration of the provision for loan losses. These ongoing losses will hamper management's ability to achieve compliance with the required capital ratios.

The decrease in real estate values in the Bank's market, as well as other macroeconomic factors such as unemployment levels, has contributed to the decrease in credit quality and the continuing necessity of the Bank to provide for higher loan loss provisions. Additionally, collateral requirements for municipal deposit letters of credit ("MULOC") issued by the Federal Home Loan Bank have increased. While the Bank and the Corporation are implementing steps to improve their financial performance, there can be no assurance they will be successful. These deteriorating financial results and the failure of the Bank to comply with the OCC's higher mandated capital ratios under the Consent Order, and the actions that the OCC may take as a result thereof, raise substantial doubt about the Corporation's and the Bank's ability to continue as going concerns.

Management has developed a plan to address the compliance matters raised by the OCC and the ability to maintain future financial viability and submitted the plan to the OCC for approval. The plan provides for the addition of new lines of business and strategic growth initiatives, a restructuring of staff where necessary and the preparation and use of investor presentation to assist in a capital raise. We have formed a strategic alliance with a third-party online deposit vendor, which we believe will attract new sources of deposits. We are also in process of a capital raise and are expanding into new lines of business primarily to increase fee income and become less dependent on spread income. However, there can be no assurances that this plan, including the capital raise, can be successfully achieved.

4. Net loss per common share

The following table presents the computation of net loss per common share.

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended
In thousands, except per share data	2011			2010			2011			2010
	March 31,
Net loss	$	(1,342	)	$	(3,344	)	$	(4,014	)	$	(3,226	)
In thousands, except per share data	2012			2011
Dividends on preferred stock	129			127			383			368
Net loss	$	(644	)	$	(1,555	)
Net loss applicable to basic common shares	(1,471		)	(3,471		)	(4,397		)	(3,594		)
Dividends on preferred stock	133			126
Dividends applicable to convertible preferred stock	—			—			—			—
Net loss applicable to basic common shares	(777		)	(1,681		)
Net loss applicable to diluted common shares	$	(1,471	)	$	(3,471	)	$	(4,397	)	$	(3,594	)
Dividends applicable to convertible preferred stock	—			—
Number of average common shares
Net loss applicable to diluted common shares	$	(777	)	$	(1,681	)
Basic	131,326			131,290			131,318			131,290
Number of average common shares
Diluted	131,326			131,290			131,318			131,290
Basic	131,326			131,300
Net loss per common share
Diluted	131,326			131,300
Basic	$	(11.20	)	$	(26.43	)	$	(33.48	)	$	(27.37	)
Net loss per common share
Diluted	(11.20		)	(26.43		)	(33.48		)	(27.37		)
Basic	$	(5.91	)	$	(12.80	)
Diluted	(5.91		)	(12.80		)

Basic loss per common share is calculated by dividing net loss plus dividends paid on preferred stock by the weighted average number of common shares outstanding. On a diluted basis, both net loss and common shares outstanding are adjusted to assume the conversion of the convertible preferred stock, if conversion is deemed dilutive. For all periods shown for 2011 and 2010, the assumption of the conversion would have been antidilutive.10

On April 10, 2009, the Corporation issued 9,439 shares of fixed-rate cumulative perpetual preferred stock to the U.S. Department of Treasury in connection with the Corporation's participation in the Treasury's TARP Capital Purchase Program. These shares pay cumulative dividends at a rate of five percent per annum until the fifth anniversary of the date of issuance, after which the rate increases to nine percent per annum. Dividends are paid quarterly in arrears and unpaid dividends are accrued over the period the preferred shares are outstanding.

During 2010 and the first nine months of 2011, City National Bancshares Corporation deferred the payment of its regular quarterly cash dividend on its Series G fixed-rate cumulative perpetual preferred stock issued to the U.S. Treasury. In addition, the Corporation deferred its regularly scheduled quarterly interest payments on its junior subordinated debentures issued by the City National Bank of New Jersey Capital Statutory Trust II (the “Trust”) for the same periods.

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~~dividends~~Basic onloss ~~Series~~per Gcommon share is calculated by dividing net loss plus dividends paid on preferred stock ~~and~~by the ~~interest~~weighted onaverage ~~such~~number ~~debentures~~of ~~are~~common ~~paid-up~~shares ~~currently~~outstanding. ~~There~~On ~~were~~a nodiluted ~~dividend~~basis, ~~payments~~both ~~made~~net onloss and common shares outstanding are adjusted to assume the conversion of the convertible preferred stock, inif ~~2010~~conversion oris deemed dilutive. For both 2012 and 2011, ~~although~~the ~~such~~assumption ~~dividends~~of ~~have~~the ~~been~~conversion ~~accrued~~would ~~because~~have ~~they~~been ~~are cumulative~~anti-dilutive.

~~The~~On ~~Corporation~~April ~~did~~10, ~~not~~2009, ~~pay~~the aCorporation ~~dividend~~issued ~~in 2010 and is currently unable to determine when dividend payments may be resumed~~9,439 ~~and~~shares ~~does~~of ~~not~~fixed-rate ~~expect~~cumulative toperpetual ~~pay~~preferred ~~common~~ stock ~~dividends~~to ~~for~~ the ~~foreseeable future~~U. ~~Whether~~S. ~~cash~~Department ~~dividends~~of ~~will~~Treasury bein ~~paid~~connection inwith the ~~future~~Corporation’s ~~depends~~participation ~~upon~~in ~~various factors, including~~ the ~~earnings~~Treasury’s ~~and~~TARP ~~financial~~Capital ~~condition~~Purchase ofProgram. These ~~the~~shares ~~Bank~~pay ~~and~~cumulative ~~the~~dividends ~~Corporation~~ at ~~the~~a ~~time. Additionally,~~rate ~~federal~~of ~~and~~5% ~~state~~per ~~laws~~annum ~~and~~until ~~regulations~~the ~~contain~~fifth ~~restrictions~~anniversary onof the ~~ability~~date of ~~the~~issuance, ~~Bank~~after ~~and~~which the ~~Corporation~~rate increases to ~~pay~~9% ~~dividends~~per annum. ~~Finally,~~Dividends ~~the~~are ~~Consent~~paid ~~Order~~quarterly ~~stipulates~~in ~~that~~arrears ~~the~~and ~~Bank~~unpaid ~~may not pay~~ dividends ~~until~~are itaccrued isover inthe ~~compliance~~period ~~with~~ the ~~provisions~~preferred ofshares ~~the~~are ~~capital plan~~outstanding.

~~Subject~~During to2011 ~~applicable~~and ~~law,~~ the ~~Board~~first ofthree ~~Directors~~months of ~~the~~2012, ~~Bank~~City ~~and~~National ofBancshares ~~the~~ Corporation ~~may~~deferred ~~provide for~~ the payment of ~~dividends~~its ~~when~~regular itquarterly iscash ~~determined that~~ dividend ~~payments~~on ~~are~~its ~~appropriate,~~Series ~~taking~~G ~~into~~fixed-rate ~~account~~cumulative ~~factors~~perpetual ~~including~~preferred ~~net~~stock ~~income,~~issued ~~capital requirements, financial condition, alternative investment options, tax implications, prevailing economic conditions, industry practices, and other factors deemed~~ to ~~be relevant at~~ the ~~time~~U.S. Treasury. ~~Because~~In ~~CNB is a national banking association~~addition, ~~it is subject to regulatory limitation on~~ the ~~amount~~Corporation ofdeferred ~~dividends it may pay to~~ its ~~parent~~regularly ~~corporation,~~scheduled ~~CNBC. Prior~~quarterly ~~approval~~interest ofpayments ~~the~~on ~~Office~~its ofjunior ~~the~~subordinated ~~Comptroller~~debentures ofissued ~~the~~by ~~Currency ("OCC") is required if~~ the ~~total~~City ~~dividends~~National ~~declared by the~~ Bank inof ~~any~~New ~~calendar~~Jersey ~~year~~Capital ~~exceeds~~Statutory ~~net~~Trust ~~profit,~~II ~~as defined, for that year combined with~~ (the ~~retained~~“Trust”) ~~net profits from the preceding two calendar years, although currently such approval is required to declare any dividend. Based upon this limitation, no funds were available~~ for the ~~payment~~same ~~of dividends to the parent corporation at September 30, 2011~~periods.

5The Series G preferred stock and the junior subordinated debentures issued in favor of the Trust provide for cumulative dividends and interest, respectively. Accordingly, ~~Comprehensive~~the ~~loss~~Corporation may not pay dividends on any of its common or preferred stock until the dividends on Series G preferred stock and the interest on such debentures are paid-up currently. There were no dividend payments made on preferred stock in 2011 or 2012, although such dividends have been accrued because they are cumulative.

~~Total~~The ~~comprehensive~~Corporation ~~loss~~did ~~includes~~not ~~net~~pay ~~income~~a ordividend ~~loss~~in 2012 and ~~other~~is ~~comprehensive~~currently ~~income~~unable orto ~~loss,~~determine ~~which~~when isdividend ~~comprised~~payments ofmay ~~unrealized~~be ~~gains~~resumed, and ~~losses~~does onnot ~~investment~~expect ~~securities~~to ~~available~~pay ~~for~~common ~~sale,~~stock ~~net~~dividends offor ~~taxes~~the foreseeable future. ~~The~~Whether ~~Corporation's~~cash ~~total~~dividends ~~comprehensive~~will ~~loss~~be ~~for~~paid in the ~~three~~future ~~months~~depends ~~ended~~upon ~~September~~various 30factors, ~~2011~~including ~~and~~the ~~2010~~earnings ~~was~~and ~~$(440,000)~~financial ~~and~~condition ~~$(3,737,000),~~of ~~respectively~~the Bank and ~~for~~ the ~~nine~~Corporation ~~months~~at ~~ended~~this ~~September 30~~time. Additionally, ~~2011~~federal and ~~2010~~state ~~was~~laws ~~$(4,014,000)~~ and ~~$(1,927,000),~~regulations ~~respectively. The~~contain ~~difference~~restrictions ~~between~~on the ~~Corporation's~~ability ~~net loss~~of ~~and~~the ~~total~~Bank ~~comprehensive loss~~and ~~for~~the ~~these~~Corporation ~~periods~~to ~~relates~~pay todividends. Finally, the ~~change~~Consent inOrder ~~net~~stipulates ~~unrealized~~that ~~gains~~the ~~and~~Bank ~~losses~~not onpay ~~investment~~dividends ~~securities~~until ~~available~~it ~~for~~is ~~sale~~in ~~during~~compliance with the ~~applicable~~provisions ~~period~~ of ~~time~~the capital plan.

Subject to applicable law, the Board of Directors of the Bank and of the Corporation may provide for the payment of dividends when it is determined that dividend payments are appropriate, taking into account factors including net income, capital requirements, financial condition, alternative investment options, tax implications, prevailing economic conditions, industry practices and other factors deemed to be relevant at the time. Because CNB is a national banking association, it is subject to regulatory limitation on the amount of dividends it may pay to its parent corporation, CNBC. Prior approval of the OCC is required if the total dividends declared by the Bank in any calendar year exceeds net profit, as defined, for that year combined with the retained net profits from the preceding two calendar years, although currently such approval is required to any dividend. Based upon this limitation, no funds were available for the payment of dividends to the parent corporation at March 31, 2012.

5. Comprehensive income (loss)

Total comprehensive income (loss) includes net loss and other comprehensive income or (loss), which is comprised of unrealized gains and losses on investment securities available for sale, net of taxes. The Corporation's total accumulated other comprehensive income (loss) as of March 31, 2012 and 2011 was $791,000 and $(386,000), respectively. The difference between the Corporation's net loss and total comprehensive gain or loss for these periods relates to the change in net unrealized gains and losses on investment securities available for sale during the applicable period of time.

6. Recent accounting pronouncements

~~Accounting Standards Update (“~~ASU”) No. ~~2010~~2011-0604, “Fair Value Measurements ~~and Disclosures~~ (Topic 820) –- ~~Improving~~Amendments ~~Disclosures~~to ~~About~~Achieve Common Fair Value ~~Measurements,”~~Measurement ~~requires new disclosures~~ and ~~clarifies~~Disclosure ~~certain~~Requirements ~~existing~~in ~~disclosure~~U.S. ~~requirements~~GAAP ~~about~~and ~~fair value measurement. Specifically~~IFRS,” ~~the~~was ~~update~~issued ~~requires~~as ana ~~entity~~result toof ~~disclose separately~~ the ~~amounts~~effort ofto ~~significant~~develop ~~transfers~~common infair ~~and~~value ~~out~~measurement ~~of Level 1~~ and ~~Level~~disclosure 2requirements ~~fair~~in ~~value~~U.S. ~~measurements~~GAAP and ~~describe~~International ~~the~~Financial ~~reasons~~Reporting ~~for~~Standards ~~such transfers~~(“IFRS”). While AASU ~~reporting~~No. ~~entity~~2011-04 is ~~required~~largely toconsistent ~~present~~with ~~separately~~existing ~~information about purchases, sales, issuances, and settlements in the reconciliation of~~ fair value ~~measurements~~measurement ~~using~~principles ~~Level~~in ~~3 inputs~~U.S. ~~In addition~~GAAP, ~~the~~it ~~update~~expands ~~clarifies~~ the ~~following requirements of the~~ existing ~~disclosures:~~disclosure ~~(i)~~requirements for ~~the purposes of reporting~~ fair value measurements ~~for~~and ~~each~~clarifies ~~class~~the ofexisting ~~assets~~guidance ~~and~~or ~~liabilities,~~wording achanges ~~reporting entity needs~~ to ~~use~~align ~~judgment~~with inIFRS ~~determining~~No. ~~the~~13. Many ~~appropriate classes~~ of ~~assets;~~the ~~and~~requirements ~~(ii)~~for ~~a reporting entity is required to include disclosures about~~ the ~~valuation~~amendments ~~techniques~~in ~~and~~ASU ~~inputs~~No. ~~used~~2011-04 todo ~~measure~~not ~~fair~~result ~~value~~in ~~for~~a ~~both~~change ~~recurring~~in ~~and nonrecurring fair value measurements. The disclosures related to~~ the ~~gross~~application ~~presentation~~ of ~~purchases,~~the ~~sales,~~requirements ~~issuances~~in ~~and~~Topic ~~settlements~~820. ASU ofNo. ~~assets~~2011-04 ~~and~~was ~~liabilities~~effective ~~included~~for inall ~~Level~~interim 3and ofannual ~~the~~periods ~~fair~~beginning ~~value~~after ~~hierarchy~~December ~~became effective on January 1~~15, 2011. The ~~other~~adoption ~~disclosure~~of ~~requirements~~ASU ~~and~~No. ~~clarifications~~2011-04 ~~made~~did bynot ~~ASU~~have ~~No.~~a ~~2010-06~~significant ~~became~~impact ~~effective~~ on ~~January~~the 1,consolidated ~~2010.~~financial statements.

ASU No. ~~2010~~2011-2905, “~~Business~~Comprehensive ~~Combinations~~Income (Topic ~~805~~220) –- ~~Disclosure~~Presentation of ~~Supplementary~~Comprehensive ~~Pro Forma Information for Business Combinations~~Income,” ~~relates to disclosure of pro forma information for business combinations that have occurred in the current reporting period. It~~ requires ~~that~~ an entity ~~presenting~~to ~~comparative~~present ~~financial~~components ~~statements include revenue and earnings~~ of ~~the~~comprehensive ~~combined~~income ~~entity~~either asin ~~though~~a ~~the~~single ~~combination~~continuous ~~had~~statement ~~occurred as~~ of ~~the~~comprehensive ~~beginning~~income ofor ~~the~~in ~~comparable~~two ~~prior~~separate ~~annual~~but ~~period~~consecutive ~~only~~statements. In ~~This guidance was effective prospectively for business combinations for which~~ the ~~acquisition~~two-statement ~~date~~approach, ~~was on or after~~ the ~~beginning of the~~ first ~~annual~~statement ~~reporting~~should ~~period~~present ~~beginning~~total onnet orincome ~~after~~and ~~December~~its ~~15,~~components ~~2010.~~followed ~~The~~consecutively ~~adoption~~by ofa ~~this~~second ~~guidance~~statement ~~did~~that ~~not~~should ~~have~~present antotal ~~impact~~other oncomprehensive income, the ~~consolidated~~components ~~financial~~of ~~statements.~~other

ASU No. 2011-02, “Receivables (Topic 310) – A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring,” provides clarifying guidance intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the guidance clarified by ASU No. 2011-02, that both of the following exist: (i) the restructuring constitutes a concession to the debtor; and (ii) the debtor is experiencing financial difficulties. ASU No. 2011-02 applies retrospectively to restructurings occurring on or after January 1, 2011 and was effective on July 1, 2011. The adoption of ASU No. 2011-02 did not have a significant impact on the consolidated financial statements. 11

ASU No. 2011-04, “Fair Value Measurements (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” was issued as a result of the effort to develop common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). While ASU No. 2011-04

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iscomprehensive ~~largely consistent with existing fair value measurement principles in U.S. GAAP~~income, ~~it expands the existing disclosure requirements for fair value measurements~~ and ~~clarifies~~ the ~~existing~~total ~~guidance or wording changes to align with IFRS No. 13. Many~~ of ~~the~~comprehensive ~~requirements for the amendments in~~ income. ASU No. ~~2001~~2011-045 domust ~~not~~be ~~result~~applied inretrospectively aand ~~change~~was ~~in the application of the requirements in Topic 820. ASU No. 2011-04 will be~~ effective for all interim and annual periods beginning on or after December 15, 2011. The adoption of ASU No. 2011-0405 isdid not ~~expected to~~ have a significant impact on ~~its~~the consolidated financial statements. The Corporation has included separate Consolidated Statements of Comprehensive Income as part of these financial statements.

ASU No. 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income,” requires an entity to present components of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. ASU No. 2011-05 must be applied retrospectively and is effective for all interim and annual periods beginning on or after December 15, 2011. The adoption of ASU No. 2011-05 is not expected to have a significant impact on the consolidated financial statements.

ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350) Testing Goodwill for Impairment,” provides the option of performing a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount, before applying the current two-step goodwill impairment test. If the conclusion is that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity would be required to conduct the current two-step goodwill impairment test. Otherwise, the entity would not need to apply the two-step test. ASU No. 2011-28 will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of ASU No. 2011-05 is not expected to have a significant impact on its consolidated financial statements.

In April 2010, the FASB issued ASU 2010-18, which states that modifications of loans that are accounted for within a pool under ASC 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The amendments do not affect the accounting for loans under the scope of ASC 310-30 that are not accounted for within pools. Loans accounted for individually under ASC 310-30 continue to be subject to the troubled debt restructuring accounting provisions within ASC 310-40, “Receivables-Troubled Debt Restructurings by Creditors.” The amendments were effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The adoption of this pronouncement did not have a material impact on the Corporation's financial condition, results of operations or financial statement disclosures.

In July 2010, the FASB issued ASU 2010-20 to provide financial statement users with greater transparency about an entity's allowance for credit losses and the credit quality of its financing receivables. The objective of the ASU is to provide disclosures that assist financial statement users in their evaluation of (1) the nature of an entity's credit risk associated with its financing receivables, (2) how the entity analyzes and assesses that risk in arriving at the allowance for credit losses and (3) the changes in the allowance for credit losses and the reasons for those changes. Disclosures provided to meet the objective above should be provided on a disaggregated basis. The disclosures as of the end of a reporting period were effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period were effective for interim and annual reporting periods beginning on or after December 15, 2010. The adoption of this pronouncement did not have a material impact on the Corporation's financial condition or results of operations.

7. Investment securities available for sale

The amortized cost and fair values of investment securities available for sale were as follows:

September 30, 2011

AmortizedCost

GrossUnrealizedGains

GrossUnrealized Losses

FairValue

March 31, 2012

AmortizedCost

GrossUnrealizedGains

GrossUnrealizedLosses

FairValue

In thousands

U.S. Treasury securities and obligations of U.S. government agencies

38,~~101~~879

~~135~~156

—

39,~~236~~035

Obligations of U.S. government sponsored entities

1320,~~456~~127

~~175~~296

3266

1320,~~599~~357

Obligations of state and political subdivisions

93,~~586~~322

~~492~~215

—

103,~~078~~537

Mortgage-backed securities

5754,~~147~~820

32,~~319~~005

—

6056,~~466~~825

Other debt securities

8,~~364~~336

2697

21,~~168~~892

6,~~222~~541

Equity securities:

—

Marketable securities

~~774~~791

—

1720

~~757~~771

Nonmarketable securities

115

—

115

Federal Reserve Bank and Federal Home Loan Bank stock

1,~~870~~862

—

1,~~870~~862

Total

9498,~~413~~252

42,~~147~~769

21,~~217~~978

9699,~~343~~043



December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
In thousands
U.S. Treasury securities and obligations of U.S. government agencies	$	9,005	$	146	$	—	$	9,151
Obligations of U.S. government sponsored entities	12,805		233		11		13,027
Obligations of state and political subdivisions	3,326		174		—		3,500
Mortgage-backed securities	58,373		2,059		—		60,432
Other debt securities	8,366		31		2,190		6,207
Equity securities:
Marketable securities	783		—		19		764
Nonmarketable securities	115		—		—		115
Federal Reserve Bank and Federal Home Loan Bank stock	1,862		—		—		1,862
Total	$	94,635	$	2,643	$	2,220	$	95,058

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December 31, 2010	AmortizedCost		GrossUnrealizedGains		GrossUnrealized Losses		FairValue
In thousands
U.S. Treasury securities and obligations of U.S. government agencies	$	3,389	$	64	$	24	$	3,429
Obligations of U.S. government sponsored entities	15,447		100		267		15,280
Obligations of state and political subdivisions	9,604		194		285		9,513
Mortgage-backed securities	66,037		1,892		24		67,905
Other debt securities	8,358		37		1,839		6,556
Equity securities:							0
Marketable securities	748		—		21		727
Nonmarketable securities	115		—		—		115
Federal Reserve Bank and Federal Home Loan Bank stock	1,895		—		—		1,895
Total	$	105,593	$	2,287	$	2,460	$	105,420

The amortized cost and the fair value of investment securities available for sale are distributed by contractual maturity without regard to normal amortization, including mortgage-backed securities, which will have shorter estimated lives as a result of prepayments of the underlying mortgages.

September 30, 2011	Amortized Cost		Fair Value
In thousands
Due after one year but within five years:
U.S. Treasury securities and obligations of U.S. government agencies	$	32	$	32
Obligations of state and political subdivisions	2,230		2,381
Obligations of U.S. government sponsored entities	493		496
Mortgage-backed securities	454		476
Other debt securities	1,000		946
Due after five years but within ten years:
U.S. Treasury securities and obligations of U.S. government agencies	84		84
Obligations of state and political subdivisions	3,916		4,105
Obligations of U.S. government sponsored entities	3,395		3,487
Mortgage-backed securities	334		350
Due after ten years:
U.S. Treasury securities and obligations of U.S. government agencies	2,985		3,120
Obligations of state and political subdivisions	3,440		3,592
Obligations of U.S. government sponsored entities	9,568		9,616
Mortgage-backed securities	56,359		59,640
Other debt securities	7,364		5,276
Total debt securities	91,654		93,601
Equity securities	2,759		2,742
Total	$	94,413	$	96,343

Investment securities available for sale which have had continuous unrealized losses as of September 30, 2011 and December 31, 2010 are set forth below.

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	Less than 12 Months				12 Months or More				Total
March 31, 2012	AmortizedCost		FairValue
September 30, 2011			Gross Unrealized Losses				Gross Unrealized Losses				Gross Unrealized Losses
In thousands
In thousands	Fair Value				Fair Value				Fair Value
Due after one year but within five years:
U.S. Treasury securities and obligations of U.S. government agencies	$	—40	$	—40	$	63	$	—	$	63	$	—
Obligations of U.S. government sponsored entities	~~1,584~~143		17144		~~1,918~~		15		~~3,502~~		32
Other debt securities	883		52		4,778		2,116		5,661		2,168
Mortgage-backed securities	330		345
Marketable equity securities	—		—		774		17		774		17
Other debt securities	1,000		954
Total	$	2,467	$	69	$	7,533	$	2,148	$	10,000	$	2,217
Due after five years but within ten years:
U.S. Treasury securities and obligations of U.S. government agencies	79		79
Obligations of state and political subdivisions	1,676		1,781
Obligations of U.S. government sponsored entities	2,237		2,337
Mortgage-backed securities	347		365
Due after ten years:
U.S. Treasury securities and obligations of U.S. government agencies	8,760		8,916
Obligations of state and political subdivisions	1,646		1,756
Obligations of U.S. government sponsored entities	17,747		17,876
Mortgage-backed securities	54,143		56,114
Other debt securities	7,336		5,588
Total debt securities	95,484		96,295
Equity securities	2,768		2,748
Total	$	98,252	$	99,043

	Less than 12 Months				12 Months or More				Total
December 31, 2010			Gross Unrealized Losses				Gross Unrealized Losses				Gross Unrealized Losses
In thousands	Fair Value				Fair Value				Fair Value
U.S. Treasury securities and obligations of U.S. government agencies	$	1,054	$	23	$	162	$	1	$	1,216	$	24
Obligations of U.S. government sponsored entities	6,733		254		2,080		13		8,813		267
Mortgaged-backed securities	6,219		24		—		—		6,219		24
Obligations of state and political subdivisions	5,147		285		—		—		5,147		285
Other debt securities	—		—		5,050		1,839		5,050		1,839
Equity securities	—		—		727		21		727		21
Total	$	19,153	$	586	$	8,019	$	1,874	$	27,172	$	2,460

Investment securities available for sale that have had continuous unrealized losses as of March 31, 2012 and December 31, 2011 are set forth below.

The decline in investment securities with continuing unrealized losses was a result of improved valuations in our U.S. government agency, mortgage-backed securities and obligations of state and political subdivision portfolios.



	Less than 12 Months				12 Months or More				Total
March 31, 2012	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
In thousands	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. Treasury securities and obligations of U.S. government agencies	$	—	$	—	$	26	$	—	$	26	$	—
Obligations of U.S. government sponsored entities	5,051		58		1,768		8		6,819		66
Other debt securities	—		—		5,005		1,892		5,005		1,892
Equity securities	—		—		792		20		792		20
Total	$	5,051	$	58	$	7,591	$	1,920	$	12,642	$	1,978

In April 2009, FASB amended the impairment model for debt securities. The impairment model for equity securities was not affected. Under the new guidance, an other-than-temporary impairment loss must be fully recognized in earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost basis. However, even if an investor does not expect to sell a debt security, it must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recorded in accumulated other comprehensive income. The guidance also requires additional disclosures regarding the calculation of credit losses as well as factors considered in reaching a conclusion that an investment is not other-than-temporarily impaired. The Corporation adopted the new guidance effective April 1, 2009. The Corporation recorded a $1 million pre-tax transition adjustment for the non-credit portion of other-than-temporarily impaired (“OTTI”) on securities held at April 1, 2009 that were previously considered other-than-temporarily impaired.



	Less than 12 Months				12 Months or More				Total
December 31, 2011	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
In thousands	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. Treasury securities and obligations of U.S. government agencies	$	—	$	—	$	28	$	—	$	28	$	—
Obligations of U.S. government sponsored entities	1,527		—		1,824		11		3,351		11
Other debt securities	831		104		4,809		2,086		5,640		2,190
Equity securities	—		—		783		19		783		19
Total	$	2,358	$	104	$	7,444	$	2,116	$	9,802	$	2,220

The ~~following~~gross ~~table~~unrealized ~~presents~~losses aset ~~rollforward~~forth ofabove ~~the~~as ~~credit loss component~~ of ~~other-than-temporary~~March ~~impairment~~31, ~~losses~~2012 ~~(“OTTI”)~~were onattributable ~~debt~~primarily ~~securities~~to ~~for which a non~~single-~~credit~~issue ~~component~~trust ofpreferred ~~OTTI~~securities ~~was recognized in other comprehensive income~~ (~~loss~~“TRUPS”). ~~The~~issued ~~beginning~~by ~~balance~~financial ~~represents~~institutions, ~~the~~CDOs ~~credit~~collateralized ~~loss~~by ~~component~~TRUPS ~~for~~issued ~~debt~~by ~~securities~~banks ~~for~~and ~~which~~other ~~OTTI~~corporate ~~occurred prior to April 1~~debt, ~~2009.~~all ~~OTTI~~of ~~recognized~~which inare ~~earnings~~included ~~after~~with ~~that~~other ~~date for credit-impaired~~ debt securities. The isfair ~~presented~~value asof ~~additions~~these insecurities ~~two~~has ~~components,~~been ~~based~~negatively ~~upon~~impacted ~~whether~~by the ~~current~~lack ~~period~~of isliquidity in the ~~first~~overall ~~time~~TRUPS aand corporate debt ~~security~~markets ~~was~~although ~~credit-impaired~~all ~~(initial~~issuers ~~credit~~continue ~~impairment)~~to orperform. The isdecline ~~not~~in ~~the~~investment ~~first~~securities ~~time~~with ~~a debt security was credit impaired (subsequent credit impairment).~~

Changes in the credit loss component of credit-impaired debt securities were as follows:

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	For the Nine Months Ended		For the Nine Months Ended
In thousands	September 30, 2011		September 30, 2010
Balance, beginning of period	$	—	$	2,489
Add: Initial credit impairments	—		—
Additional credit impairments	—		—
Less: Sale of investment securities	—		—
Balance, end of period	$	—	$	2,489

continuing unrealized losses was a result of improved valuations in our other debt securities portfolio.

During the first ~~nine~~three months of ~~2011~~2012 and ~~2010~~2011, respectively, we recorded no other-than-temporary-impairment (“OTTI) charges.

The Bank owns a collateralized debt obligation (“CDO”) with a ~~carrying~~book value of $996,000 and market value of $~~408~~410,000 on which no impairment losses have been recorded because it is expected that this security will perform in accordance with its original terms and that the ~~carrying~~book value is fully recoverable based on the investment's payment performance, higher market valuations and a third-party consultant's conclusion that the investment will continue to be fully performing and be fully recoverable in accordance with the terms of the agreement. Additional information is presented below.

In thousands	~~September~~March 3031, ~~2011~~2012
Par value	$	1,000
Carrying value	$996	~~996~~
Fair value	$410	~~408~~
Unrealized loss	$586	~~588~~
Number of original issuers	50
Number of currently underlying banks in issuance	35
Number of currently paying banks in issuance	34
Number of defaulting and deferring banks	1210
Percentage of remaining banks expected to default or defer payment (annually)	1.2		%
Subordination	2934.2040		%

The 2934.24% subordination means that the tranche that we own has excess collateral providing additional collateral support to the tranche. Additionally, the Bank owns a portfolio of six single-~~issuer~~issue trust preferred securities with a ~~carrying~~book value of $4.54 million and a market value of $3.~~3 million, compared to a market value of $3.~~4 million ~~at the end of 2010~~. Finally, the Bank also owns two corporate securities with a ~~carrying~~book value of $1.9 million and a market value of $1.67 million that are rated below investment grade. All values are as of March 31, 2012. None of these securities ~~are~~is considered impaired as they are all fully performing and are expected to continue performing.

Available -for -sale securities in unrealized loss positions are analyzed as part of the Corporation's ongoing assessment of OTTI. When the Corporation intends to sell available-for-sale securities, the Corporation recognizes an impairment loss equal to the full difference between the amortized cost basis and fair value of those securities. When the Corporation does not intend to sell available -for -sale securities in an unrealized loss position, potential OTTI is considered based on a variety of factors, including the length of time and extent to which the fair value has been less than cost; adverse conditions specifically related to the industry, the geographic area or financial condition of the issuer or the underlying collateral of a security; the payment structure of the security; changes to the rating of the security by rating agencies; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date. For debt securities, the Corporation estimates cash flows over the remaining lives of the underlying collateral to assess whether credit losses exist and to determine if any adverse changes in cash flows have occurred. The Corporation's cash flow estimates take into account expectations of relevant market and economic data as of the end of the reporting period.

Other factors considered in determining whether a loss is temporary include the length of time and the extent to which fair value has been below cost; the severity of the impairment; the cause of the impairment; the financial condition and near-term prospects of the issuer; activity in the market of the issuer which may indicate adverse credit conditions; and the forecasted recovery period using current estimates of volatility in market interest ~~rates~~rate (including liquidity and risk premiums).

Management's assertion regarding its intent not to sell or that it is not more likely than not that the Corporation will be required to sell the security before its anticipated recovery considers a number of factors, including a quantitative estimate of the expected recovery period (which may extend to maturity), and management's intended strategy with respect to the identified security or portfolio. If management does have the intent to sell or believes it is more likely than not that the Corporation will be required to sell the security before its anticipated recovery, the gross unrealized loss is charged directly to earnings in the Consolidated Statements of Operations.

As of March 31, 2012, the Corporation does not intend to sell the securities with an unrealized loss position in accumulated other comprehensive loss (“AOCL”), and it is not more likely than not that the Corporation will be required to sell these securities before recovery of their amortized cost basis. The Corporation believes that the securities with an unrealized loss in AOCL are not other than temporarily impaired as of March 31, 2012.

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to sell the security before its anticipated recovery considers a number of factors, including a quantitative estimate of the expected recovery period (which may extend to maturity), and management's intended strategy with respect to the identified security or portfolio. If management does have the intent to sell or believes it is more likely than not that the Corporation will be required to sell the security before its anticipated recovery, the gross unrealized loss is charged directly to earnings in the Consolidated Statements of Operations.

As of September 30, 2011, the Corporation does not intend to sell the securities with an unrealized loss position in accumulated other comprehensive loss (“AOCL”), and it is not more likely than not that the Corporation will be required to sell these securities before recovery of their amortized cost basis. The Corporation believes that the securities with an unrealized loss in AOCL are not other than temporarily impaired as of September 30, 2011.

8. Investment securities held to maturity

The Bank transferred its entire held -to -maturity (“HTM”) portfolio to available for -sale (“AFS”) in March 2010. This transfer was made in conjunction with a deleveraging program to reduce total asset levels and improve capital ratios. As a result, purchases of securities may not be classified as HTM through March 2012.

9. Loans

Loans, net of unearned discount and net deferred origination fees and costs, were as follows:



(In thousands)	March 31, 2012		December 31, 2011
Commercial	$	24,035	$	26,516
Real estate	177,371		181,531
Installment	630		720
Total loans	202,036		208,767
Less: Unearned income	59		52
Loans	$	201,977	$	208,715

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. For non-homogeneous loans, such as commercial and commercial real estate loans, the Corporation analyzes the loans individually by classifying the loans as to credit risk and assesses the probability of collection for each type of class. The Corporation uses the following definitions for risk ratings:

Pass – Pass assets are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

Special Mention – A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard – A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

Doubtful – An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full questionable and improbable on the basis of currently known facts, conditions and values.

Loss – An asset or portion thereof, classified loss is considered uncollectible and of such little value that its continuance on the institution’s books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is significant doubt about whether, how much, or when the recovery will occur. As such, it is not practical or desirable to defer the write-off.

As of March 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

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9. Loans



March 31, 2012			Special Mention
(In thousands)	Pass				Substandard		Doubtful		Loss		Total
Commercial loans	$	21,319	$	1,199	$	1,304	$	213	$	—	$	24,035
Real estate loans
Church	29,338		7,528		19,153		528		—		56,547
Construction - other than third-party originated	2,532		747		6,811		—		—		10,090
Construction - third-party originated	—		—		6,752		1,047		—		7,799
Multifamily	8,737		—		2,088		273		—		11,098
Other	42,386		4,802		18,725		525		—		66,438
Residential	22,481		—		2,918		—		—		25,399
Installment	627		1		1		1		—		630
	$	127,420	$	14,277	$	57,752	$	2,587	$	—	$	202,036

Loans, net of unearned discount and net deferred origination fees and costs were as follows:



December 31, 2011			Special Mention
(In thousands)	Pass				Substandard		Doubtful		Loss		Total
Commercial loans	$	23,560	$	1,084	$	1,656	$	216	$	—	$	26,516
Real estate loans
Church	30,133		7,105		20,220		—		—		57,458
Construction - other than third-party originated	3,115		—		7,333		—		—		10,448
Construction - third-party originated	—		—		6,990		1,047		—		8,037
Multifamily	10,594		66		1,673		273		—		12,606
Other	41,903		6,907		19,878		958		—		69,646
Residential	20,359		—		2,977		—		—		23,336
Installment	718		1		1		—		—		720
	$	130,382	$	15,163	$	60,728	$	2,494	$	—	$	208,767

In thousands	September 30, 2011		December 31, 2010
Commercial	$	31,456	$	38,225
Real estate	186,350		206,072
Installment	751		718
Total loans	218,557		245,015
Less: Unearned income	53		60
Loans	$	218,504	$	244,955

The following tables present the aging of the recorded investment in past due loans.

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. For non-homogeneous loans, such as commercial and commercial real estate loans, the Corporation analyzes the loans individually by classifying the loans as to credit risk and assesses the probability of collection for each type of class. The Corporation uses the following definitions for risk ratings:



March 31, 2012			30-60 Days		60-90 Days		More than 90 Days		Total Past Due
(In thousands)	0-30 Days										Current		Total
Commercial loans	$	2,014	$	903	$	836	$	2,164	$	5,917	$	18,118	$	24,035
Real estate loans
Church	1,512		3,140		5,407		7,652		17,711		38,836		56,547
Construction - other than third-party originated	—		1,185		—		5,641		6,826		3,264		10,090
Construction - third-party originated	—		—		—		7,799		7,799		—		7,799
Multifamily	—		169		536		1,761		2,466		8,632		11,098
Other	3,685		4,872		225		7,663		16,445		49,993		66,438
Residential	312		781		86		2,446		3,625		21,774		25,399
Installment	5		20		1		—		26		604		630
	$	7,528	$	11,070	$	7,091	$	35,126	$	60,815	$	141,221	$	202,036

Pass - Pass assets are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.

Special Mention - A special mention asset has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard - A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

Doubtful - An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable on the basis of currently known facts, conditions, and values.

Loss - An asset or portion thereof, classified loss is considered uncollectible and of such little value that its continuance on the institution's books as an asset, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has no recovery or salvage value; but rather, there is significant doubt about whether, how much, or when the recovery will occur. As such, it is not practical or desirable to defer the write-off.

The risk category of loans by class of loans is as follows:

September 30, 2011			Special Mention
In thousands	Pass				Substandard		Doubtful		Loss		Total
Commercial loans	$	28,226	$	1,263	$	1,899	$	68	$	—	$	31,456
Real estate loans
Church	33,102		4,578		20,643		—		—		58,323
Construction - other than third-party originated	2,975		—		7,392		—		—		10,367
Construction - third-party originated	—		—		7,660		1,945		—		9,605
Multifamily	10,760		542		1,133		273				12,708
Other	45,854		4,427		20,184		959		—		71,424
Residential	21,069		—		2,854		—		—		23,923
Installment	726		25		—		—		—		751
	$	142,712	$	10,835	$	61,765	$	3,245	$	—	$	218,557

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December 31, 2010

Special Mention

December 31, 2011

30-60Days

60-90Days

More than90 Days

Total Past Due

In thousands

Pass

Substandard

Doubtful

Loss

Total

(In thousands)

0-30 Days

Current

Total

Commercial loans

~~35,776~~177

~~916~~1,743

~~1,384~~784

~~149~~2,248

—4,952

3821,~~225~~564

26,516

Real estate loans

Church

~~38,785~~—

8,~~893~~127

158,~~106~~694

—6,478

—23,299

6234,~~784~~159

57,458

Construction - other than third-party originated

~~1,879~~—

~~598~~437

~~10,593~~—

~~579~~6,157

—6,594

133,~~649~~854

10,448

Construction - third-party originated

—108

—

~~9,514~~—

47,~~017~~929

—8,037

~~13,531~~—

8,037

Multifamily

~~11,742~~—

~~1,578~~106

~~1,240~~608

~~273~~1,404

2,118

1410,~~833~~488

12,606

Other

461,~~544~~986

51,~~064~~632

203,~~973~~837

19,~~202~~639

—17,094

7352,~~783~~552

69,646

Residential

~~24,286~~89

—1,299

~~2,714~~—

~~492~~2,557

—3,945

2719,~~492~~391

23,336

Installment

~~696~~16

161

—20

~~718~~700

720

~~159~~2,~~708~~376

1713,~~065~~345

6113,~~525~~924

636,~~717~~414

—66,059

~~245~~142,~~015~~708

208,767

The following tables present the aging of the recorded investment in past due loans.

September 30, 2011			30-60 Days		60-90Days		More than90 Days		Total Past Due
In thousands	0-30 Days										Current		Total
Commercial loans	$	1,458	$	3,151	$	743	$	3,935	$	9,287	$	22,169	$	31,456
Real estate loans
Church	3,274		7,596		6,592		5,511		22,973		35,350		58,323
Construction - other than third-party originated	—		454		—		5,754		6,208		4,159		10,367
Construction - third-party originated	—		612		780		8,213		9,605		—		9,605
Multifamily	—		650		68		1,406		2,124		10,584		12,708
Other	2,581		2,188		1,259		9,674		15,702		55,722		71,424
Residential	223		712		128		2,344		3,407		20,516		23,923
Installment	4		5		1		—		10		741		751
	$	7,540	$	15,368	$	9,571	$	36,837	$	69,316	$	149,241	$	218,557

December 31, 2010			30-60 Days		60-90Days		More than90 Days		Total Past Due
In thousands	0-30 Days										Current		Total
Commercial loans	$	3,251	$	1,336	$	1,449	$	2,308	$	8,344	$	29,881	$	38,225
Real estate loans
Church	339		13,096		7,630		4,909		25,974		36,810		62,784
Construction - other than third-party originated	4,025		—		—		8,057		12,082		1,567		13,649
Construction - third-party originated	454		1,531		530		9,253		11,768		1,763		13,531
Multifamily			2,608		1,248		273		4,129		10,704		14,833
Other	2,837		2,109		4,861		6,375		16,182		57,601		73,783
Residential	564		809		118		2,333		3,824		23,668		27,492
Installment	31		17				6		54		664		718
	$	11,501	$	21,506	$	15,836	$	33,514	$	82,357	$	162,658	$	245,015

The following tables present the recorded investment in impaired loans by class of loans.



March 31, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance
In thousands
Commercial loans	$	354	$	461	$	214
Real estate loans
Church	10,008		10,585		545
Construction - other than third-party originated	5,555		7,001		—
Construction - third-party originated	7,799		10,558		—
Multifamily	1,665		2,308		204
Other	14,798		15,286		65
Residential	2,513		2,623		26
	$	42,692	$	48,822	$	1,054



December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance
In thousands
Commercial loans	$	363	$	463	$	216
Real estate loans
Church	9,586		9,973		545
Construction - other than third-party originated	6,070		7,509		311
Construction - third-party originated	8,037		10,815		346
Multifamily	1,308		1,951		—
Other	15,027		16,265		65
Residential	2,583		2,266		38
	$	42,974	$	49,242	$	1,521

Nonperforming loans include loans that are contractually past due 90 days or more for which interest income is still being accrued, and nonaccrual loans. Nonperforming loans were as follows:



In thousands	March 31, 2012		December 31, 2011
Nonaccrual loans	$	41,770	$	42,008
Loans with interest or principal 90 days or more past due and still accruing	139		2,218
Total nonperforming loans	$	41,909	$	44,226

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September 30, 2011	Recorded Investment		Unpaid PrincipalBalance		RelatedAllowance
In thousands
Commercial loans	$	351	$	360	$	—
Real estate loans
Church	9,290		8,788		582
Construction - other than third-party originated	5,663		7,055		464
Construction - third-party originated	9,605		13,331		346
Multifamily	1,308		1,951		—
Other	11,819		11,575		323
Residential	2,179		2,078		1
Installment	—		—		—
	$	40,215	$	45,138	$	1,716

Nonperforming assets are generally secured by small commercial real estate properties, except for church loans, which are generally secured by the church buildings.

December 31, 2010	Recorded Investment		Unpaid PrincipalBalance		RelatedAllowance
In thousands
Commercial loans	$	10	$	10	$	—
Real estate loans
Church	5,460		5,624		—
Construction - other than third-party originated	6,689		7,067		242
Construction - third-party originated	13,078		16,315		1,123
Multifamily	273		824
Other	7,024		7,798		102
Residential	2,227		2,394		35
Installment	—		—		—
	$	34,761	$	40,032	$	1,502

At March 31, 2012, 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. A majority of the Bank’s portfolio is concentrated in the New York City metropolitan area and is secured by commercial properties. The borrowers’ abilities to repay their obligations are dependent upon various factors including the borrowers’ income, net worth, cash flows generated by the underlying collateral, the value of the underlying collateral and priority of the Bank’s lien on the related property. Such factors are dependent upon various economic conditions and individual circumstances beyond the Bank’s control. Accordingly, the Bank may be subject to risk of credit losses.

~~Nonperforming~~Impaired loans ~~include~~totaled ~~loans~~$42.7 ~~which~~million ~~are~~at ~~contractually~~March ~~past~~31, ~~due~~2012, 90compared ~~days~~to or$43.0 ~~more~~million at December 31, 2011. The related allocation of the allowance for ~~which~~loan ~~interest~~losses ~~income~~amounted isto ~~still~~$1.1 ~~being~~million ~~accrued~~and $1.5 million at March 31, 2012 and ~~nonaccrual~~December ~~loans~~31,2011, respectively. ~~Nonperforming~~Charge-offs of impaired loans ~~were~~in the 2012 first quarter totaled $347,000, while $37.5 million of impaired loans have no allowance allocated to them as ~~follows:~~sufficient collateral exists.

In thousands	September 30, 2011		December 31, 2010
Nonaccrual loans	$	39,585	$	35,916
Loans with interest or principal 90 days or more past due and still accruing	3,313		2,343
Total nonperforming loans	$	42,898	$	38,259

The average balance of impaired loans in the first quarter of 2012 was $42.9 million, compared to $36.5 million for the same period in 2011. Most of the impaired loans are secured by small commercial real estate properties. There was no interest income recognized on impaired loans during the first three months of 2012 or 2011.

~~Nonperforming~~Included ~~assets~~in impaired loans are ~~generally~~loans ~~secured~~to bychurches ~~residential~~totaling ~~and~~$10.0 ~~small~~million ~~commercial~~with ~~real~~a ~~estate~~related ~~properties,~~allowance ~~except~~of ~~for~~$545,000. Additionally, ~~church~~impaired loans, ~~which~~include ~~are~~$7.8 ~~generally~~million ~~secured~~of byconstruction loans participations acquired from the ~~church~~third-party ~~buildings~~lender with no related allowance.

AtWe ~~September~~may 30extend, ~~2011,~~restructure ~~there~~or ~~were~~otherwise nomodify ~~commitments~~the terms of existing loans on a case-by-case basis to ~~lend~~remain ~~additional~~competitive ~~funds~~or to ~~borrowers~~assist ~~for~~other ~~loans~~customers ~~that~~who ~~were~~may onbe ~~nonaccrual~~experiencing orfinancial ~~contractually~~difficulty. If ~~past~~a ~~due~~concession inhas ~~excess~~been ofmade 90to ~~days~~a ~~and~~borrower ~~still~~experiencing ~~accruing~~financial ~~interest~~difficulty, orthe toloan ~~borrowers~~is ~~whose~~then ~~loans~~classified ~~have~~as ~~been~~a ~~restructured~~troubled debt restructuring (“TDR”). AThe majority of ~~the~~concessions ~~Bank's~~made ~~loan~~for ~~portfolio~~TDRs isinvolve ~~concentrated~~lowering in the ~~New~~monthly ~~York~~payments ~~City~~on ~~metropolitan~~the ~~area~~loans ~~and~~either isthrough ~~secured~~a byreduction ~~commercial~~in ~~properties. The~~the ~~borrowers'~~interest ~~abilities~~rate tobelow ~~repay~~a ~~their~~market ~~obligations~~rate, ~~are~~an ~~dependent~~extension ~~upon~~of ~~various~~the ~~factors~~term ~~including~~of the ~~borrowers'~~loan ~~income,~~or ~~net~~a ~~worth,~~combination ~~cash~~of ~~flows~~the ~~generated~~two bymethods. They ~~the~~seldom ~~underlying~~result ~~collateral,~~in the ~~value~~forgiveness of ~~the~~principal ~~underlying~~or ~~collateral~~accrued ~~and~~interest; ~~priority~~in ofaddition, ~~the~~we ~~Bank's~~attempt ~~lien~~to onobtain ~~the~~additional ~~related~~collateral ~~property~~or guarantees when modifying such loans. ~~Such~~If ~~factors~~the ~~are~~borrower ~~dependent~~demonstrates ~~upon~~the ~~various~~ability ~~economic~~to ~~conditions~~perform ~~and~~under ~~individual~~the ~~circumstances~~restructured ~~beyond~~terms, the ~~Bank's~~loan ~~control~~will continue to accrue interest. ~~Accordingly,~~Nonaccrual ~~the~~restructured ~~Bank~~loans may be ~~subject~~returned to ~~risk~~accrual status when there has been a sustained period of ~~credit~~repayment ~~losses~~performance (generally six consecutive months of payments) and both principal and interest are considered collectible.

~~Impaired~~As ~~loans~~a ~~totaled~~result ~~$40.2~~of ~~million~~the atadoption ~~September~~of ~~30,~~ASU 2011-02, upCNB ~~from~~reassessed ~~$34.8~~all ~~million~~loan atrestructurings ~~December~~that ~~31,~~occurred ~~2010. The~~on ~~related~~or ~~allocation~~after ofJanuary ~~the allowance for loan losses amounted to $~~1.7, ~~million and $1.5 million. Charge-offs of impaired loans in the first nine months of~~ 2011 ~~totaled~~for ~~$1.9~~potential ~~million.~~identification ~~$32.8 million of impaired loans have no allowance allocated to them~~ as ~~sufficient~~TDRs ~~collateral~~and ~~exists. The~~has ~~average~~concluded ~~balance~~that ~~of impaired loans in~~ the ~~third~~adoption ~~quarter and first nine months~~ of ASU 2011-02 ~~was~~did ~~$39.5~~not ~~million~~materially ~~and~~impact ~~$37.7 million, respectively, compared to $25.4 million and $20.7 million in~~ the ~~similar~~number ~~periods~~ of ~~2010. Most~~TDRs ofor the ~~impaired~~specific ~~loans~~reserves ~~are~~for ~~secured~~such ~~by commercial real estate properties. There was no interest income recognized on impaired~~ loans ~~during~~included ~~the~~in ~~first~~our ~~nine~~allowance ~~months~~for ofloan losses.

Troubled debt restructured loans (“TDRs”) totaled $5.2 million, with a related allowance of $108,000 at March 31, 2012 and included seven borrowers. TDRs to five borrowers amounting to $3.9 million were accruing. The remaining two loans continue to be on nonaccrual status due to delinquent payments. All TDRs are included in the balance of impaired loans.

The Corporation did not have any loans modified as TDRs during the first three months of 2012.

The following tables present loans by loan class modified as TDRs as of March 31, 2012. The pre-modification and post-modification outstanding recorded investments disclosed in the tables below, represent carrying amounts immediately prior to the modification and at March 31, 2012, respectively. There were no charge-offs resulting from loans modified as TDRs during the first quarter of 2012.



	At March 31, 2012
Troubled Debt Restructurings	Number of Contracts	Pre-Modification Outstanding		Post-Modification Outstanding
Churches	3	$	3,100	$	2,591
Commercial real estate:
Other	2	3,225		1,895
Total commercial real estate	5	6,325		4,486
Residential mortgage	3	939		749
Total	8	$	7,264	$	5,235

Table of Contents

~~either~~10. ~~2011~~Provision orand ~~2010.~~allowance for loan losses

WeThe ~~may~~following ~~extend,~~tables ~~restructure~~present ~~or otherwise modify~~ the ~~terms~~allowance offor ~~existing~~loan ~~loans~~losses ~~on a case-~~by~~-case~~ ~~basis~~portfolio tosegment ~~remain~~along ~~competitive~~with ~~or to assist other customers who may be experiencing financial difficulty. If a concession has been made to a borrower experiencing financial difficulty,~~ the ~~loan~~related isrecorded ~~then~~investment ~~classified as a troubled debt restructuring ("TDR"). The majority of concessions made for TDRs involve lowering the monthly payments on the loans either through a reduction~~ in interest rate below a market rate, an extension of the term of the loan, or a combination of the two methods. They seldom result in the forgiveness of principal or accrued interest. In addition, we attempt to obtain additional collateral or guarantees when modifying such loans~~. If~~ ~~the~~based ~~borrower~~on ~~demonstrates~~impairment ~~the ability to perform under the restructured terms, the loan will continue to accrue interest~~method. Nonaccruing restructured loans may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are considered collectible.

As a result of the adoption of ASU 2011-02, CNB reassessed all loan restructurings that occurred on or after January 1, 2011 for potential identification as TDRs and has concluded that the adoption of ASU 2011-02 did not materially impact the number of TDRs or the specific reserves for such loans included in our allowance for loan losses at September 30, 2011.



	Allowance for Loan Losses								Recorded Investments
March 31, 2012	Individually Evaluated		Collectively Evaluated		Unallocated		Total Allowance		Individually Evaluated		Collectively Evaluated		Total Recorded Investment
(In thousands)
Commercial loans	$	214	$	937	$	—	$	1,151	$	354	$	23,681	$	24,035
Real estate loans
Church	545		1,434				1,979		10,008		46,539		56,547
Construction - other than third-party	—		567				567		5,555		4,535		10,090
Construction - third-party originated	—		—				—		7,799		—		7,799
Multifamily	204		259				463		1,665		9,433		11,098
Commercial	65		1,695				1,760		14,798		51,640		66,438
Residential	26		849				875		2,513		22,886		25,399
Installment	—		45				45		—		630		630
Unallocated	—		—		3,770		3,770		—		—		—
	$	1,054	$	5,786	$	3,770	$	10,610	$	42,692	$	159,344	$	202,036

Troubled debt restructured loans (“TDRs”) totaled $5.4 million at September 30, 2011 and $2.9 million at December 31, 2010, with a related allowance of $342,000 and no related allowance at December 31, 2010 and included seven borrowers at September 30, 2011. TDRs to four borrowers amounting to $3.7 million were accruing. The remainder are on nonaccrual status due to delinquent payments. All TDRs are included in the balance of impaired loans. Three TDRs totaling 1.8 million defaulted on the modified terms during 2011.



	Allowance for Loan Losses								Recorded Investments
December 31, 2011	Individually Evaluated		Collectively Evaluated		Unallocated		Total Allowance		Individually Evaluated		Collectively Evaluated		Total Recorded Investment
(In thousands)
Commercial loans	$	216	$	1,089	$	—	$	1,305	$	363	$	26,153	$	26,516
Real estate loans
Church	545		1,537				2,082		9,586		47,872		57,458
Construction - other than third-party	311		687				998		6,070		4,378		10,448
Construction - third-party originated	346		—				346		8,037		—		8,037
Multifamily	—		285				285		1,308		11,299		12,607
Commercial	65		1,876				1,941		15,027		54,619		69,646
Residential	38		802				840		2,583		20,752		23,335
Installment	—		51				51		—		720		720
Unallocated	—		—		3,022		3,022		—		—		—
	$	1,521	$	6,327	$	3,022	$	10,870	$	42,974	$	165,793	$	208,767

The following tables present loans by loan class modified as TDRs during the three and nine months ended September 30, 2011. The pre-modification and post-modification outstanding recorded investments disclosed in the tables below, represent carrying amounts immediately prior to the modification and at September 30, 2011, respectively. There were no chargeoffs resulting from loans modified as TDRs during the three and nine months ended September 30, 2011.

	Three Months Ended September 30, 2011
Troubled DebtRestructurings	Number ofBorrowers	Pre-ModificationOutstandingRecorded Investment		Post-ModificationOutstandingRecorded Investment
Churches	1	$	921	$	921
Commercial real estate	—	—		—
Construction	—	—		—
Total commercial real estate	1	921		921
Residential mortgage	—	—		—
Total	1	$	921	$	921

	Nine Months Ended September 30, 2011
Troubled DebtRestructurings	Number ofContracts	Pre-ModificationOutstandingRecorded Investment		Post-ModificationOutstandingRecorded Investment
Churches	1	$	921	$	921
Commercial real estate:
Other	1	1,492		1,492
Total commercial real estate	2	2,413		2,413
Residential mortgage	2	389		389
Total	4	$	2,802	$	2,802

Table of Contents

The changes in allowance for loan losses are set forth below:

TDRs totaling $1.8 million defaulted as to the modified terms during the third quarter of 2011.



	Balance,		Provision for Loan Losses							Balance,
(In thousands	December 31, 2011					Recoveries		Charge-offs		March 31, 2012
Commercial loans	$	1,305	$	(48	)	$	38	$	144	$	1,151
Real estate loans
Church	2,082		37			—		140		1,979
Construction - other than third-party originated	998		(428		)	2		5		567
Construction - third-party originated	346		(346		)	—		—		—
Multifamily	285		178			—		—		463
Other	1,941		(131		)	91		141		1,760
Residential	840		122			12		99		875
Installment	51		(7		)	1		—		45
Unallocated	3,022		748			—		—		3,770
	$	10,870	$	125		$	144	$	529	$	10,610

~~The~~11. ~~following~~Long-term ~~tables present the allowance for loan losses by portfolio segment along with the related recorded investment in loans based on impairment method.~~debt

	Allowance for Loan Losses						Recorded Investments
September 30, 2011	IndividuallyEvaluated		Collectively Evaluated		Total Allowance		IndividuallyEvaluated		Collectively Evaluated		Total Recorded Investment
In thousands
Commercial loans	$	—	2,166		$	2,166	$	351	31,105		$	31,456
Real estate loans
Church	582		2,075		2,657		9,290		49,033		58,323
Construction - other than third-party originated	464		949		1,413		5,663		4,704		10,367
Construction - third-party originated	346		—		346		9,605		—		9,605
Multifamily	—		353		353		1,308		11,400		12,708
Commercial	323		1,934		2,257		11,819		59,605		71,424
Residential	1		959		960		2,179		21,744		23,923
Installment	—		42		42		—		751		751
Unallocated	—		409		409						—
	$	1,716	$	8,887	$	10,603	$	40,215	$	178,342	$	218,557

At March 31, 2012, long-term debt included a $5 million, 5% senior note due in February 2022 issued under a Credit Agreement (as defined below). Interest is payable quarterly for the first ten years and payable thereafter at a fixed rate based on the yield of the ten-year U.S. Treasury note plus 150 basis points in effect on the tenth anniversary of the note agreement. Quarterly principal payments of $250,000 commence in the eleventh year of the loan. As an additional condition for receiving the loan, the Bank is required to contribute $100,000 annually for the first five years the loan is outstanding to a nonprofit lending institution formed jointly by CNB and the lender to provide financing to small businesses that would not qualify for bank loans.

December 31, 2010	IndividuallyEvaluated		Collectively Evaluated		Total Allowance
In thousands
Commercial loans	$	—	$	2,770	$	2,770
Real estate loans
Church	—		1,559		1,559
Construction - other than third-party originated	242		220		462
Construction - third-party Originated	1,123		452		1,575
Multifamily	—		633		633
Other	102		2,231		2,333
Residential	35		701		736
Installment	—		55		55
Unallocated	—		503		503
	$	1,502	$	9,124	$	10,626

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10. Provision and allowance for loan losses

Changes in the allowance for loan losses are set forth below.

	Balance,		Provision for Loan Losses							Balance,
In thousands	December 31, 2010					Recoveries		Chargeoffs		September 30, 2011
Commercial loans	$	2,770	$	(515	)	$	85	$	174	$	2,166
Real estate loans
Church	1,559		1,099			66		67		2,657
Construction - other than third-party originated	462		2,445			—		1,494		1,413
Construction - third-party originated	1,575		(959		)	—		270		346
Multifamily	633		(212		)	—		68		353
Other	2,333		398			58		532		2,257
Residential	736		352			6		134		960
Installment	55		—			1		14		42
Unallocated	503		(94		)	—		—		409
	$	10,626	$	2,514		$	216	$	2,753	$	10,603

11. Fair value measurement of assets and liabilities

The fair value hierarchy established by ASC Topic 820, “Fair Value Measurements and Disclosures” prioritizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below.

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;

Level 2 - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the assets or liabilities;

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following tables present the assets that are measured at fair value hierarchy at September 30, 2011 and December 31, 2010, respectively.

September 30, 2011
(In thousands)	Total		Level 1		Level 2		Level 3
Investment securities available for sale	$	96,343	$	3,236	$	92,699	$	408
Total assets	$	96,343	$	3,236	$	92,699	$	408

December 31, 2010
(In thousands)	Total		Level 1		Level 2		Level 3
Investment securities available for sale	$	105,420	$	3,429	$	102,492	$	499
Total assets	$	105,420	$	3,429	$	102,492	$	499

The fair value of Level 3 investments at September 30, 2011 was $91,000 less than the related fair value at December 31, 2010 due to an increase in the market value of the Level 3 investments.

Level 1 securities includes securities issued by the U.S. Treasury Department based upon quoted market prices. Level 2 securities includes fair value measurements obtained from various sources including the utilization of matrix pricing, dealer quotes, market spreads, live trading levels, credit information and the bond's terms and conditions, among other things. Any investment security

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not valued based on the aforementioned criteria are considered Level 3. Level 3 fair values are determined using unobservable inputs and include corporate debt obligations for which there are no readily available quoted market values as discussed under “Management's Discussion and Analysis of Financial Condition and Results of Operations” - Investments. For such securities, market values have been provided by the trading desk of an investment bank, which compares characteristics of the securities with those of similar securities and evaluates credit events in underlying collateral or obtained from an external pricing specialist which utilized a discounted cash flow model.

Impaired loans totaled $40.2 million at September 30, 2011, up from $34.8 million at December 31, 2010. The related allocation of the allowance for loan losses amounted to $1.7 million and $1.5 million. Charge-offs of impaired loans in the first nine months of 2011 totaled $1.9 million. $32.8 million of impaired loans have no allowance allocated to them as sufficient collateral exists. The average balance of impaired loans in the third quarter and first nine months of 2011 was $39.5 million and $37.7 million, respectively, compared to $25.4 million and $20.7 million in the similar periods of 2010. Most of the impaired loans are secured by commercial real estate properties. There was no interest income recognized on impaired loans during the first nine months of either 2011 or 2010.

At September 30, 2011, the Corporation had impaired loans with outstanding principal balances of $40.2 million, of which $1.9 million was written down to fair value during the first nine months of 2011, while at September 30, 2010, the Corporation had impaired loans with outstanding principal balances of $26.8 million, of which $2.8 million were written down to fair value during the first nine months of 2010. Impaired assets are valued utilizing current appraisals adjusted downward by management, as necessary, for changes in relevant valuation factors subsequent to the appraisal date, as well as costs to sell the underlying collateral.

12. Long-term debt

At September 30, 2011, long-term debt included a $5 million, 5% senior note due in February 2022 issued under a Credit Agreement (as defined below). Interest is payable quarterly for the first ten years and payable thereafter at a fixed rate based on the yield of the ten-year U.S. Treasury note plus 150 basis points in effect on the tenth anniversary of the note agreement. Quarterly principal payments of $250,000 commence in the eleventh year of the loan. As an additional condition for receiving the loan, the Bank is required to contribute $100,000 annually for the first five years the loan is outstanding to a nonprofit lending institution formed jointly by CNB and the lender to provide financing to small businesses that would not qualify for bank loans.

On November 3, 2010, the Corporation entered into a First Amendment to Credit Agreement (the “Amendment”) with The Prudential Insurance Company of America (“Prudential”) amending and modifying that certain Credit Agreement by and between the Corporation and Prudential, dated as of February 21, 2007 (the “Credit Agreement”).

The purpose of the Amendment was to: (a) modify the use of proceeds provisions of the Credit Agreement governing Prudential'’s $5,000,000 unsecured term loan to the Corporation so that the Corporation could convert its $5,000,000 subordinated loan to the Bank into equity of the Bank that will be treated by the OCC as ~~“Tier~~tier I” regulatory capital; (b) waive certain events of default resulting from the Bank'’s entry into the Formal Agreement with the OCC and failure to meet certain other material obligations, including deferral of dividends to its Series F and G preferred stockholders and deferral of certain obligations to holders of debentures related to its trust preferred securities; (c) waive any default interest that may have accrued during the pendency of such events of default; and (d) amend and restate the financial covenants of the Credit Agreement. On November 30, 2010, upon receipt of OCC approval the subordinated loan was converted into equity, thereby increasing the Bank'’s ~~Tier~~tier 1 leverage capital. However, as a result of the Consent Order entered into on December 22, 2010 and the failure to achieve certain capital ratios required by the OCC, the Corporation was once again in default under this loan and is attempting to obtain a waiver from the lender. As a result of the default, the loan has been reclassified to short-term portion of long-term debt on the accompanying Consolidated Balance Sheets.

The Corporation has been in violation of certain covenants of the loan agreement. Although the loan becomes immediately payable as a result of these violations, which are considered an event of default, the lender has informally indicated that no action will be taken as a result of these violations.

1312. Fair value measurement of ~~financial~~assets ~~instruments~~and liabilities

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities.

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Level 2 – Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the assets or liabilities.

Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Level 1 securities include securities issued by the U.S. Treasury Department based upon quoted market prices. Level 2 securities include fair value measurements obtained from various sources including the utilization of matrix pricing, dealer quotes, market spreads, live trading levels, credit information and the bond's terms and conditions, among other things. Any investment security not valued based on the aforementioned criteria are considered level 3. Level 3 fair values are determined using unobservable inputs and include corporate debt obligations for which there are no readily available quoted market values as discussed under “Management's Discussion and Analysis of Financial Condition and Results of Operations - Investments.” For such securities, market values have been provided by the trading desk of an investment bank, which compares characteristics of the securities with those of similar securities and evaluates credit events in underlying collateral or obtained from an external pricing specialist, which utilized a discounted cash flow model.

The fair value of financial instruments is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced liquidation. Fair value estimates are made at a specific point in time based on the type of financial instrument and relevant market information.

Because no quoted market price exists for a significant portion of the Corporation's financial instruments, the fair values of such financial instruments are derived based on the amount and timing of future cash flows, estimated discount rates, as well as management's best judgment with respect to current economic conditions. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision.

The fair value information provided is indicative of the estimated fair values of those financial instruments and should not be interpreted as an estimate of the fair market value of the Corporation taken as a whole. The disclosures do not address the value of recognized and unrecognized non-financial assets and liabilities or the value of future anticipated business. In addition, tax implications related to the realization of the unrealized gains and losses could have a substantial impact on these fair value estimates and have not been incorporated into any of the estimates.

22The following methods and assumptions were used to estimate the fair values of significant financial instruments at March 31, 2012 and December 31, 2011.

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of recognized and unrecognized nonfinancial assets and liabilities or the value of future anticipated business. In addition, tax implications related to the realization of the unrealized gains and losses could have a substantial impact on these fair value estimates and have not been incorporated into any of the estimates.

The following methods and assumptions were used to estimate the fair values of significant financial instruments at September 30, 2011 and December 31, 2010.

Cash, short-term investments and interest-bearing deposits with banks

These financial instruments have relatively short maturities or no defined maturities but are payable on demand, with little or no credit risk. For these instruments, the carrying amounts represent a reasonable estimate of fair value.

Investment securities

Investment securities are reported at their fair values based on prices obtained from a nationally recognized pricing service, where available. Otherwise, fair value measurements are obtained from various sources including dealer quotes, matrix pricing, market spreads, live trading levels, credit information and the bond's terms and conditions, among other things. Management reviews all prices obtained for reasonableness on a quarterly basis.

Loans

Fair values were estimated for performing loans by discounting the future cash flows using market discount rates that reflect the credit and interest-rate risk inherent in the loans, reduced by the allowance for loan losses. This method of estimating fair value does not incorporate the exit price concept of fair value prescribed by the FASB ASC Topic for Fair Value Measuring and Disclosure.

Loans held for sale

The fair value for loans held for sale is based on estimated secondary market prices.

Deposit liabilities

The fair values of demand deposits, savings deposits and money market accounts were the amounts payable on demand at ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011. The fair value of time deposits was based on the discounted value of contractual cash flows. The discount rate was estimated utilizing the rates currently offered for deposits of similar remaining maturities.

These fair values do not include the value of core deposit relationships that comprise a significant portion of the Bank's deposit base.

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Management believes that the Bank's core deposit relationships provide a relatively stable, low-cost funding source that has a substantial value separate from the deposit balances.

Long-term debt

The fair value of long-term debt was estimated based on rates currently available to the Corporation for debt with similar terms and remaining maturities.

Commitments to extend credit and letters of credit

The estimated fair value of financial instruments with off-balance sheet risk is not significant at ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011.

The following ~~table~~tables ~~presents~~present the ~~carrying~~assets ~~amounts~~that are measured at fair value on a recurring and nonrecurring basis by level within the fair ~~values~~value hierarchy and on the consolidated statements of financial ~~instruments~~condition at March 31, 2012 and December 31, 2011. The assets presented under “nonrecurring fair value measurements” in the table below are not measured at fair value on an ongoing basis but are subject to fair value adjustments under certain circumstances (e.g., when an impairment loss is recognized).

	September 30, 2011			December 31, 2010
					Fair Value Measurements at Reporting Date Using:
(In thousands)	Carrying Value	Fair Value		Carrying Value	Fair Value
					Quoted Prices				Significant
Financial assets
					in Active Markets		Significant Other		Unobservable
Cash and other short-term
			March 31,		For Identical Assets		Observable Inputs		Inputs
investments	24,381	24,381		20,778	20,778
			2012		(Level 1)		(Level 2)		(Level 3)
Interest-bearing deposits with banks	2,135	2,135		3,289	3,289
			(in thousands)
Investment securities AFS	96,343	96,343		105,420	105,420
Recurring fair value measurements:
Loans	207,901	202,172		234,329	228,616
Assets
Financial liabilities
Investment securities:
Deposits	304,483	300,931		338,551	331,434
	Available for sale:
Long-term debt	19,200	20,236		19,200	19,631
	U. S. government agency securities		$	9,035	$	9,035	$	—	$	—
	Obligations of U.S. government sponsored entities		20,357		—		20,357		—
	Obligations of state and political subdivisions		3,537		—		3,537		—
	Mortgage-backed securities		56,825		—		56,825		—
	Corporate and other debt securities		6,541		—		6,131		410
	Equity securities		2,748		—		2,748		—
Total available for sale			99,043		9,035		89,598		410
Total assets			$	99,043	$	9,035	$	89,598	$	410
Nonrecurring fair value measurements:
Collateral-dependent impaired loans			$	11,578	$	—	$	—	$	11,578
Other real estate owned			2,101		—		—		2,101
Total			$	13,679	$	—	$	—	$	13,679

~~14. Subsequent event~~22

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				Fair Value Measurements at Reporting Date Using:
				Quoted Prices				Significant
				in Active Markets		Significant Other		Unobservable
		December 31,		For Identical Assets		Observable Inputs		Inputs
		2011		(Level 1)		(Level 2)		(Level 3)
		(in thousands)
Recurring fair value measurements:
Assets
Investment securities:
	Available for sale:
	U. S. government agency securities	$	9,151	$	9,151	$	—	$	—
	Obligations of U.S. government sponsored entities	13,027		—		13,027		—
	Obligations of state and political subdivisions	3,500		—		3,500		—
	Mortgage-backed securities	60,432		—		60,432		—
	Corporate and other debt securities	6,207		—		5,795		412
	Equity securities	2,741		—		2,741		—
Total available for sale		95,058		9,151		85,495		412
Total assets		$	95,058	$	9,151	$	85,495	$	412
Nonrecurring fair value measurements:
Collateral-dependent impaired loans		$	12,632	$	—	$	—	$	12,632
Other real estate owned		1,524		—		—		1,524
Total		$	14,156	$	—	$	—	$	14,156

The following table presents the carrying amounts and estimated fair values of financial instruments not measured and not reported at fair value on the consolidated balance sheets at March 31, 2012 and December 31, 2011.



		March 31, 2012				December 31, 2011
(In thousands)	Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value	Fair Value
Financial assets
Cash and other short-term investments	Level 1	$	48,622	$	48,622	38,560	38,560
Interest-bearing deposits with banks	Level 1	1,652		1,661		1,940	1,940
Net loans	Level 3	201,977		197,008		208,715	203,084
Accrued interest receivable	Level 1	1,550		1,550		1,561	1,561
Financial liabilities
Deposits without stated maturities	Level 1	164,669		149,607		152,054	138,290
Deposits with stated maturities	Level 2	151,461		154,580		147,217	150,753
Long-term debt	Level 2	19,200		20,412		19,200	20,436
Accrued interest payable (1)	Level 1	781		781		681	681

(1) Included in accrued expenses and other liabilities.

The following methods and assumptions that were used to estimate the fair value of other financial assets and financial liabilities in the table above:

Cash and due from banks and interest-bearing deposits with banks. The carrying amount is considered to be a reasonable estimate of that value because of the short maturity of these items.

Loans. Fair value of loans are estimated by discounting the projected future cash flows using market discount rates that reflect the credit and interest-rate risk inherent in the loan. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Fair values estimated in this manner do not fully incorporate and exit- price to fair value, but instead area based on a comparison to current market rates for comparable loans.

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AsAccrued ~~defined~~interest inreceivable FASB ASC 855-10, “Subsequent Events”, subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Financial statements are considered issued when they are widely distributed to shareholders and ~~other financial statement users for general use and reliance in a form and format that complies with GAAP~~payable. The ~~Corporation~~carrying ~~has~~amounts ~~evaluated~~of ~~subsequent~~accrued ~~events~~interest ~~through~~approximate ~~November~~their ~~15,~~fair ~~2011,~~value ~~which~~due isto the ~~date~~short-term ~~that~~nature ~~the~~of ~~Corporation's~~these ~~financial statements are being issued~~items.

~~Based~~Deposits without onstated ~~the evaluation, City National Bancshares Corporation deferred the payment of its regular quarterly cash dividend on its Series G fixed-rate cumulative perpetual preferred stock issued to the U~~maturities.S. The ~~Treasury~~current incarrying ~~connection~~amounts ~~with~~approximate the ~~Corporation's~~estimated ~~participation~~fair invalue ~~the~~of ~~Treasury's~~demand ~~TARP~~deposits ~~Capital~~and ~~Purchase~~savings ~~Program~~accounts.

Deposits with stated maturities. The fair value of time deposits is based on the discounted value of contractual cash flows using estimated rates currently offered for alternative funding sources of similar remaining maturity.

Long-term debt. The fair value of long-term debt was estimated based on rates currently available to the Corporation for debt with similar terms and remaining maturities.

13. Subsequent events

As defined in FASB ASC 855-10, “Subsequent Events,” subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Financial statements are considered issued when they are widely distributed to shareholders and other financial statement users for general use and reliance in a form and format that compiles with GAAP. The Corporation has evaluated subsequent events through August 21, 2012, which is the date that the Corporation’s financial statements are being issued.

Based on the evaluation, City National Bancshares Corporation deferred the payment of its regular quarterly cash dividend on its Series G fixed-rate cumulative perpetual preferred stock issued to the U.S. Treasury in connection with the Corporation’s participation in the Treasury’s TARP Capital Purchase Program.

The Corporation also deferred its regularly scheduled quarterly interest payment on its junior subordinated debentures issued by the Trust.

In the second quarter of 2012, we sold our interest in an unconsolidated leasing subsidiary for $2.9 million, recognizing a gain on the transaction of $500,000.

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this analysis is to provide information relevant to understanding and assessing the Corporation'’s results of operations for the first quarter of the current and previous years and financial condition at the end of the current quarter and previous year-end.

Cautionary statement concerning forward-looking statements

This management'’s discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include expressions about management'’s expectations about new and existing programs and products, relationships, opportunities, and market conditions. Such forward - looking statements involve certain risks and uncertainties. These include, but are not limited to, unanticipated changes in the direction of interest rates, effective income tax rates, loan ~~prepayment~~prepayments assumptions, deposit growth, the direction of the economy in New Jersey and New York, continued levels of loan quality, continued relationships with major customers as well as the effects of general economic conditions and legal and regulatory issues and changes in tax regulations. Actual results may differ materially from such forward-looking statements. The Corporation assumes no ~~obligation~~obligations for updating any such forward-looking statement at any time.

Executive summary

The primary source of the Corporation's income comes from net interest income, which represents the excess of interest earned on interest-earning assets over the interest paid on interest-bearing liabilities. This income is subject to interest rate risk resulting from changes in interest rates. The most significant component of the Corporation's interest-earning assets is the loan portfolio. In addition to the aforementioned interest rate risk, the portfolio is subject to credit risk. Certain components of the investment portfolio are subject to credit risk as well.

The U.S. and regional economic environment remained weak in the third quarter of 2011 as evidenced by stagnant economic indicators. This led the Federal Reserve Bank to maintain and continue to support a target range of zero to .25% for the federal funds rates. Management believes that the current low interest rate environment coupled with high unemployment, will continue to challenge our business operations during the remainder of 2011.

The Corporation recorded a $1.3 million net loss in the 2011 third quarter compared to a net loss of $3.3 million in the third quarter of 2010, and a net loss for the first nine months of 2011 of $4 million compared to a net loss of $3.3 million for the comparable period in 2010. The third quarter loss reduction resulted primarily from a decline in the loan loss provision from $2.8 million to $500,000 in the 2011 third quarter. The 2011 year-to-date loss was higher than a year earlier due primarily to declines in net interest income and award income, as the second quarter of 2010 included the recognition of a $1 million award received from the U.S. Treasury under its CDFI program for lending in lower-income communities, offset in part by a decline in the provision for loan losses. Also driving the continued losses from operations were higher credit costs and expenses incurred in connection with complying with the provisions of the aforementioned Consent Order.

Additionally, we expect to record reduced earnings during the remainder of 2011 due to expected higher costs for consultants retained to achieve compliance with the Consent Order, higher FDIC insurance expense and elevated credit costs, along with lower net interest income.

Management has undertaken several steps to reduce the losses and the deterioration in credit quality, including the closing of unprofitable branches, the elimination of executive and director retirement plans and the retention of consultants to manage our loan workout, collection and administrative remediation efforts. Additionally, management is reducing the concentration in real

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~~estate~~The ~~loans~~Federal Reserve Bank maintained and ~~has~~continued ~~suspended~~to ~~dividend~~support ~~payments~~a target range of zero to . ~~Finally,~~25% ~~during~~for the ~~first~~federal ~~quarter~~funds ofrates. Management ~~2011,~~believes wethat ~~engaged~~the ~~Preston~~current ~~Pinkett~~low ~~III~~interest asrate ~~our~~environment, ~~president~~coupled with persistent high unemployment and ~~chief~~depressed ~~executive~~commercial ~~officer~~real ~~following~~estate ~~the~~prices ~~retirement~~in ofour ~~Louis~~market ~~Prezeau~~area, ~~who~~will ~~remains~~continue ato ~~member~~challenge ofour business operations during the ~~board~~remainder of ~~directors~~2012.

The Bank is subject to a Consent Order with the Comptroller of the Currency (the “OCC”), and the Corporation is a party to the FRBNY Agreement, each as described in Note 3 of the Notes to the Consolidated Financial Statements. The Bank is currently not in compliance with the capital ratio requirements of the Consent Order. ~~The~~and ~~Bank~~ is taking steps to remedy its ~~non-compliance~~noncompliance with the Consent Order,; however, there is no assurance that it will be able to do so.

The Corporation recorded a $644,000 net loss for the first quarter ended March 31, 2012 compared to a net loss of $1.6 million for the same period in 2011. The first - quarter loss reduction resulted primarily from a decline in the loan loss provision from $1.2 million to $125,000, offset in part by a decline in net interest income from $2.8 million to $2.3 million. Driving the recurring losses from operations were higher credit costs and expenses incurred in connection with complying with the provisions of the aforementioned Consent Order.

Additionally, we expect to record operating losses for the remainder of 2012 due to costs related to consultants retained to achieve compliance with the Consent Order, higher FDIC insurance expense and elevated credit costs, along with lower net interest income.

Financial Condition

At ~~September~~March 3031, ~~2011~~2012, total assets ~~fell~~were to $~~349~~359.24 million ~~from $387.3 million at the end of 2010~~, ~~while~~which ~~total~~was ~~deposits~~relatively ~~decreased~~unchanged ~~to $304.5 million~~ from $~~338~~358.64 million at the end of ~~2010~~2011. Average assets, however, declined ~~during~~$42.5 million for the first ~~nine~~three months of ~~2011~~2012 to $~~382~~352.15 million from ~~$466.9 million~~ a year earlier. ~~The~~Total ~~declines~~deposits ~~resulted~~increased ~~from~~by ~~the~~$16.8 ~~seasonal~~million ~~withdrawal~~to of$316.1 ~~municipal~~million ~~deposit~~at ~~account~~March ~~balances~~31, ~~along~~2012 ~~with~~from ~~the~~ $17299.3 million ~~runoff~~at ofDecember ~~brokered deposits in 2011~~31, ~~which we are not allowed to retain under the provisions of the Consent Order~~2011. ~~The withdrawn deposits have since been redeposited by investing proceeds from loan and investment portfolio paydowns into Federal funds sold.~~

Federal funds sold

~~Federal~~There ~~funds~~were ~~sold~~no ~~totaled~~federal ~~$18~~funds ~~million~~sold at ~~September~~March 3031, ~~2011~~2012 compared to $1332.6 million at ~~the~~December ~~end of 2010~~31, ~~while the related average balance increased to $30.7 million in the three quarters of~~ 2011, ~~from~~as ~~$30~~all ~~million in~~ the ~~similar~~federal ~~period of 2010. Both changes resulted from the reinvestment of loan and investment payments into Federal~~ funds sold, ~~offset~~balances inwere ~~part~~transferred byto ~~the~~higher ~~aforementioned~~earning ~~changes~~interest-bearing indeposits ~~deposit~~with ~~balances and continuing operating losses~~banks.

Cash and due from banks

This category grew significantly as we moved our federal funds balances into an interest-bearing account at the Federal Reserve Bank of New York, earning a higher rate than other correspondents. The account balance in the Federal Reserve Bank of New York totaled $45.0 million at March 31, 2012.

Investments

The ~~Bank~~investment ~~transferred its entire held to maturity~~ portfolio toincreased ~~available for sale in March 2010~~$3. ~~This~~9 ~~transfer was made in conjunction with a deleveraging program to reduce total asset levels in order to improve capital ratios and improve liquidity by allowing for the disposition of securities~~million, ifor ~~necessary~~4. ~~The~~2%, ~~investment portfolio declined~~ to $9699.30 million at ~~September~~March 3031, ~~2011~~2012 from $~~105~~95.41 million at ~~the~~December ~~end of 2010 due to principal payments being reinvested into Federal funds sold~~31, ~~while the net unrealized loss of $127,000 at the end of 2010 converted to a net $1~~2011.9 The ~~million~~portfolio ~~gain,~~was ~~net~~relatively ofinactive ~~taxes,~~except atfor ~~September~~pay ~~30,~~downs ~~2011~~and ~~due~~purchases ~~primarily~~ to ~~the~~replace ~~effects~~collateral offor ~~the~~municipal ~~lower interest rate environment~~deposits.

Loans

Loans declined $6.7 million, or 3.2%, to $~~218~~202.50 million at ~~September~~March 3031, ~~2011~~2012 from $~~245~~208.7 million at December 31, ~~2010~~2011, while average loans of $~~231~~205.81 million in the first ~~nine~~three months of ~~2011~~2012 ~~was~~were down from $~~265~~241.86 million for the first ~~nine~~three months of ~~2010~~2011. The declines resulted primarily from ~~the~~pay ~~reinvestment~~downs ~~of paydowns~~ and principal payments ~~into more liquid assets, along with charge-offs~~. We are presently originating very few loans, which are primarily to existing customers. ~~Additionally,~~We weexpect ~~closed~~to ~~our~~resume ~~residential~~originations ~~lending~~as ~~department~~well as purchases in the secondary market in 2012, and ~~expect~~will todiversify ~~originate~~the ~~few~~concentration in commercial real estate (“CRE”) loans, ifby ~~any~~seeking commercial or residential mortgage loans, ~~during~~as ~~the~~well ~~remainder~~as ofconsumer ~~2011~~credit. This will improve our concentration ratios which will remain high and even increase as our total portfolio is shrinking and capital levels are declining due to operating losses.

~~Provision~~Allowance requirements for several categories of loans declined at March 31, 2012 compared to 2011 year-end, reflecting improvements in the credit quality of the portfolio as evidenced by reductions in special mention and ~~allowance~~substandard ~~for~~loans ~~loan~~and ~~losses~~a small

Changes in the allowance for loan losses are set forth below.

	Balance,		Provision for LoanLosses							Balance,
In thousands	December 31, 2010					Recoveries		Chargeoffs		September 30, 2011
Commercial loans	$	2,770	$	(515	)	$	85	$	174	$	2,166
Real estate loans
Church	1,559		1,099			66		67		2,657
Construction - other than third-party originated	462		2,445			—		1,494		1,413
Construction - third-party originated	1,575		(959		)	—		270		346
Multifamily	633		(212		)	—		68		353
Other	2,333		398			58		532		2,257
Residential	736		352			6		134		960
Installment	55		—			1		14		42
Unallocated	503		(94		)			—		409
	$	10,626	$	2,514		$	216	$	2,753	$	10,603

Table of Contents

	Three Months Ended September 30,		Three Months Ended September 30,		Nine Months Ended September 30,		Nine Months Ended September 30,
(In thousands)	2011		2010		2011		2010
Balance at beginning of period	$	10,895	$	7,934	$	10,626	$	8,650
Provision for loan losses	500		2,825		2,514		5,216
Recoveries of previous charge-offs	82		3		216		41
	11,477		10,762		13,356		13,907
Less: Charge-offs	874		1,508		2,753		4,653
Balance at end of period	$	10,603	$	9,254	$	10,603	$	9,254

increase in the doubtful categories. Additionally, total past due loans declined from $66.1 million at the end of 2011 to $60.8 million at March 31, 2012, with the largest decline occurring in church loans.

~~The~~Provision ~~allowance for loan losses is a critical accounting policy~~ and ~~is maintained at a level determined by management to be adequate to provide for inherent losses in the loan portfolio. The~~ allowance is increased by provisions charged to operations and recoveries of loan charge-offs. The allowance is based on management's evaluation of the loan portfolio and several other factors, including past loan loss experience, general business and economic conditions, concentration of credit and the possibility that there may be inherent losses in the portfolio that cannot currently be identified. Although management uses the best information available, the level of the allowance for loan losses ~~remains an estimate that is subject to significant judgment and short-term changes.~~

~~Management~~Changes ~~maintains~~in the allowance for ~~credit losses at a level estimated to absorb probable~~ loan losses of the loan portfolio at the balance sheet date. The allowance is based on ongoing evaluations of the probable estimated losses inherent in the loan portfolio. The methodology for evaluating the appropriateness of the allowance includes segmentation of the loan portfolio into its various components, tracking the historical levels of classified loans and delinquencies, applying economic outlook factors, assigning specific incremental reserves where necessary, providing specific reserves on impaired loans, and assessing the nature and trend of loan charge-offs. Additionally, the volume of non-performing loans, concentration risks by size and type, collateral adequacy and economic conditions are ~~taken~~set ~~into~~forth ~~consideration~~below.

The allowance established for probable losses on specific loans is based on a regular analysis and evaluation of classified loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor's ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and the industry in which the borrower operates. Specific valuation allowances are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things.



(In thousands)	Balance, December 31, 2011		Provision for Loan Losses			Recoveries		Charge offs		Balance, March 31, 2012
Commercial loans	$	1,305	$	(48	)	$	38	$	144	$	1,151
Real estate loans
Church	2,082		37			—		140		1,979
Construction - other than third-party originated	998		(428		)	2		5		567
Construction - third-party originated	346		(346		)	—		—		—
Multifamily	285		178			—		—		463
Other	1,941		(131		)	91		141		1,760
Residential	840		122			12		99		875
Installment	51		(7		)	1		—		45
Unallocated	3,022		748			—		—		3,770
	$	10,870	$	125		$	144	$	529	$	10,610

Additionally, nonaccrual loans over a specific dollar amount are individually evaluated, along with all troubled debt restructured loans, for impairment based on the underlying anticipated method of payment consisting of either the expected future cash flows or the related collateral. If payment is expected solely based on the underlying collateral, an appraisal is completed to assess the fair value of the collateral. Collateral-dependent impaired loan balances are written down to the current fair value of each loan's underlying collateral, resulting in an immediate charge-off to the allowance. If repayment is based upon future expected cash flows, the present value of the expected future cash flows discounted at the loan's original effective interest rate is compared to the carrying value of the loan, and any shortfall is recorded as a specific valuation allowance in the allowance for credit losses.



(In thousands)	Three Months Ended March 31, 2012		Three Months Ended March 31, 2011
Balance at beginning of period	$	10,870	$	10,626
Provision for loan losses	125		1,200
Recoveries of previous charge-offs	144		91
	11,139		11,917
Less: Charge-offs	529		1,087
	$	10,610	$	10,830

The allowance ~~allocations~~ for ~~non-impaired~~loan ~~loans~~losses ~~are~~(“ALLL”) ~~calculated~~is bya ~~applying~~critical ~~loss~~accounting ~~factors~~policy and is maintained at a level determined by ~~specific~~management ~~loan~~to ~~types~~be adequate to ~~the~~provide ~~applicable~~for ~~outstanding~~inherent ~~loans~~losses ~~and~~in ~~unfunded~~the ~~commitments~~loan portfolio. The ~~Loss~~allowance ~~factors~~is ~~are~~increased ~~based~~by onprovisions ~~the~~charged ~~Bank's~~to ~~loss~~operations ~~experience~~ and ~~may~~recoveries beof ~~adjusted~~loan ~~for~~charge-offs. Generally, ~~significant~~losses ~~changes~~on inloans are charged against the ~~current~~allowance for loan ~~portfolio~~losses ~~quality~~when it is believed that, inthe ~~management's~~collection ~~judgment,~~of ~~affect~~all ~~the~~or ~~collectability~~a portion of the ~~portfolio~~principal asbalance ofis unlikely and the ~~evaluation~~collateral ~~date.~~is not adequate.

~~The~~Certain ~~allowance~~inherent, ~~contains~~but ~~reserves~~unconfirmed ~~identified~~losses asare ~~unallocated~~probable towithin ~~cover inherent losses in~~ the loan portfolio ~~which have not been otherwise reviewed or measured on an individual basis~~. ~~Such~~The ~~reserves include management~~Bank's ~~evaluation~~operations ~~of the regional economy, loan portfolio volumes, the composition~~ and ~~concentrations~~lending ofactivities ~~credit,~~are ~~credit~~centered ~~quality~~in ~~and~~urban ~~delinquency~~communities ~~trends.~~that ~~These~~are ~~reserves~~more ~~reflect~~vulnerable ~~management's attempt~~ to ~~ensure~~economic ~~that~~downturns. ~~the~~Unanticipated ~~overall~~events, ~~allowance~~including ~~reflects~~political, aeconomic ~~margin for judgmental factors~~ and ~~the~~regulatory ~~uncertainty~~changes, ~~that~~could iscause ~~inherent~~changes in ~~estimates~~the ~~of probable~~ credit ~~losses. The~~characteristics ~~unallocated reserves declined due to management's determination, based on an ongoing review~~ of the portfolio, ~~that~~and ~~the~~result ~~level~~in ofan ~~unallocated~~unanticipated ~~reserves~~increase isin ~~adequate~~the allowance.

~~Various~~The ~~loan~~Bank's ~~risk~~current ~~categories~~methodology ~~experienced~~for ~~declines~~determining in the ~~related~~projected ~~allowance~~level of losses is based on historical loss rates, current credit grades, specific reserve allocations aton ~~September~~loans 30modified as TDRs and impaired commercial credits above specified thresholds, ~~2011~~and ~~due~~other qualitative adjustments. Due to ~~reductions~~the heavy reliance on realized historical losses and the credit grade rating process, the calculated reserves required under the model may tend to slightly lag the deterioration in the ~~related~~portfolio ~~unpaid~~in ~~principal~~a ~~balances~~stable or deteriorating credit environment and may tend not to be as responsive when improved conditions have presented themselves.

~~The~~Given ~~allowance~~these ~~represented~~model ~~4.85%~~limitations ofand ~~total~~market ~~loans~~characteristics, atthe ~~September~~qualitative ~~30,~~adjustment ~~2011~~factors ~~compared~~may be incremental or detrimental to ~~4.34%~~the atquantitative ~~December~~model ~~31,~~results. ~~2010,~~An ~~while~~unallocated ~~the~~component ~~allowance~~to ~~represented~~the ~~24.72%~~ALLL ofis ~~total~~maintained ~~nonperforming~~to ~~loans~~recognize atthe ~~September~~imprecision ~~30,~~in ~~2011~~estimating ~~compared~~and tomeasuring 27loss.~~77%~~ Correspondingly, at the ~~end~~portion ofconsidered ~~2010~~unallocated ~~due~~may fluctuate from period to anperiod ~~increase~~based ~~during~~on management's evaluation of the ~~first~~factors ~~nine~~affecting ~~months~~the ofassumptions ~~2011~~used in calculating the allowance, asincluding ~~well~~historical asloss anexperience ~~increase~~and incurrent ~~nonperforming loans, respectively.~~

Table of Contents

	September 30,2011		December 31,2010		September 30,2010
Allowance for loan losses as a percentage of:
Total loans	4.85	%	4.34	%	3.66	%
Total nonperforming loans	24.72	%	27.77	%	28.56	%
Year-to-date net charge-offs as a percentage of average loans (annualized)	1.46	%	2.87	%	2.31	%

economic conditions.

~~Nonperforming~~The allowance is maintained at a level estimated to absorb probable credit losses inherent in the loan portfolio as well as other credit risk - related charge-offs. The allowance is based on ongoing evaluations of the probable estimated losses inherent in the loan portfolio. The Bank's methodology for evaluating the appropriateness of the allowance includes segmentation of the loan portfolio into its various components, tracking the historical levels of classified loans and delinquencies, applying economic outlook factors, assigning specific incremental reserves where necessary, providing specific reserves on impaired loans and assessing the nature and trend of loan charge-offs. Additionally, the volume of nonperforming loans, concentration risks by size, type and geography, new markets, collateral adequacy and economic conditions are taken into consideration.

~~Nonperforming~~The ~~loans~~allowance ~~include~~established ~~loans~~for probable losses on ~~which~~specific ~~the~~loans ~~accrual~~are ofbased ~~interest~~on ~~has~~a ~~been~~regular ~~discontinued~~analysis orand evaluation of classified loans. ~~which~~Loans are ~~contractually~~classified ~~past~~based ~~due~~on 90an ~~days~~internal orcredit ~~more~~risk asgrading process that evaluates, among other things: (i) the obligor's ability to ~~interest~~repay; or(ii) the ~~principal~~underlying ~~payments~~collateral, onif ~~which~~any; ~~interest~~and ~~income~~(iii) the iseconomic ~~still~~environment ~~being~~and ~~accrued~~industry in which the borrower operates. ~~Delinquent~~ ~~interest~~Loans ~~payments~~with ~~are~~a ~~credited~~grade tothat ~~principal~~is ~~when~~below ~~received.~~a ~~The~~predetermined ~~following~~grade ~~table~~are ~~presents~~adversely classified. Any change in the ~~principal~~credit ~~amounts~~risk grade of performing and/or nonperforming loans affects the amount of the related allowance.

(In thousands)	September 30,2011		December 31,2010		September 30,2010
Loans past due 90 days and still accruing
Commercial	$	1,874	$	928	$	—
Real estate	1,439		1,415		2,593
Installment	—		—		1
Total	3,313		2,343		2,594
Nonaccrual loans
Commercial	2,384		1,436		2,574
Real estate	37,201		34,480		27,229
Installment	—		—		—
Total	39,585		35,916		29,803
Total nonperforming loans	42,898		38,259		32,397
Other real estate owned	1,524		1,997		1,753
Total nonperforming assets	$	44,422	$	40,256	$	34,150

Once a loan is classified, the loan is analyzed to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things.

~~Nonperforming~~Additionally, ~~assets~~management ~~continued~~individually toevaluates ~~grow~~nonaccrual ~~during~~loans ~~the~~and ~~first~~all ~~nine~~troubled ~~months~~debt ofrestructured ~~2011~~loans ~~due~~for ~~primarily~~impairment tobased on the ~~continued~~underlying ~~deterioration~~anticipated inmethod ~~the~~of ~~quality~~payment consisting of either the ~~commercial~~expected ~~real~~future ~~estate~~cash ~~loan~~flows ~~portfolio,~~from ~~which~~the ~~continues~~borrower toor bethe ~~stressed~~proceeds byfrom the ~~effects~~disposition of the ~~economic~~related ~~recession~~collateral. inIf ~~the~~payment ~~Bank's~~is ~~trade~~expected ~~area~~solely based on the underlying collateral, ~~which~~an ~~has~~appraisal ~~been~~is ~~affected~~completed ~~later~~to ~~than~~assess the ~~rest~~fair value of the ~~country~~collateral. ~~and~~Collateral is- ~~expected~~dependent impaired loan balances are written down to ~~recover~~the ~~later~~current asfair ~~well. The~~value ~~deterioration~~of ineach ~~credit~~loan's ~~quality~~underlying collateral resulting in ~~the~~an ~~overall~~immediate ~~portfolio~~charge-off ~~since~~to the ~~end~~allowance, ofexcluding ~~2009~~any ~~has~~consideration ~~occurred~~for ~~primarily~~personal guarantees that may be pursued in ~~two~~the ~~segments~~Bank's collection process. If repayment is based upon future expected cash flows, the present value of the ~~commercial~~expected ~~real~~future ~~estate~~cash flows discounted at the loan's ~~portfolio,~~original ~~comprised~~effective interest rate is compared to the carrying value of ~~loans~~the ~~acquired~~loan, ~~from~~and aany ~~third-party~~shortfall ~~non-bank~~is ~~lender~~recorded ~~located~~as ina ~~New~~specific ~~York~~valuation ~~City~~allowance ~~and~~in ~~loans~~the ~~made~~allowance tofor ~~churches~~loan losses.

~~Included~~The inallowance ~~the~~also ~~portfolio~~contains ~~are~~unallocated ~~loans~~reserves to ~~churches~~cover ~~totaling~~inherent ~~$58.3~~losses ~~million~~within ~~and~~a ~~loans~~given ~~acquired~~loan ~~from~~category, ~~the~~which ~~third-party~~have ~~lender~~not ~~totaling~~been ~~$9.9~~otherwise ~~million. Nonaccrual~~reviewed ~~loans~~or ~~includes~~measured $8on an individual basis.2 ~~million~~This ofunallocated ~~loans~~portion toof ~~religious~~the ~~organizations,~~allowance ~~which~~reflects management's ~~believes~~best ~~have~~estimate ~~been~~of ~~impacted~~the byelements ~~reductions~~of imprecision and estimation risk inherent in ~~tithes~~the ~~and~~calculation ~~collections~~of ~~from~~the ~~congregation~~overall ~~members~~allowance. ~~due~~Due to the ~~deterioration~~subjectivity involved in determining the ~~economy~~overall allowance, ~~and~~including ~~$9.4~~the ~~million~~unallocated ofportion, ~~loans~~the ~~acquired~~portion ~~from~~considered ~~the~~unallocated ~~third-party~~may ~~non-bank~~fluctuate ~~lender. Church~~from ~~loans~~period ~~located~~to inperiod ~~the~~based ~~State~~on ofmanagement's ~~New~~evaluation ~~York~~of ~~may~~the ~~require~~factors ~~significantly~~affecting ~~longer~~the ~~collection~~assumptions ~~periods~~used ~~because~~in ~~approval~~calculating isthe ~~required~~overall byallowance, ~~the~~including ~~State~~historical ofloss ~~New~~experience, ~~York~~current ~~before~~economic ~~the~~conditions ~~underlying~~and ~~property~~industry ~~may~~or beborrower ~~foreclosed~~concentrations. ~~Nonaccrual~~Changes ~~loans~~may also occur due to ~~churches~~the ~~located~~necessity inof ~~New~~maintaining ~~York~~consistent ~~totaled~~loss ~~$3.7~~coverage ~~million~~ratios atfor ~~September~~the ~~30,~~various ~~2011~~loan risk components.

~~Impaired~~Management ~~loans~~believes ~~totaled~~that ~~$40.2 million at September 30, 2011, compared to $34.8 million at December 31, 2010. The related allocation of~~ the allowance for loan losses ~~amounted~~is ~~to $1~~adequate.7 ~~million~~While ~~and~~management ~~$1.5~~uses ~~million. Charge-offs~~available ofinformation ~~impaired~~to ~~loans~~determine in the ~~first~~adequacy ~~nine months~~ of ~~2011~~the ~~totaled $1.9 million~~allowance, ~~while~~future ~~$32.8~~additions ~~million~~may ofbe ~~impaired~~necessary ~~loans~~based ~~have~~on nochanges ~~allowance~~in ~~allocated~~economic toconditions ~~them~~or assubsequent ~~sufficient~~events ~~collateral~~unforeseen ~~exists. The~~at ~~average balance of impaired loans in~~ the ~~third~~time ~~quarter and first nine months~~ of ~~2011 was $39~~evaluation.~~5 million and $37.7 million~~ Additionally, ~~respectively, compared~~ to ~~$25.4~~the ~~million~~extent ~~and~~that ~~$20.7~~actual ~~million~~results indiffer ~~the~~from ~~similar~~forecasts ~~periods~~or inmanagement's ~~2010. Most~~judgment, of the ~~impaired~~ALLL ~~loans~~may ~~are~~be ~~secured~~greater byor ~~commercial~~less ~~real~~than ~~estate~~future ~~properties~~charge-offs. ~~There was no interest income recognized on impaired loans during the first nine months of either 2011 or 2010.~~

~~Troubled~~In ~~debt~~addition, ~~restructured~~various ~~loans~~regulatory ~~totaled $5.4 million at September 30~~agencies, ~~2011~~as ~~compared~~an tointegral ~~$2.9~~part ~~million~~of attheir ~~December~~examination 31process, ~~2010,~~periodically ~~with~~review athe ~~related~~Bank's allowance offor ~~$342,000~~loan ~~and~~losses. noSuch ~~related~~agencies ~~allowance~~may atrequire ~~December~~the ~~31,~~Bank ~~2010 and included seven borrowers. TDRs~~ to ~~four~~increase ~~borrowers~~the ~~amounting~~allowance tobased ~~$3.7~~on ~~million~~their ~~are~~judgment ~~accruing. The~~of ~~remainder~~information ~~are~~available ~~on nonaccrual status due~~ to ~~delinquent~~them ~~payments. All~~at ~~TDRs are included in~~ the ~~balance~~time of ~~impaired~~their ~~loans~~examination.

Most loan risk categories experienced declines in the related ALLL allocations at March 31, 2012 due to reductions in the related unpaid principal balances, along with improvements in asset quality, as excess allowance balances were transferred to the unallocated allowance.

The allowance represented 5.25% of total loans at March 31, 2012 compared to 5.21% at December 31, 2011, while the allowance represented 25.32% of total nonperforming loans at March 31, 2012 compared to 24.58% at the end of 2011 due to a decline during the first quarter of 2012 in total loans and nonperforming loans, respectively.

Allowance for loan losses as a percentage of:

Table of Contents



	March 31, 2012		December 31, 2011		March 31, 2011
Allowance for loan losses as a percentage of:
Total Loans	5.25	%	5.21	%	4.60	%
Total nonperforming loans	25.32	%	24.58	%	23.44	%
Year-to-date net charge-offs as a percentage of average loans (annualized)	0.75	%	1.22	%	1.65	%

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. Delinquent interest payments are credited to principal when received.

The following table presents the principal amounts of nonperforming loans and other real estate owned.

Nonperforming loans and other real estate owned



(In thousands)	March 31, 2012		December 31, 2011		March 31, 2011
Loans past due 90 days and still accruing:
Commercial	$	114	$	143	$	634
Real estate	25		2,075		5,910
Total loans past due 90 days and still accruing:	139		2,218		6,544
Nonaccrual loans:
Commercial	2,087		2,288		2,036
Real estate	39,683		39,720		37,628
Total nonaccrual loans	41,770		42,008		39,664
Total nonperforming loans	41,909		44,226		46,208
Other real estate owned	2,101		1,524		1,913
Total nonperforming assets	$	44,010	$	45,750	$	48,121

Nonperforming assets decreased to $44.0 million for the period ending March 31, 2012 from $45.8 million at the end of 2011 due primarily to a large decline in loans past due 90 days and still accruing, which declined due to loan payoffs. Nonperforming loans decreased by $2.3 million, while other real estate owned increased due to the transfer of a commercial real estate loan.

During the first quarter of 2012, the commercial real estate portfolio continues to be stressed by the effects of the economic recession in the Bank's trade area. Included in the March 31, 2012 portfolio, there are loans to churches totaling $56.5 million and loans acquired from a third-party lender totaling $10.7 million, compared to $57.5 million in loans to churches and $10.4 million in loans acquired from a third-party lender for the year ended 2011. Nonaccrual loans include $8.5 million of loans to religious organizations, which management believes have been impacted by reductions in tithes and collections from congregation members due to the weak economy and $7.8 million of loans acquired from the third-party non-bank lender. Church loans located in the State of New York may require significantly longer collection periods because approval is required by the State of New York before the underlying property may be encumbered. Nonaccrual loans to churches located in New York totaled $3.9 million at March 31, 2012.

Impaired loans totaled $42.7 million at March 31, 2012 compared to $43.0 million at December 31, 2011. Charge-offs of impaired loans totaled $347,000 for the three months ended March 31, 2012, while $37.5 million of impaired loans have no allowance allocated to them as sufficient collateral exists. The related allocation of the allowance for loan losses on impaired loans amounted to $1.1 million and $1.5 million for March 31, 2012 and December 31, 2011, respectively. The average balance of impaired loans in the first quarter of 2012 and 2011 was $42.9 million and $36.5 million, respectively. Most of the impaired loans are secured by commercial real estate properties.

Troubled debt restructured loans (“TDRs”) totaled $5.2 million at March 31, 2012 compared to $5.7 million at December 31, 2011, with a related allowance of $108,000 and $111,000 at March 31, 2012 and December 31, 2011, respectively, and included seven borrowers. TDRs to five borrowers amounting to $3.9 million are accruing. The remaining two loans are on nonaccrual status due to delinquent payments. All TDRs are included in the balance of impaired loans.

Table of Contents

Other assets

Other assets declined $6.9 million, or 51.8%, to $6.4 million at March 31, 2012 from $13.3 million at December 31, 2011. This decrease was primarily due to the January 2012 settlement of securities sold in December 2011.

Other real estate owned

Other real estate owned (“OREO”) increased $577,000, or 37.9%, to $2.1 million at March 31, 2012 from $1.5 million at December 31, 2011. The balance increase was due to a commercial real estate foreclosure of $623,000, offset by a sale of an existing residential property of $46,000.

Deposits

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~~may be more volatile than commercial or retail deposits. This volatility can cause increases in period-end deposit balances while concurrently contributing to declines in average balances for the related period. These municipal accounts represent a substantial part of the Bank's deposits, and tend to have high balances and comprised most of the Bank's accounts with balances of $100,000 or more at September 30, 2011 and December 31, 2010. These accounts are used for operating and short-term investment purposes by the municipalities. All the foregoing deposits require collateralization with readily marketable U.S. government securities or Federal Home Loan Bank of New York municipal letters of credit.

~~While~~These ~~the~~municipal ~~collateral~~and ~~maintenance~~U.S. ~~requirements~~government ~~associated~~accounts ~~with~~represent a substantial part of the Bank's ~~municipal~~business, ~~and~~tend ~~U.S.~~to ~~government~~have ~~account~~high balance relationships ~~might~~and ~~limit~~comprise most of the ~~ability~~Bank's toaccounts ~~readily~~with ~~dispose~~balances of ~~investment~~$250,000 ~~securities~~or ~~used~~more. These asaccounts ~~such~~are ~~collateral,~~used ~~management~~for ~~does~~operating ~~not~~and ~~foresee~~short-term ~~any~~investment ~~need~~purposes ~~for~~by ~~such~~the ~~disposal,~~municipalities and inrequire ~~the~~collateralization ~~event~~with ofreadily ~~the~~marketable ~~withdrawal~~U.S. government securities or Federal Home Loan Bank of ~~any~~New York municipal letters of ~~these~~credit. ~~deposits~~Prior to 2010, ~~these~~we ~~securities~~also ~~are~~held ~~readily~~short-term ~~marketable~~municipal investment time deposits for the municipalities' investment purposes but no longer offer such accounts.

~~Changes~~While inthe ~~all~~collateral ~~deposit~~maintenance ~~categories~~requirements ~~discussed~~associated ~~below~~with ~~were~~the ~~caused~~Bank's bymunicipal ~~fluctuations~~and U.S. government account relationships might limit the ability to readily dispose of investment securities used as such collateral, management does not foresee any need for such disposal, and in ~~municipal~~the ~~deposit~~event ~~account~~of ~~balances~~the ~~unless~~withdrawal ~~otherwise~~of ~~indicated~~any of these deposits, these securities are readily marketable or available for use as collateral for repurchase agreements.

Total deposits ~~decreased~~increased $16.8 million, or 5.6%, to $~~304~~316.51 million at ~~September~~March 3031, ~~2011~~2012 from $~~338~~299.63 million at ~~the~~December ~~end~~31, ~~of 2010~~2011, while average deposits ~~declined~~decreased to $~~335~~308.26 million for the first ~~nine~~three months of ~~2011~~2012 from $~~345~~346.29 million for the first ~~nine~~three months of ~~2010~~2011. ~~Included~~The decline in ~~the~~deposits ~~reduction~~resulted ~~was~~from ~~the~~a ~~runoff~~deleverage ofprogram ~~$17.3~~whereby ~~million~~asset inlevels ~~brokered~~are ~~deposits~~reduced to improve capital ratios.

Total non-interest - bearing demand deposits ofdeclined $354.29 million, ator ~~September 30~~13%, ~~2011~~to ~~was~~$32.5 ~~essentially~~million ~~unchanged~~at March 31, 2012 from $3537.14 million at ~~the~~December ~~end~~31, ~~of 2010~~2011, while ~~the~~average ~~related~~demand ~~average~~ deposits ofdecreased to $4335.9 million for the first ~~nine~~three months of ~~2011~~2012 compared to $3545.68 million for the first ~~nine~~quarter ~~months~~ of ~~2010~~2011.

~~Money~~Passbook ~~market~~and ~~deposit~~statement ~~accounts~~savings ofdeposits totaled $4523.90 million at ~~September~~March 3031, ~~2011~~2012, ~~were~~relatively ~~down~~unchanged from ~~$61.9~~December ~~million at the end of 2010~~31, ~~while~~2011 ~~the~~and ~~related~~averaged ~~average balance fell to~~ $5622.49 million for the first ~~nine~~quarter ~~months~~ of ~~2011~~2012 ~~from~~compared to $~~67.9~~23 million inat ~~the~~March ~~same~~31, ~~period of 2010~~2011.

~~Interest-bearing~~Money ~~demand~~market deposit accounts ~~account~~declined ~~balances~~$639,000 ~~decreased~~or ~~slightly~~1.4%, to $43.46 million at ~~September~~March 3031, ~~2011~~2012 ~~compared~~from to $4544.72 million at December 31, 2011, while the ~~end~~average ofbalance ~~2010~~declined $11.2 million, ~~and~~or ~~averaged~~19.4%, to $4346.48 million for the first ~~nine~~three months of ~~2011~~2012 ~~compared~~from to $~~61.9~~58 million for the ~~comparable~~first ~~period~~quarter ~~in 2010. This particular type~~ of ~~account is most frequently used by municipalities for operating purposes~~2011.

~~Passbook~~Interest-bearing ~~and~~demand ~~statement~~deposit ~~savings~~ accounts ~~totaled~~increased $2217.48 million, or 37.3%, to $65.6 million at ~~September~~March 3031, ~~2011,~~2012 ~~relatively~~from ~~unchanged~~$47.7 ~~from~~million at December 31, ~~2010~~2011, ~~and~~while ~~averaged~~the average balance increased $233.7 million, or 7.9% to $51.1 million for the first ~~nine~~three months of ~~2011,~~2012 ~~down slightly~~ from $2447.54 ~~million~~ for the ~~same~~first ~~period~~quarter inof ~~2010~~2011.

~~Time~~Total time deposits ~~totaled~~increased $~~157~~4.62 million, or 2.9%, to $151.5 million at ~~September~~March 3031, ~~2011~~2012, ~~compared~~from to $~~172~~147.82 million at December 31, ~~2010~~2011, while average time deposits ~~declined~~decreased to $~~168~~151.58 million for the first ~~nine~~three months of ~~2011~~2012 ~~from~~compared to $~~191~~172.7 million for the ~~similar~~same ~~2010~~quarter ~~period. Contributing to the declines was the aforementioned runoff~~ in ~~brokered deposits offset in part by deposit growth, which occurred primarily through national CD listing services~~2011.

~~Short-term~~Accrued ~~borrowings~~expenses and other liabilities

~~There~~Accrued ~~were~~expenses noand ~~short-term~~other ~~borrowings~~liabilities atdecreased ~~September~~$15.6 ~~30,~~million ~~2011~~to or$4.6 ~~December~~million at March 31, ~~2010,~~2012 ~~while~~from ~~the~~$20.2 ~~related~~million ~~average~~at ~~balances~~December ~~were~~31, ~~none for the first three quarters of~~ 2011. This ~~and~~decrease ~~$89,000~~was ~~for~~primarily ~~the~~due ~~first~~to ~~nine~~securities ~~months~~purchased ~~of 2010. The decline~~ in ~~the~~December ~~average~~2011 ~~balance~~with ~~resulted~~settlement ~~from~~dates ~~the~~in ~~discontinuance~~January of2012 atotaling ~~repurchase~~$15.1 ~~agreement program with a customer~~million.

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Long-term debt

Long-term debt attotaled ~~September 30, 2011 was unchanged from~~ $14.2 million at ~~December~~March 31, ~~2010,~~2012 ~~while~~and ~~the~~December ~~related~~31, ~~average~~2011, ~~balances~~respectively, ~~were~~while ~~$15.2 million for~~ the ~~first~~average ~~nine months~~balance of ~~2011~~long-term ~~compared~~debt towas also $4714.52 million for the ~~same~~first ~~period~~three inmonths ~~2010. The decrease resulted from the prepayment~~ of ~~$26.7~~March ~~million~~31, of2012 ~~Federal~~and ~~Home~~March ~~Loan~~31, ~~Bank~~2011, ~~advances in the fourth quarter of 2010~~respectively.

Capital

A significant measure of the strength of a financial institution is its ~~shareholders~~shareholder's equity, which is comprised of three components: (1) core capital (common equity), (2) preferred stock, and (3) accumulated other comprehensive income or loss (“AOCI”). For regulatory purposes, capital is defined differently, as are the ratios used to determine capital adequacy. Regulatory 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. Capital levels are managed through asset size and composition, issuance of debt and equity instruments, treasury stock activities, dividend policies and retention of earnings.

Typically, the primary source of capital growth is through retention of earnings, reduced by dividend payments. During 2010, 2011 and as well as in February and May ~~2011~~2012, City National Bancshares Corporation deferred the payments of its regular quarterly cash dividend on its Series G fixed-rate cumulative perpetual preferred stock issued to the U.S. ~~Treasury~~treasury in connection with the Corporation's participation in the Treasury's TARP Capital Purchase Program. In addition, the Corporation deferred its regularly scheduled quarterly interest payment on its junior subordinated debentures issued by the City National Bank of New Jersey Capital Statutory Trust II (the “Trust”).

28The Series G preferred stock and the junior subordinated debentures issued in favor of the Trust provide for cumulative dividends and interest, respectively. Accordingly, the Corporation may not pay dividends on any of its common or preferred stock until the dividends on Series G preferred stock and the interest on such debentures are paid-up currently, and no dividend payments were made during the first three months of 2012. Accrued but unpaid dividends have been charged to surplus and added to the preferred stock outstanding balance.

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scheduled quarterly interest payment on its junior subordinated debentures issued by the City National Bank of New Jersey Capital Statutory Trust II (the “Trust”).

The Series G preferred stock and the junior subordinated debentures issued in favor of the Trust provide for cumulative dividends and interest, respectively. Accordingly, the Corporation may not pay dividends on any of its common or preferred stock until the dividends on Series G preferred stock and the interest on such debentures are paid-up currently, and no dividend payments were made during the first nine months of 2011. Accrued but unpaid dividends have been charged to retained earnings and added to the preferred stock outstanding balance.

Set forth below are consolidated and bank-only capital ratios.

	Consolidated				Bank Only
	September 30,2011		December 31,2010		September 30,2011		December 31,2010
	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
Risk-based capital ratios:
Tier 1 capital to risk-adjusted assets	89.9355	%	9.4734	%	1011.8971	%	11.2137	%
Minimum to be considered well-capitalized	6.00		6.00		6.00		6.00
Minimum to be considered well-capitalized under OCC requirements	N/A		N/A		10.00		10.00
Total capital to risk-adjusted assets	1213.2503		12.5972		1213.1700		12.4966
Minimum to be considered well-capitalized	10.00		10.00		10.00		10.00
Minimum to be considered well-capitalized under OCC requirements	N/A		N/A		13.00		13.00
Leverage ratio	6.40		6.30		7.81		7.45
Leverage ratio:
Actual	6.42		6.52		7.88		7.94
Minimum to be considered well-capitalized	5.00		5.00		5.00		5.00
Minimum to be considered well-capitalized under OCC requirements	N/A		N/A		9.00		89.00

~~The~~Almost all the regulatory capital ratios at ~~September~~March 3031, ~~2011~~2012 were generally ~~lower~~higher than the ratios at December 31, ~~2010~~2011 due to ~~continued~~the ~~operating~~continuing ~~losses~~effects of the deleveraging program undertaken in 2011, while the leverage ratios were ~~mitigated~~lower bydue ato ~~reduction~~the inoperating ~~total assets~~losses.

On April 10, 2009, CNBC issued 9,439 shares of senior fixed-rate cumulative perpetual preferred stock, Series G, to the U.S. Department of Treasury under the Treasury Capital Purchase Program administered by the U.S. Treasury under the Troubled Asset Relief Program (“TARP”). The shares have an annual 5% cumulative preferred dividend rate for the first five years, payable quarterly, after which the rate increases to 9%. The $9.4 million preferred stock issuance is considered Tier I capital, as is the $9 million of such capital that was downstreamed to the Bank. 30

The Bank is subject to a Consent Order with the Comptroller of the Currency (the “OCC”), and the Corporation is a party to the FRBNY Agreement, each as described in Note 3 to the Financial Statements. The Bank is currently not in compliance with the capital ratio requirements of the Consent Order. The Bank is taking steps to remedy its non-compliance with the Consent Order, however, there is no assurance that it will be able to do so.

Finally, the Corporation was required to deconsolidate its investment in the subsidiary trust formed in connection with the issuance of trust preferred securities in 2004. The deconsolidation of the subsidiary trust results in the Corporation reporting on its balance sheet the subordinated debentures that have been issued by City National Bancshares Corporation to the subsidiary trust. In March 2005, the Board of Governors of the Federal Reserve System issued a final rule allowing bank holding companies to continue to include qualifying trust preferred capital securities in their Tier 1 capital for regulatory capital purposes, subject to a 25 percent limitation to all core (Tier 1) capital elements, net of goodwill less any associated deferred tax liability. The amount of trust preferred securities and certain other elements in excess of the limit could be included in total capital, subject to restrictions. The final rule originally provided a five-year transition period, ending June 30, 2009, for application of the aforementioned quantitative limitation, however, in March 2009, the Board of Governors of the Federal Reserve Board voted to delay the effective date until March 2011. As of September 30, 2011 and December 31, 2010, 100 percent of the trust preferred securities qualified as Tier I capital under the final rule adopted in March 2005. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was signed into law on July 21, 2010. Under the act, the Corporation's outstanding trust preferred securities will continue to count as Tier I capital but the Corporation will be unable to issue replacement or additional trust preferred securities which would count as Tier I capital.

Results of Operations

The Corporation recorded a $1.3 million net loss in the 2011 third quarter compared to a net loss of $3.3 million in the third quarter

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ofOn ~~2010~~April 10, ~~and~~2009, aCNBC ~~net~~issued ~~loss~~9,439 ~~for~~shares ~~the~~of ~~first~~senior ~~nine~~fixed-rate ~~months~~cumulative ofperpetual ~~2011~~preferred ofstock, $4Series ~~million~~G, ~~compared~~ to athe ~~net~~U.S. ~~loss~~Department of ~~$3.3~~Treasury ~~million~~under ~~for~~ the ~~comparable~~Treasury ~~period~~Capital inPurchase ~~2010. The~~Program ~~third~~administered ~~quarter~~by ~~loss reduction resulted primarily from a decline in~~ the ~~loan loss provision from $2~~U.8S. ~~million~~Treasury tounder ~~$500,000~~the inTroubled ~~the~~Asset ~~2011~~Relief ~~third~~Program ~~quarter~~(“TARP”). The ~~2011~~shares ~~year-to-date~~have ~~loss~~an ~~was~~annual ~~slightly~~5% ~~higher~~cumulative ~~than~~preferred adividend ~~year~~rate ~~earlier~~for ~~due~~the ~~primarily~~first tofive ~~declines~~years, inpayable ~~net interest income and award income~~quarterly, asafter ~~the~~which ~~second quarter of 2010 included~~ the ~~recognition~~rate ofincreases ato 9%. The $19.4 million ~~award~~preferred ~~received~~stock ~~from~~issuance ~~the~~is ~~U.S.~~considered ~~Treasury~~Tier ~~under~~I ~~its CDFI program for lending in lower-income communities~~capital, ~~offset~~as inis ~~part by a decline in~~ the ~~provision for loan losses~~$9. ~~Also~~0 ~~driving~~million ~~the~~of ~~continued~~such ~~losses~~capital ~~from~~that ~~operations~~was ~~were~~down ~~higher~~streamed ~~credit~~to ~~costs and expenses incurred in connection with complying with~~ the ~~provisions of the aforementioned Consent Order~~Bank.

The Bank is subject to a Consent Order with the Comptroller of the Currency and the Corporation is a party to the FRBNY Agreement, each as described in Note 3 to the Consolidated Financial Statements. The Bank is currently not in compliance with the capital ratio requirements of the Consent order. The Bank is taking steps to remedy its non-compliance with the Consent Order; however, there is no assurance that it will be able to do so.

The Corporation was required to deconsolidate its investment in the subsidiary trust formed in connection with the issuance of trust preferred securities in 2004. The deconsolidation of the subsidiary trust results in the Corporation reporting on its balance sheet the subordinated debentures that have been issued by City National Bancshares Corporation to the subsidiary trust. In March 2005, the Board of Governors of the Federal Reserve System issued a final rule allowing bank holding companies to continue to include qualifying trust preferred capital securities in their Tier I capital for regulatory capital purposes, subject to a 25% limitation to all core (Tier I) capital elements, net of goodwill less any associated deferred tax liability. The amount of trust preferred securities and certain other elements in excess of the limit could be included in total capital, subject to restrictions. The final rule originally provided a five-year transition period, ending June 30, 2009, for application of the aforementioned quantitative limitation, however, in March 2009, the Board of Governors of the Federal Reserve Board voted to delay the effective date until March 2011.

As of March 31, 2012 and December 31, 2011, 100% of the trust preferred securities qualified as tier I capital under the final rule adopted in March 2005. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was signed into law on July 21, 2010. Under the act, the Corporation's outstanding trust preferred securities will continue to count as tier I capital but the Corporation will be unable to issue replacement or additional trust preferred securities that would count as tier I capital.

The Corporation is presently attempting to raise additional capital. A capital raise may trigger a change in control under Section 382 of the Internal Revenue Code. Generally, Section 382 limits the utilization of an entity's net operating loss carry forwards upon a change of control. If a change of control is triggered, it could result in a loss of deductibility of a portion of the Corporation's deferred tax asset.

Results of Operations

The Corporation recorded a net loss of $644,000 for the first quarter of 2012 compared to a net loss of $1.6 million for the same 2011 period. Related loss per share on a diluted basis were $(5.91) and $(12.80), respectively. The decrease in net loss was primarily due to the reduction of the provision for loan losses of $1.1 million, partially offset by a reduction in net interest income of $496,000.

Net interest income

On a fully taxable equivalent (“FTE”) basis, net interest income ~~declined~~totaled to $72.83 million ~~for~~in the first ~~nine~~quarter ~~months~~ of ~~2011~~2012, ~~compared to~~ $~~9.9~~496,000 ~~million~~less inthan the ~~comparable~~similar ~~period~~2011 ~~in 2010~~period, while the related net interest margin ~~("NIM")~~ fell 1221 basis points, ~~from~~to 32.0965% tofrom 2.9786%. ~~The~~Although ~~lower net~~ interest ~~income~~expense ~~resulted~~declined ~~primarily from four factors: our strategic decision to become more asset-sensitive and reduce interest rate risk by shortening investment maturities and increasing Federal funds sold levels~~$247, ~~which has resulted in opportunity costs~~000, ~~although we believe that we are well positioned to benefit from an increase in~~ interest ~~rates;~~income ~~another~~was ~~strategic~~down ~~decision~~$743,000 ~~to become more liquid~~ due to ~~the~~a ~~possible~~number ~~impact~~ of ~~the~~factors, ~~Consent~~including ~~Order;~~the ~~another~~lack ~~strategic~~of ~~decision to limit~~ loan originations, tothe ~~renewals~~continued ofinterest ~~existing~~loss ~~loans~~on ~~while~~nonaccrual ~~management~~loans ~~works through portfolio credit quality issues~~ and ~~problem~~ loan ~~collections;~~ and ~~the~~investment ~~deferral~~principal ofpayments ~~approximately~~were $1largely ~~million~~reinvested ofin interest-bearing ~~payments~~deposits ~~received~~with ~~on nonaccrual loans~~banks.

~~Also~~Interest ~~contributing~~income on an FTE basis declined to $3.3 million for the ~~lower~~first ~~income~~quarter ~~level~~of ~~was~~2012 anfrom ~~increase~~$4.1 million in ~~nonaccrual~~the ~~loans,~~similar ~~resulting~~2011 quarter due to a reduction in ~~foregone~~earning ~~interest~~assets, ~~income~~which averaged $339. ~~Additionally,~~9 ~~reinvesting~~million ~~investment~~in ~~principal~~the ~~and~~first ~~interest~~quarter ~~payments~~of in2012 ~~short-term~~compared ~~earning~~to ~~assets~~$378.3 million in athe first quarter of 2011. The continued low interest rate environment ~~along~~had ~~with~~a ~~variable-rate~~significant ~~loans~~impact because reinvestment of the investment portfolio pay downs and ~~investments~~maturities ~~repricing~~were reinvested into the portfolio at lower rates. atAdditionally, ~~reset~~in ~~dates~~order ~~has~~to ~~had~~enhance aliquidity, ~~negative~~much ~~impact~~of the runoff in both the loan and investment portfolios was reinvested into interest-bearing deposits with banks at minimal interest rates.

~~These~~Interest ~~factors~~income ~~more~~on ~~than~~federal ~~offset~~funds declined $7,000 to $4,000 for the ~~benefits~~first three months of a2012 ~~drop~~compared into $11,000 for the same period of 2011, while the average ~~rate~~balance ~~paid~~declined by $12.7 million to ~~fund~~$19.3 ~~interest-earning~~million ~~assets~~for the current quarter of 2012 from 1$32 million for the same quarter of 2011, combined with the average yield declining 6 basis points to .7308% for the period of 2012 from .14% for the same period in 2011. The low yield resulted from the Federal Reserve Bank's Federal Open Market Committee's ongoing decision to 1leave the federal funds target rate at a range of 0%-.4025%.

Interest income ~~decreased~~on ~~$3.8~~taxable ~~million~~investment insecurities ~~the~~decreased ~~first~~$230,000 ~~nine~~to ~~months~~$753,000 offor ~~2011 compared to~~ the first ~~nine~~three months of ~~2010~~2012 ~~due~~from ~~to the aforementioned factors. As indicated~~$983,000 ~~the~~for ~~deferred income contributed significantly to the reduction, but will be utilized when the related loan is sold or paid off.~~

Interest income from federal funds sold declined despite a slight increase in the average balance because of a decline in the average rate paid due to the Federal Reserve Bank's Federal Open Market Committee's ongoing decision to leave the federal funds target rate at a range of 0% to .25%.31

~~Interest~~Table ~~income on taxable investment securities was lower in the first nine months~~ of 2011 due to a lower average rate, which declined from 4.34% to 3.97%, as well as a lower average balance, which resulted from a sale of $46.1 million of securities in December 2010 and concurrent payoff of Federal Home Loan advances to reduce total asset levels in conjunction with a deleveraging program and record portfolio gains to raise capital ratios. Tax-exempt investment income also declined due to the aforementioned sale of securities. Contents

~~Interest~~the ~~income~~first onthree ~~loans~~months ~~fell~~of ~~$2.2~~2011 ~~million~~due asto a ~~result~~decline ofin athe ~~lower~~ average ~~rate~~balance ~~earned,~~of ~~which declined from 5~~$1.~~03%~~9 million to 4$95.~~99%~~0 ~~due~~million tofor the ~~aforementioned~~first ~~reasons,~~quarter ~~and~~of ~~was~~2012 ~~further~~compared ~~reduced~~to by$96.9 ~~lower~~million ~~loan~~for ~~volume~~the ~~and~~same ~~income~~period ~~deferrals~~of 2011, along with ~~foregone~~a ~~income~~lower onaverage ~~nonaccrual~~rate ~~loans~~earned, which fell from 4.06% to 3.17%.

~~Interest expense declined $1.9 million in the first nine months of 2011, as the average rate paid to fund interest~~Tax-~~earning~~exempt ~~assets~~investment ~~decreased~~income toalso ~~1.40%~~declined ~~from 1.73%. This decline was~~ due to the ~~lower~~sale ~~rates~~of ~~paid~~the ~~on almost all interest~~tax-~~bearing~~exempt ~~liabilities. The~~investment ~~most~~portfolio ~~significant reduction occurred~~ in ~~interest expense on certificates of deposit, which declined from $3~~2011.~~6 million to $2.8 million.~~

Interest income on loans fell $445,000 in the first three months of 2012 compared to the same period in 2011from $3.0 million to $2.5 million due to a lower average rate earned, which declined from 4.97% to 4.91%, and was further reduced by income lost on nonaccrual loans.

Interest expense declined $247,000, or 18.7%, from $1.3 million to $1.1 million in the first three months of 2012, as the average rate paid on interest-bearing liabilities declined 20 basis points, from 1.67% to 1.47%, while the average balance of interest-bearing liabilities declined $28.4 million from $320.3 million in the first three months of 2011 to $291.9 million for the first quarter of 2012.

Provision for loan losses

~~There~~The ~~was~~provision adeclined ~~$500,000~~significantly ~~provision~~ in the ~~third~~first quarter of ~~2011~~2012 ~~compared~~ to $2125,000 from $1.82 million for the similar quarter in ~~2010,~~2011. The ~~and~~decline ~~decreased~~resulted tofrom $2a reduction in loan charge-offs in 2012.5 Although ~~million~~net charge-offs totaled $385,000, which is in excess of the ~~first~~provision, ~~nine~~based ~~months~~on an ongoing evaluation of ~~2011~~the ~~from~~loan ~~$5.2 million~~portfolio inand the ~~comparable~~ALLL, ~~2010~~management ~~period. Both~~believes ~~declines~~that ~~occurred~~the ~~due~~ALLL tolevel ~~lower~~at ~~charge-offs~~March 31, 2012 is adequate.

Other operating income

Other operating income, ~~excluding~~including the results of investment securities transactions, ~~rose~~increased to $~~645~~135,000, ~~in the third quarter of 2011 compared~~ to $~~577~~772,000 in the ~~similar 2010 period, while such income decreased to $1.9 million for the~~ first ~~nine~~quarter ~~months~~ of ~~2011~~2012 ~~compared~~from to $~~2.9 million~~637,000 infor the similar ~~year-earlier period. The~~ quarter~~-to-quarter~~ ~~increase~~in ~~resulted~~2011, primarily ~~from~~due to higher income from an unconsolidated leasing subsidiary, ~~while~~that ~~the~~we ~~year-to-date~~have ~~comparison~~a ~~was~~35.4% ~~further~~ownership ~~impacted~~interest byalong ~~the~~with ~~aforementioned~~two $1other ~~million~~minority-owned ~~award~~banks, ~~recorded~~as inwell ~~the~~as ~~second~~rental ~~quarter~~income ofreceived ~~2010~~from OREO properties.

Securities transactions

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In June 2010, the Bank sold $13.9 million of investment securities, resulting in a net gain of $528,000. There were no such transactions during the first nine months of 2011.

Other operating expenses

Other operating expenses of $43.05 million in the ~~2011~~first ~~third~~ quarter ~~declined~~of 2012 were slightly ~~from~~lower by $~~4.2~~207,000, ~~million~~or in5.5%, than the ~~third~~first quarter of ~~2010~~2011, ~~and~~although there were ~~unchanged~~ onsignificant achanges ~~year-to-date~~within ~~basis~~the ~~from~~various ~~$11~~expense categories.4 Salaries ~~million~~and other employee benefits rose by $132,000 ~~although~~due ~~there~~to ~~were~~hiring ~~significant~~of ~~changes~~additional senior management to assist in ~~several~~the ~~expense~~Corporation's ~~categories~~restructure. Additionally, we received an insurance claim recovery of $150,000 from a loss incurred in 2010, management consulting fees declined $111,000 and appraisal fees declined $100,000.

Occupancy and equipment expense was lower in the third quarter of 2011 compared to the year-earlier third quarter due to branch closings. Also as a result of the closings, the Corporation charged off $468,000 of core deposit intangible in the 2010 third quarter, while OREO expense and regulatory expense both were sharply higher compared to last year. Finally, other expenses declined due to the elimination of directors' fees, which cannot be paid under the Consent Order, lower personnel agency fees and $89,000 in chargeoffs of fixed assets incurred in 2011 in conjunction with the branch closings.

On a year-to-date basis, benefits expense declined due to the elimination in 2010 of the supplemental executive retirement plan, while occupancy and equipment expense and amortization of core deposit intangible were lower due to the charges in 2010 related to the branch closings. Regulatory expense, comprised principally of FDIC insurance costs, rose due to an increased risk rating resulting from the Consent Order, and OREO expense rose significantly due to higher writedowns of OREO properties. Additionally, credit costs were up due to the ongoing management of nonperforming loans, and management consulting fees were higher due to the retention of consultants to assist in complying with the terms of the Consent Order, along with the outsourcing of the internal audit and compliance functions.

Income tax expense

Income tax expense in both the ~~third~~first quarter ~~and first nine months~~ of ~~2011~~2012 and ~~2010~~2011 was limited to state tax expense as federal income tax benefits were restricted by valuation allowances. These deferred benefits will not be recovered until the Corporation can demonstrate the ability to generate future taxable income.

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.

Continued asset quality deterioration and operating losses could create significant stress on sources of liquidity, including limiting access to funding sources and requiring higher discounts on collateral used for borrowings. Accordingly, the Corporation has implemented a contingency funding plan, currently in use, which provides detailed procedures to be instituted in the event of a liquidity crisis. The plan provides for, among other things, the sale of Bank-owned properties at distressed prices in the event of a crisis situation where the Bank would be unable to meet its funding obligations on a timely basis. This situation has not yet occurred where we would have to sell Bank-owned properties.

The Bank depends primarily on deposits as a source of funds, and ~~also~~prior ~~provides~~to ~~for a portion of its funding needs through short-term borrowings, such as~~ the ~~Federal~~Consent ~~Home Loan Bank~~Order, ~~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~~provided ~~the~~for ~~Federal~~a ~~Home~~portion ~~Loan~~of ~~Bank~~its ~~for longer-term~~ funding ~~purposes and at September 30, 2011 had $10 million in long-term advances outstanding.~~

A significant part of the Bank's deposit base is from municipal deposits, which comprised $86.2 million, or 28.3% of total deposits at September 30, 2011 compared to $105.8 million, or 31.2% of total deposits at December 31, 2010. These relationships arise due to the Bank's urban market presence, leading to large municipal deposit relationships. $47.5 million of investment securities were pledged as collateral for these deposits. Additionally, $53.5 million of U.S. agency securities and commercial real estate loans were pledged to the Federal Home Loan Bank as collateral for the aforementioned borrowing along with $38.3 million of municipal letters of credit ("MULOCs"). As a result of the large size of these individual deposit relationships, these municipalities may at times represent a potentially volatile source of liquidity.32

Illiquidity in certain segments of the investment portfolio may limit the Corporation's ability to dispose of various securities, although management believes that the Corporation has sufficient resources to meet all its liquidity demands. Should the market for these and similar types of securities, such as single-issuer trust preferred securities, continue to deteriorate, or should credit weakness develop, additional illiquidity could occur within the investment portfolio.

Municipal deposit levels may fluctuate significantly depending on the cash requirements of the municipalities. The Bank has ready sources of available short-term borrowings in the event that the municipalities have unanticipated cash requirements. Such sources include the Federal Reserve Bank discount window, federal funds lines, FHLB advances and access to the repurchase agreement market, utilizing the collateral for the withdrawn deposits. In certain instances, however, these lines may be reduced or not available in the event of a significant decline in the Bank's credit quality or capital levels.

As a result of the loss incurred, there were no significant sources or uses of cash during the first nine months of 2011 from operating

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~~activities. Net~~needs ~~cash~~through ~~used~~short-term inborrowings, ~~investing~~such ~~activities~~as ~~was~~the ~~for~~Federal ~~investment~~Home ~~purchases,~~Loan ~~while~~Bank ~~sources~~(“FHLB”), offederal ~~cash~~funds ~~provided~~purchased, bysecurities ~~investing~~sold ~~activities~~under ~~were~~repurchase ~~derived~~agreements ~~primarily~~and ~~from~~borrowings ~~proceeds~~under ~~from~~the ~~loan~~U.S. ~~maturities~~Treasury tax and ~~payments~~loan ~~and~~note ~~maturities,~~option ~~principal~~program. The ~~payments~~Bank ~~and~~also ~~early~~utilizes ~~redemptions~~the ofFederal ~~investment~~Home ~~securities~~Loan ~~available~~Bank ~~for~~and ~~sale. The~~the ~~most~~Federal ~~significant~~Reserve ~~use~~Bank ofdiscount ~~funds~~window for ~~financing~~longer-term ~~activities~~funding ~~was~~purposes aand ~~decrease~~at inMarch ~~deposits~~31, ~~while~~2012 ~~there~~had ~~were~~$10 nomillion ~~uses~~in oflong-term ~~cash~~advances ~~provided~~outstanding. All bythe ~~financing~~Bank's ~~activities~~borrowings must be collateralized.

A significant part of the Bank's deposit base is from municipal deposits, which comprised $107.7 million, or 34.1% of total deposits at March 31, 2012, compared to $91.3 million or 30.5% of total deposits at December 31, 2011. These relationships arise due to the Bank's urban market, leading to municipal deposit relationships. $57.5 million of investments securities were pledged as collateral for these deposits along with $38.3 million in Federal Home Loan Bank letters of credit, all of which require collateralization. As a result of the large size of these individual deposit relationships, these municipalities represent a potentially volatile source of liquidity, although they have historically been a stable source of deposits.

Illiquidity in certain segments of the investment portfolio may limit the Corporation's ability to dispose of various securities, although management believes that the Corporation has sufficient resources to meet all of its liquidity demands. Should the market for these and similar types of securities, such as single-issuer trust preferred securities, continue to deteriorate, or should credit weakness develop, additional illiquidity could occur within the investment portfolio.

Municipal deposit levels may fluctuate significantly depending on the cash requirements of the municipalities. The Bank maintains significant interest-earning bank balances and has ready sources of available short-term borrowings in the event that the municipalities have unanticipated cash requirements. Such sources include federal funds lines, FHLB advances and access to the repurchase agreement market, utilizing the collateral for the withdrawn deposits. In certain instances, however, these lines may be reduced or not available in the event of a significant decline in the Bank's credit quality or capital levels.

As a result of the loss incurred, there were no significant sources or uses of cash during the first three months of 2012 from operating activities. Net cash used in investing activities was for investing in short-term interest-bearing deposits with the Federal Reserve Bank and investment purchases, while sources of cash provided by investing activities were derived primarily from proceeds from loan maturities, principal payments and early redemptions of investment securities available for sale. The most significant use of funds for financing activities was a decrease in deposits while there were no uses of cash provided by financing activities.

Because we are in violation of certain covenants of a $5 million long-term loan agreement, the loan has been reclassified to short-term portion of long-term debt on the Balance Sheet, as the violation causes the debt to become immediately due and payable. However, we have been in violation for a number of years, and there has been no demand for payment, nor does management believe that such a demand will occur. In the event that such a demand is made, the holding company would not be able to repay the debt.

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Item 3

Quantitative and Qualitative Disclosures ~~about~~About Market Risk

Due to the nature of the Corporation's business, market risk consists primarily of its exposure to interest rate risk. Interest rate risk is the impact that changes in interest rates have on earnings. The principal objective in managing interest rate risk is to maximize net interest income within the acceptable levels of risk that have been established by policy. There are various strategies that may be used to reduce interest rate risk, including the administration of liability costs, the reinvestment of asset maturities and the use of off-balance sheet financial instruments. The Corporation does not presently utilize derivative financial instruments to manage interest rate risk.

Interest rate risk is monitored through the use of simulation modeling techniques, which apply alternative interest rate scenarios to periodic forecasts of changes in interest rates, projecting the related impact on net interest income. The use of simulation modeling assists management in its continuing efforts to achieve earnings growth in varying interest rate environments.

Key assumptions in the model include anticipated prepayments on mortgage-related instruments, contractual cash flows and maturities of all financial instruments, deposit sensitivity and changes in interest rates.

These assumptions are inherently uncertain, and as a result, these models cannot precisely estimate the effect that higher or lower rate environments will have on net interest income. Actual results may differ from simulated projections due to the timing, magnitude or frequency of interest rate changes, as well as changes in management's strategies.

A simulation model is used for asset-liability management purposes, assuming an immediate and parallel 100 basis point shift in interest rates. The most recently prepared model indicates that net interest income would ~~decrease~~increase 3.1983% from base case scenario if interest rates rise 200 basis points and decline 1514.1564% if rates decrease 200 basis points. Additionally, the economic value of equity would ~~decrease~~increase 176.3216% if rates rose 200 basis points and decline 822.1714% if rates declined 200 basis points. ~~All changes are within internal limits.~~

Management believes that the exposure to a 200 basis ~~point,~~points or more, falling rate environment is nominal given the historically low interest rate environment. These results indicate that the Corporation is asset-sensitive, meaning that the interest rate risk is higher if interest rates fall, which management does not expect to occur during ~~2011~~2012 based on the current low interest rate environment.

Item 4

Controls and Procedures

(a) Disclosure Controls and Procedures. The Corporation's management, with the participation of the Corporation's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Corporation's disclosure controls and procedures (as such term is defined on Rules 13(a)-13(e) and 15(d)-15(e) under the Exchange Act) as of the end of the period covered by this Report. The Corporation's disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis in the Corporation's periodic reports filed with the SEC. Based upon such evaluation, the Corporation's chief executive officer and chief financial officer have concluded that, as of the end of such period, the Corporation's disclosure controls and procedures are effective to provide reasonable assurance. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that it will detect or uncover failures within the Corporation to disclose material information otherwise required to be set forth in the Corporation's periodic reports.

(b) Changes in Internal Controls over Financial Reporting. There were no changes in our internal controls over financial reporting during the first three months of 2012 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting, except that we continued to implement the changes mandated by the Agreement with the OCC in the Consent Order.

~~There~~(c) ~~were~~Management's noReport ~~changes~~on inInternal ~~our~~Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal ~~controls~~control over financial reporting, ~~during~~as such term is defined in Exchange Act Rule 13-a-15(f) under the ~~first~~Securities ~~nine~~Exchange ~~months~~Act of ~~2011~~1934. Under ~~that~~the ~~have~~supervision ~~materially~~and ~~affected,~~with orthe ~~are~~participation ~~reasonably~~of ~~likely~~the toprincipal ~~materially~~executive ~~affect~~officer and the principal financial officer, ~~our~~management ~~internal~~has ~~controls~~conducted an evaluation of the effectiveness of the Corporation's control over financial reporting, ~~except~~based ~~that~~on wethe ~~continued~~framework toin ~~implement~~Internal ~~the~~Control ~~changes~~- ~~mandated~~Integrated Framework issued by the ~~Agreement~~Committee ~~with~~of Sponsoring Organizations of the ~~OCC~~Treadway Commission (“COSO”). Based on the evaluation under the framework, management has concluded that as of March 31, 2012, due to continued errors in the ~~Consent~~impairment ~~Order.~~analysis performed for the ALLL calculation,

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~~PART~~the IIfailure ~~Other~~of ~~information~~management to review at a level of precision to identify misstatements in the allowance calculation, and management's failure to comply with articles in the Consent Order surrounding the Allowance for loan losses, a material weakness exists in the preparation and review of the allowance for loan loss calculation.

Additionally, a material weakness was identified related to financial reporting due to the failure of management to review at a level of precision to identify misstatements in the financial statements and related footnote disclosures.

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PART II. Other information

Item 1. Legal Proceedings

In the normal course of business, the Corporation or its subsidiary may, from time to time, be party to various legal proceedings relating to the conduct of its business. In the opinion of management, the consolidated financial statements will not be materially affected by the outcome of any pending legal proceedings.

Item 1a. Risk Factors

The Bank is subject to a Consent Order and the Corporation is subject to the FRBNY Agreement. The Bank is not in compliance with the capital ratio requirements of the Consent Order.

As stated in Note 3 to the Financial Statements, the Bank is subject to a Consent Order which mandates specific actions by the Bank to address certain findings from the OCC's examination and to address the Bank's current financial condition and the Corporation is subject to the FRBNY Agreement. As of ~~September~~June 30, 2011, the Bank believes it has timely complied with ~~most of~~ the requirements of the Consent Order with the exception of the capital ratio requirements. We believe we are in compliance with the FRBNY Agreement. If our regulators believe we failed to comply with the Consent Order or the FRBNY Agreement, they could take additional regulatory action, including forcing the Corporation's Board to sell, merge, or liquidate the Bank.

The Corporation's Financial Results and the Bank's Failure to Comply with the Consent Order Raises Substantial Doubt About the Corporation's and the Bank's Ability to Continue as Going Concerns Through the End of ~~2011~~2012.

The Corporation recorded a net loss of $~~3.3~~644,000 ~~million~~ for the 2012 first ~~nine~~quarter ~~months of 2011~~ and a net loss of $73.57 million for fiscal ~~2010~~2011. These financial results and the failure of the Bank to comply with the Consent Order with the OCC, and the actions that the OCC may take as a result thereof, raise substantial doubt about the Corporation's and the Bank's ability to continue as going concerns through the end of ~~2011~~2012.

The Corporation Has Deferred Payment of Dividends on its Series G Preferred Stock and Certain Debentures and May Not Pay Dividends on its Common or other Preferred Stock Until Such Series G Dividends and Interest on Debentures are Paid.

In ~~November~~February, ~~2011~~2012, City National Bancshares Corporation deferred the payment of its regular quarterly cash dividend on its Series G fixed-rate cumulative perpetual preferred stock issued to the U.S. Treasury in connection with the Corporation's participation in the Treasury's TARP Capital Purchase Program. In addition, the Corporation deferred its regularly scheduled quarterly interest payment on its junior subordinated debentures issued by the City National Bank of New Jersey Capital Statutory Trust II. The Series G preferred stock and the junior subordinated debentures issued in favor of the Trust provide for cumulative dividends and interest, respectively. Accordingly, the Corporation may not pay dividends on any of its common or preferred stock until the dividends on Series G preferred stock and the interest on such debentures are paid-up currently. Additionally, the Corporation intends to defer payments in ~~2011~~2012 on the aforementioned instruments and cannot presently determine when such payments will resume.

~~The~~There ~~Standard~~have &been ~~Poor's~~no ~~downgrade~~other inmaterial ~~the~~changes ~~U.S. government's sovereign credit rating, and~~ in ~~the~~risk ~~credit~~factors ~~ratings~~since ofDecember ~~instruments issued~~31, ~~insured or guaranteed by certain related institutions, agencies and instrumentalities, could result in risks to the Company and general economic conditions that we are not able to predict~~2011.

OnFor ~~August~~a 5,summary ~~2011,~~of ~~Standard~~risk &factors ~~Poor's~~relevant ~~downgraded~~to the ~~United~~corporation ~~States~~and ~~long-term debt rating from~~ its ~~AAA rating to AA+. On August 8, 2011, Standard & Poor~~subsidiary's downgraded the credit ratings of certain long-term debt instruments issued by Fannie Mae and Freddie Mac and other U.S. government agencies linked to long-term U.S. debt. Instruments of this nature are key assets on the balance sheets of financial institutionsoperations, ~~including~~please ~~the~~refer ~~Bank. These downgrades could adversely affect the market value of such instruments, and could adversely impact our ability~~ to ~~obtain~~Part ~~funding that is collateralized by affected instruments~~I, asItem ~~well~~1a as affecting the pricing of that funding when it is available. We cannot predict if, when or how these changes to the credit ratings will affect economic conditions. These ratings downgrades could result in ~~a significant adverse impact to~~ the Corporation,'s ~~and~~December ~~could exacerbate the other risks to which the Corporation is subject~~31, ~~including~~2011 ~~those described under Risk Factors in the Corporation's 2010~~ Annual Report onto ~~Form 10-K~~Stockholders.

~~There~~Item ~~have~~2. ~~been~~Unregistered noSales ~~other~~of ~~material~~Equity ~~changes~~Securities inand ~~risk~~Use ~~factors~~of ~~since~~Proceeds ~~December 31, 2010.~~

~~For~~Pursuant ato ~~summary~~his ofemployment ~~risk~~agreement ~~factors~~dated ~~relevant~~October to1, ~~the~~2011 ~~corporation~~we ~~and~~are ~~its~~issuing ~~subsidiary's~~to ~~operations~~Mr. Pinkett 20,000 ~~please~~shares ~~refer~~of tocommon ~~Part~~stock I,at ~~Item~~a 1aprice inof $3.00 per share evenly over the ~~Corporation's~~term ~~December~~of ~~31,~~his ~~2010~~employment ~~Annual~~(from ~~Report~~October 1, 2011 to ~~Stockholders~~October 1, 2012).

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Pursuant to his employment agreement dated March 1, 2011 we are issuing to Mr. Pinkett 667 shares of common stock at a price of $37.50 per share evenly over the initial term of his employment (from March 1, 2011 to September 1, 2011). Additionally, we are issuing to Mr. Pinkett 20,000 shares of common stock at a price of $3.00 per share over the next year of his extended contract (from September 1, 2011 to August 31, 2012). On January 21, 2011, Mr. Alfonso Carney, a director of the Corporation, purchased from us 30 shares of common stock at a price of $37.50 per share.

The Corporation is relying on the exemption in Section 4(2) of the Securities Act and/or Regulation D adopted pursuant to the Securities Act in the issuance of the aforesaid shares, as these were private placements of securities to our principal executive officer and a director.

~~Item 3. Defaults Upon Senior Securities.~~36

~~(b)~~Table ~~During the first nine months~~ of 2011, City National Bancshares Corporation deferred the payment of its regular quarterly cash dividends in the amount of $117,987 each on its Series G fixed-rate cumulative perpetual preferred stock issued to the U.S. Treasury in connection with the Corporation's participation in the Treasury's TARP Capital Purchase Program. As of the last day of the third quarter, an aggregate of $825,909 in its Series G dividends had been deferred. In addition, during the first nine months of 2011, the Corporation deferred its regularly scheduled quarterly interest payments of $62,598 on its junior subordinated debentures issued by the City National Bank of New Jersey Capital Statutory Trust II (the “Trust”), as permitted by the terms of such debentures. As of the last day of the third quarter of 2011, a total of $221,757 in interest under such debentures was deferred.Contents

Item 3. Defaults Upon Senior Securities

(b) In the first quarter of 2012, City National Bancshares Corporation deferred the payment of its regular quarterly cash dividends in the amount of $117,987 each on its Series G fixed-rate cumulative perpetual preferred stock issued to the U.S. Treasury in connection with the Corporation's participation in the Treasury's TARP Capital Purchase Program. As of the last day of the 2012 first quarter, an aggregate of $1.1 million in its Series G dividends had been deferred. In addition, during the first quarter of 2012, the Corporation deferred its regularly scheduled quarterly interest payments of $33,863 on its junior subordinated debentures issued by the City National Bank of New Jersey Capital Statutory Trust II (the “Trust”), as permitted by the terms of such debentures. As of the last day of the first quarter of 2012, a total of $252,818 in interest under such debentures was deferred.

In addition, dividends on all other series of the Corporation's preferred stock were deferred in the amounts set forth below, as payments of such dividends are not permitted while the Series G preferred is outstanding, without the consent of the holder of the Series G preferred.

Series	Amount Deferred during First Nine Months		Total Deferred to Date
	Amount Deferred		Total Deferred
Series	in First Quarter		to Date
A	$	12,000	$	12,000
C	2,160		2,160
D	3,300		3,300
E	147,000		147,000
F	~~224~~149,~~801~~318		~~971~~1,~~395~~343,869

The Corporation's failure to pay dividends for the previous five (5) consecutive dividend periods has triggered board appointment rights for the holders of the Series F preferred stock. The Corporation's failure to pay dividends for six (6) consecutive dividend periods with respect to the Series G preferred stock has triggered additional board appointment rights for the holders of Series G preferred stock and Series F preferred stock.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(31)	Certifications of Principal Executive Officer and Principal Financial Officer (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith).	~~Certifications of Principal Executive Officer and Principal Financial Officer (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith).~~
(32)	Certifications of Principal Executive Officer and Principal Financial Officer under 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) (filed herewith).	~~Certifications of Principal Executive Officer and Principal Financial Officer under 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) (filed herewith).~~
(101)		Interactive Data File

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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)
December 23, 2011	/s/ Edward R. Wright
	Edward R. Wright
	Duly Authorized Signatory and Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

CITY NATIONAL BANCSHARES CORPORATION

December 23, 2011	/s/ Preston D. Pinkett III
	Preston D. Pinkett III
	President and Chief Executive Officer

(Registrant)



August 21, 2012	/s/ Preston D. Pinkett III
	Preston D. Pinkett III
	Chief Executive Officer and President

~~Table of Contents~~38

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 21, 2012	/s/ Edward R. Wright
	Edward R. Wright
	Duly Authorized Signatory and Senior Vice President and Chief Financial
	Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX

(31)	Certifications of Principal Executive Officer and Principal Financial Officer (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith).	~~Certifications of Principal Executive Officer and Principal Financial Officer (Section 302 of the Sarbanes-Oxley Act of 2002) (filed herewith).~~
(32)	Certifications of Principal Executive Officer and Principal Financial Officer under 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) (filed herewith).	~~Certifications of Principal Executive Officer and Principal Financial Officer under 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) (filed herewith).~~
(101)		Interactive Data File

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