SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-11535

CITY NATIONAL BANCSHARES CORPORATION

(Exact name of registrant as specified in its charter)

New Jersey (State or other jurisdiction of incorporation or organization)		22-2434751 (I.R.S. Employer Identification No.)
900 Broad Street, Newark, New Jersey (Address of principal executive offices)		07102 (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 þ No o

Indicate by check mark whether the 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 was required to submit and post such files).

Yes o 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 þ		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 þ

The aggregate market value of voting stock held by non-affiliates of the Registrant as of August 11, 2011 was approximately $3,049,538.

There were 131,326 shares of common stock outstanding at August 11, 2011.

 

 

Index		Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010			3
Consolidated Statements of Operations (Unaudited) for the Three Months and Six Months Ended June 30, 2011 and 2010			4
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2011 and 2010			5
Notes to Consolidated Financial Statements (Unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures about Market Risk			30
Item 4. Controls and Procedures			31
Part II. Other Information			31
Item 1. Legal Proceedings			31
Item 1A. Risk Factors			31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 3. Default Upon Senior Securities			32
Item 6. Exhibits			33
Signatures			34
EX-31
EX-32

CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY

Consolidated Balance Sheets (Unaudited)

		June 30,				December 31,
Dollars in thousands, except per share data		2011				2010
Assets
Cash and due from banks		$	8,842			$	7,228
Federal funds sold			22,500				13,550
Interest-bearing deposits with banks			2,134				3,289
Investment securities available for sale			99,678				105,420
Loans			225,214				244,955
Less: Allowance for loan losses			10,895				10,626
Net loans			214,319				234,329
Premises and equipment			2,776				2,974
Accrued interest receivable			1,705				1,933
Bank-owned life insurance			5,824				5,730
Other real estate owned			1,959				1,997
Other assets			6,455				10,817
Total assets		$	366,192			$	387,267
Liabilities and Stockholders’ Equity
Deposits:
Demand		$	45,089			$	35,132
Savings			112,483				130,663
Time			162,760				172,756
Total deposits			320,332				338,551
Accrued expenses and other liabilities			5,278				6,620
Short-term portion of long-term debt			5,000				5,000
Long-term debt			14,200				14,200
Total liabilities			344,810				364,371
Commitments and contingencies
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 C, issued and outstanding 108 shares in 2011 and 2010			27				27
Series D, issued and outstanding 3,280 shares in 2011 and 2010			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
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
Preferred stock, no par value, perpetual cumulative: Authorized 9,439 shares;
Series G, issued and outstanding 9,439 shares in 2011 and 2010			10,244				9,990
Common stock, par value $10: Authorized 400,000 shares;
134,530 shares issued in 2011 and 2010
131,326 shares outstanding in 2011 and 131,290 in 2010			1,345				1,345
Surplus			1,115				1,115
Retained earnings			(2,412	)			514
Accumulated other comprehensive income (loss)			1,029				(127	)
Treasury stock, at cost-3,204 and 3,240 common shares in 2011 and 2010, respectively			(226	)			(228	)
Total stockholders’ equity			21,382				22,896
Total liabilities and stockholders’ equity		$	366,192			$	387,267

See accompanying notes to unaudited consolidated financial statements.

CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY

Consolidated Statements of Income (Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
Dollars in thousands, except per share data		2011				2010				2011				2010
Interest income
Interest and fees on loans		$	2,984			$	3,709			$	5,945			$	7,479
Interest on federal funds sold and securities purchased under agreements to resell			8				13				19				21
Interest on deposits with banks			59				7				118				14
Interest and dividends on investment securities:
Taxable			945				1,304				1,928				2,758
Tax-exempt			61				240				123				523
Total interest income			4,057				5,273				8,133				10,795
Interest expense
Interest on deposits			1,074				1,472				2,195				3,041
Interest on long-term debt			201				423				401				852
Total interest expense			1,275				1,895				2,596				3,893
Net interest income			2,782				3,378				5,537				6,902
Provision for loan losses			814				1,010				2,014				2,391
Net interest income after provision for loan losses			1,968				2,368				3,523				4,511
Other operating income
Service charges on deposit accounts			289				340				571				702
Agency fees on commercial loans
Award income			25				1,025				50				1,050
Other income			304				279				634				582
Net gains on sales of investment securities			—				528				—				529
Total other operating income			618				2,172				1,255				2,863
Other operating expenses
Salaries and other employee benefits			1,483				1,559				2,918				3,143
Occupancy expense			258				470				626				837
Equipment expense			112				146				245				300
Data processing expense			94				86				188				181
Appraisal fees			5				146				120				161
Professional fees			185				317				379				456
Marketing expense			63				97				122				174
Management consulting fees			554				89				1,039				354
Regulatory expense			395				272				690				562
OREO expense			140				15				243				35
Other expenses			395				468				849				990
Total other operating expenses			3,684				3,665				7,419				7,188
(Loss) income before income tax expense			(1,098	)			875				(2,641	)			186
Income tax expense			19				53				31				68
Net (loss) income		$	(1,117	)		$	822			$	(2,672	)		$	118
Net (loss) income per common share
Basic		$	(9.48	)		$	5.32			$	(22.28	)		$	(0.94	)
Diluted			(9.48	)			5.32				(22.28	)			(0.94	)
Basic average common shares outstanding			131,326				131,290				131,313				131,290
Diluted average common shares outstanding			131,326				131,290				131,313				131,290

See accompanying notes to unaudited consolidated financial statements.

CITY NATIONAL BANCSHARES CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)

		Six Months Ended
Dollars in thousands		2011				2010
Operating activities
Net (loss) income		$	(2,672	)		$	118
Adjustments to reconcile net (loss) income to net cash from operating activities:
Depreciation and amortization			213				210
Provision for loan losses			2,014				2,391
Premium amortization on investment securities			54				61
Amortization of intangible assets			—				75
Net gains on securities transactions			—				(529	)
Net writedowns (gains) on loans held for sale			—				(6	)
Net losses on sales of real estate owned			178				(17	)
Proceeds from sales and principal payments from loans held for sale			—				196
Decrease in accrued interest receivable			228				401
Deferred tax			—				1,195
Net increase in bank-owned life insurance			(94	)			(96	)
Decrease in other assets			4,311				205
(Decrease) increase in accrued expenses and other liabilities			(1,342	)			296
Net cash provided by operating activities			2,890				4,500
Investing activities
Decrease in loans, net			17,862				10,148
Decrease in interest-bearing deposits with banks			1,155				27
Proceeds from maturities of investment securities available for sale, including principal payments and early redemptions			10,223				23,594
Proceeds from maturities of investment securities held to maturity, including principal payments and early redemptions			—				1,247
Proceeds from sales of investment securities available for sale			—				14,502
Purchases of investment securities available for sale			(3,334	)			(14,257	)
Proceeds from sales of other real estate owned			—				556
Purchases of premises and equipment			(15	)			(456	)
Net cash provided by investing activities			25,891				35,361
Financing activities
Decrease in deposits			(18,219	)			(9,336	)
Increase in short-term borrowings			—				500
Decrease in long-term debt			—				(2,000	)
Issuance of treasury stock			2				—
Net cash used by financing activities			(18,217	)			(10,836	)
Net increase in cash and cash equivalents			10,564				29,025
Cash and cash equivalents at beginning of period			20,778				12,308
Cash and cash equivalents at end of period		$	31,342			$	41,333
Cash paid during the year
Interest		$	2,495			$	3,706
Income taxes			66				10
Non-cash transactions
Transfer of held to maturity securities to available for sale			—				39,144
Transfer of loans to other real estate owned			140				—

See accompanying notes to unaudited consolidated financial statements.

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.

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. 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 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 six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011. 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 six months ended June 30, 2011 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”) entered into on June 29, 2009 (the “Formal Agreement”). The Consent Order 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 a 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.
•		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 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 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 June 30, 2011, when considering deadline extensions granted, the Corporation believes it has timely complied with the requirements of the Consent Order as of such date with the exception of the capital ratio requirements.

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 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.

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 $2.7 million in the 2011 first half compared to net income of $118,000 in the 2010 first half primarily due to significant declines in net interest income and other operating income, along with higher costs for consultants retained to achieve compliance with the provisions of the Consent Order. The decrease in real estate values and instability in the market, as well as other macroeconomic factors, such as unemployment, have contributed to a decrease in credit quality and increased provisioning. 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 to continue as going concerns. Management 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 OCC has requested the Bank to include more detailed information to the plan. In order to meet the minimum capital ratios required by the Consent Order, the terms of the plan include raising capital. However, there can be no assurances that such a plan can be achieved.

4. Net (loss) income per common share

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
In thousands, except per share data		2011				2010				2011				2010
Net (loss) income		$	(1,117	)		$	822			$	(2,672	)		$	118
Dividends on preferred stock			128				122				254				240
Net (loss) income applicable to basic common shares			(1,245	)			700				(2,926	)			(122	)
Dividends applicable to convertible preferred stock			—				—				147				—
Net (loss) income applicable to diluted common shares		$	(1,245	)		$	700			$	(2,779	)		$	(122	)
Number of average common shares
Basic			131,326				131,290				131,313				131,290
Diluted			131,326				131,290				131,313				131,290
Net (loss) income per common share
Basic		$	(9.48	)		$	5.32			$	(22.28	)		$	(.94	)
Diluted			(9.48	)			5.32				(22.28	)			(.94	)

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.

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 half 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.

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. There were no dividend payments made on preferred stock in 2010 or 2011, although such dividends have been accrued because they are cumulative.

The Corporation did not pay a dividend in 2010 and is currently unable to determine when dividend payments may be resumed, and does not expect to pay common stock dividends for the foreseeable future. Whether cash dividends will be paid in the future depends upon various factors, including the earnings and financial condition of the Bank and the Corporation at the time. Additionally, federal and state laws and regulations contain restrictions on the ability of the Bank and the Corporation to pay dividends. Finally, the Consent Order stipulates that the Bank may not pay dividends until it is in compliance with the provisions of 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 Office of the Comptroller of the Currency (“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 declare any dividend. Based upon this limitation, no funds were available for the payment of dividends to the parent corporation at June 30, 2011.

5. Comprehensive (loss) income

Total comprehensive (loss) income includes net income or 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 comprehensive income (loss) for the three months ended June 30, 2011 and 2010 was $1,415,000 and $1,379,000, respectively and for the six months ended June 30, 2011 and 2010 was $(1,029,000) and $1,810,000, respectively. The difference between the Corporation’s net income and total comprehensive (loss) income 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

In January 2010, the FASB (“Financial Accounting Standards Board”) issued Accounting Standards Update (“ASU”) 2010-06 to improve disclosures about fair value measurements. This guidance requires new disclosures on transfers into and out of Level 1 and 2 measurements of the fair value hierarchy and requires separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures relating to the level of disaggregation and inputs and valuation techniques used to measure fair value. It was effective for the first reporting period (including interim periods) beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which was effective for fiscal years beginning after December 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 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.

In April of 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring,” which states that when evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist: (1) the restructuring

constitutes a concession and (2) the debtor is experiencing financial difficulties. The amendments also provide clarification to help creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constitutes a troubled debt restructuring. In addition, the amendments clarify that a creditor is precluded from using the effective interest rate test in the debtor’s guidance on restructuring of payables when evaluating whether a restructuring constitutes a troubled debt restructuring. The amendments in this Update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The Company does not expect that the adoption of this pronouncement will have a material impact on the Company’s financial condition or results of operations.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This pronouncement was issued concurrently with IFRS 13, “Fair Value Measurements”, to provide largely identical guidance about fair value measurement and disclosure requirements. The new standards do not extend the use of fair value but, rather, provide guidance about how fair value should be applied where it already is required or permitted under IFRS or U.S. GAAP. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS 13. A public entity is required to apply the ASU prospectively for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted for a public entity. In the period of adoption, a reporting entity will be required to disclose a change, if any, in valuation technique and related inputs that result from applying the ASU and to quantify the total effect, if practicable. The Corporation does not expect that the adoption of this pronouncement will have a material impact on the Corporation’s financial condition or results of operations.

In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” This ASU is intended to increase the prominence of other comprehensive income in financial statements, and eliminates the option in current U.S. generally accepted accounting principles that permits the presentation of other comprehensive income in the statement of changes in equity. The new guidance is to be applied retrospectively, effective for fiscal years beginning after December 15, 2011.

7. Investment securities available for sale

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

						Gross				Gross
June 30, 2011		Amortized				Unrealized				Unrealized				Fair
In thousands		Cost				Gains				Losses				Value
U.S. Treasury securities and obligations of U.S. government agencies		$	3,178			$	101			$	24			$	3,255
Obligations of U.S. government sponsored entities			14,963				102				157				14,908
Obligations of state and political subdivisions			9,592				267				71				9,788
Mortgage-backed securities			59,804				2,148				—				61,952
Other debt securities			8,362				75				1,392				7,045
Equity securities:
Marketable securities			765				—				20				745
Nonmarketable securities			115				—				—				115
Federal Reserve Bank and Federal Home
Loan Bank stock			1,870				—				—				1,870
Total		$	98,649			$	2,693			$	1,664			$	99,678

						Gross				Gross
December 31, 2010		Amortized				Unrealized				Unrealized				Fair
2010 In thousands		Cost				Gains				Losses				Value
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:
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.

June 30, 2011		Amortized				Fair
In thousands		Cost				Value
Due within one year:
Mortgage-backed securities		$	2			$	2
Due after one year but within five years:
U.S. Treasury securities and obligations of U.S. government agencies			34				34
Obligations of state and political subdivisions			2,232				2,381
Obligations of U.S. government sponsored entities			644				649
Mortgage-backed securities			460				486
Other debt securities			1,000				939
Due after five years but within ten years:
U.S. Treasury securities and obligations of U.S. government agencies			87				87
Obligations of state and political subdivisions			3,624				3,694
Obligations of U.S. government sponsored entities			3,408				3,348
Mortgage-backed securities			408				427
Due after ten years:
U.S. Treasury securities and obligations of U.S. government agencies			3,057				3,134
Obligations of state and political subdivisions			3,736				3,713
Obligations of U.S. government sponsored entities			10,911				10,911
Mortgage-backed securities			58,934				61,037
Other debt securities			7,362				6,106
Total debt securities			95,899				96,948
Equity securities			2,750				2,730
Total		$	98,649			$	99,678

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

		Less than 12 Months								12 Months or More								Total
						Gross								Gross								Gross
June 30, 2011						Unrealized								Unrealized								Unrealized
In thousands		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
U.S. Treasury securities and obligations of U.S. government agencies		$	938			$	24			$	65			$	—			$	1,003			$	24
Obligations of U.S. government sponsored entities			6,846				141				1,972				16				8,818				157
Obligations of state and political subdivisions			3,269				71				—				—				3,269				71
Other debt securities			—				—				5,501				1,392				5,501				1,392
Marketable equity securities			—				—				765				20				765				20
Total		$	11,053			$	236			$	8,303			$	1,428			$	19,356			$	1,664

		Less than 12 Months								12 Months or More								Total
						Gross								Gross								Gross
December 31, 2010						Unrealized								Unrealized								Unrealized
In thousands		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
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

The decline in investment securities with continuing unrealized losses was a result of improved valuations in our portfolio of other debt securities, comprised largely of CDOs and single-issued trust preferred securities further discussed below.

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.

The following table presents a rollforward of the credit loss component of other-than-temporary impairment losses (“OTTI”) on debt securities for which a non-credit component of OTTI was recognized in other comprehensive income (loss). The beginning balance represents the credit loss component for debt securities for which OTTI occurred prior to April 1, 2009. OTTI recognized in earnings after that date for credit-impaired debt securities is presented as additions in two components, based upon whether the current period is the first time a debt security was credit-impaired (initial credit impairment) or is not the first time a debt security was credit impaired (subsequent credit impairment).

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

		For the Six Months				For the Six Months
In thousands		Ended June 30, 2011				Ended June 30, 2010
Balance, December 31, 2010 and 2009		$	—			$	2,489
Add: Initial credit impairments			—				—
Additional credit impairments			—				—
Less: Sale of investment securities			—				( 2,489	)
Balance, June 30, 2011 and 2010		$	—			$	—

During the first half of 2011 and 2010, respectively, we recorded no OTTI charges.

The Bank owns a collateralized debt obligation (“CDO”) with a carrying value of $996,000 and market value of $508,000 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 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. Additionally, the Bank owns a portfolio of six single-issue trust preferred securities with a carrying value of $4.5 million and a market value of $3.8 million, compared to a market value of $3.4 million at the end of 2010. Finally, the Bank also owns corporate securities with a carrying value of $1.9 million and a market value of $1.7 million that are rated below investment grade. None of these securities are 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 (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 June 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 June 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:

		June 30,				December 31,
In thousands		2011				2010
Commercial		$	31,727			$	38,225
Real estate			192,676				206,072
Installment			864				718
Total loans			225,267				245,015
Less: Unearned income			53				60
Loans		$	225,214			$	244,955

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 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:

June 30, 2011

						Special
In thousands		Pass				Mention				Substandard				Doubtful				Loss				Total
Commercial loans		$	29,697			$	52			$	1,902			$	76			$	—			$	31,727
Real estate loans
Church			35,882				11,218				13,561				—				—				60,661
Construction — other than third-party originated			2,662				—				11,281				—				—				13,943
Construction — third-party originated			—				—				8,670				2,291				—				10,961
Multifamily			10,897				1,462				1,134				273								13,766
Other			43,235				4,720				20,067				968				—				68,990
Residential			21,061				—				3,294				—				—				24,355
Installment			864				—				—				—				—				864
		$	144,298			$	17,452			$	59,909			$	3,608			$	—			$	225,267

December 31, 2010

						Special
In thousands		Pass				Mention				Substandard				Doubtful				Loss				Total
Commercial loans		$	35,776			$	916			$	1,384			$	149			$	—			$	38,225
Real estate loans
Church			38,785				8,893				15,106				—				—				62,784
Construction — other than third-party originated			1,879				598				10,593				579				—				13,649
Construction — third-party originated			—				—				9,514				4,017				—				13,531
Multifamily			11,742				1,578				1,240				273								14,833
Other			46,544				5,064				20,973				1,202				—				73,783
Residential			24,286				—				2,714				492				—				27,492
Installment			696				16				1				5				—				718
		$	159,708			$	17,065			$	61,525			$	6,717			$	—			$	245,015

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

June 30, 2011

						30-60				60-90				More than				Total Past
In thousands		0-30 Days				Days				Days				90 Days				Due				Current				Total
Commercial loans		$	2,075			$	1,044			$	2,569			$	2,333			$	8,021			$	23,706			$	31,727
Real estate loans
Church			2,079				5,663				4,802				4,990				17,534				43,127				60,661
Construction — other than third-party originated			686				2,879				—				6,756				10,321				3,622				13,943
Construction — third-party originated			1,482				1,512				—				7,967				10,961				—				10,961
Multifamily			545				1,206				99				1,308				3,158				10,608				13,766
Other			2,208				1,825				488				9,216				13,737				55,253				68,990
Residential			269				421				115				2,283				3,088				21,267				24,355
Installment			11				—				1				—				12				852				864
		$	9,355			$	14,550			$	8,074			$	34,853			$	66,832			$	157,535			$	225,267

December 31, 2010

						30-60				60-90				More than				Total Past
In thousands		0-30 Days				Days				Days				90 Days				Due				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.

June 30, 2011

						Unpaid
		Recorded				Principal				Related
In thousands		Investment				Balance				Allowance
Commercial loans		$	254			$	258			$	1
Real estate loans
Church			6,920				7,283				18
Construction — other than third-party originated			6,662				7,438				722
Construction — third-party originated			10,961				14,463				509
Multifamily			1,035				1,882				—
Other			10,431				11,354				73
Residential			2,464				2,511				4
Installment			—				—				—
		$	38,727			$	45,189			$	1,327

December 31, 2010

						Unpaid
		Recorded				Principal				Related
In thousands		Investment				Balance				Allowance
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

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

		June 30,				December 31,
In thousands		2011				2010
Nonaccrual loans		$	40,263			$	35,916
Loans with interest or principal 90 days or more past due and still accruing			1,991				2,343
Total nonperforming loans		$	42,254			$	38,259

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

At June 30, 2011, 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 loan 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.

Impaired loans totaled $38.7 million at June 30, 2011 compared to $34.8 million at December 31, 2010. The related allocation of the allowance for loan losses amounted to $1.3 million and $1.5 million. Charge-offs of impaired loans in the 2011 first half totaled $1.1 million. $31.6 million of impaired loans have no allowance allocated to them as sufficient collateral exists. The average balance of impaired loans in the second quarter and first half of 2011 was $38.5 million and $36.8 million, respectively, compared to $20.9 million and $17.6 million in the similar periods in 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 half of either 2011 or 2010.

Troubled debt restructured loans (“TDRs”) totaled $2.9 million at June 30, 2011 and December 31, 2010, with a related allowance of $94,000 at June 30, 2011 and no related allowance at December 31, 2010 and included six borrowers. TDRs to two borrowers amounting to $1.2 million were accruing. The remainder are on nonaccrual status due to delinquent payments. All TDRs are included in the balance of impaired loans.

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

June 30, 2011

		Allowance for Loan Losses												Recorded Investment
		Individually				Collectively				Total				Individually				Collectively
In thousands		Evaluated				Evaluated				Allowance				Evaluated				Evaluated				Total
Commercial loans		$	1			$	2,694			$	2,695			$	254			$	31,473			$	31,727
Real estate loans
Church			18				1,729				1,747				6,920				53,741				60,661
Construction — other than third-party originated			722				849				1,571				6,662				7,281				13,943
Construction — third-party originated			509				—				509				10,961				—				10,961
Multifamily			—				371				371				1,035				12,731				13,766
Commercial			73				2,538				2,611				10,431				58,559				68,990
Residential			4				1,101				1,105				2,464				21,891				24,355
Installment			—				46				46				—				—				—
Unallocated			—				240				240								864				864
		$	1,327			$	9,568			$	10,895			$	38,727			$	186,540			$	225,267

December 31, 2010

		Individually				Collectively				Total
In thousands		Evaluated				Evaluated				Allowance
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

9. Provision and allowance for loan losses

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

		Balance,				Provision												Balance,
		December				for Loan				Recover-				Charge-				June 30,
In thousands		31, 2010				Losses				ies				offs				2011
Commercial loans		$	2,770			$	(15	)		$	70			$	130			$	2,695
Real estate loans
Church			1,559				249				2				63				1,747
Construction — other than third-party originated			462				2,052				—				943				1,571
Construction — third-party originated			1,575				(959	)			—				107				509
Multifamily			633				(194	)			—				68				371
Other			2,333				655				56				433				2,611
Residential			736				485				6				122				1,105
Installment			55				4				—				13				46
Unallocated			503				(263	)			—				0				240
		$	10,626			$	2,014			$	134			$	1,879			$	10,895

		Balance,				Provision												Balance,
		March 31,				for Loan				Recover-				Charge-				June 30,
In thousands		2011				Losses				ies				offs				2011
Commercial loans		$	2,491			$	187			$	29			$	12			$	2,695
Real estate loans
Church			2,101				(345	)			2				11				1,747
Construction — other than third-party originated			960				1,094				—				483				1,571
Construction — third-party originated			1,045				(429	)			—				107				509
Multifamily			269				170				—				68				371
Other			2,717				(36	)			—				76				2,611
Residential			944				177				6				22				1,105
Installment			45				14				—				13				46
Unallocated			258				(18	)			—				—				240
		$	10,830			$	814			$	43			$	792			$	10,895