| **UNITED STATES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **SECURITIES AND  EXCHANGE COMMISSION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Washington,  D.C.  20549**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **FORM 10-K**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (Mark One)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|        [**X**]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                    For  the fiscal year ended**                                    December  31, 2010                                          **                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| OR                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|        [  ]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 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:  **000-24523**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| ***                              CNB  Corporation                              ***                                                                                                                                                                                                                                                                                                                                                                                                              |
| (Exact name of  registrant as specified in its charter)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **                                          South  Carolina                                  **                                                                                                                                                                                                                                                                                                                 | **                      57-0792402                    ** |
|    (State or  other jurisdiction of incorporation or organization)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | (I.R.S.  Employer Identification No.)   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| **1400 Third  Avenue, P.O. Box 320, Conway, South Carolina**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **                             29528                      ** |
|                    (Address  of principal executive offices)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (Zip  Code)                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| (Registrant's  telephone number, including area code):  **(843) 248-5721**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Securities  registered pursuant to section 12(b) of the Act:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **None**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Securities  registered pursuant to Section 12(g) of the Act:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **Common  Stock, $5.00 par value**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (Title  of class)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|      Indicate  by check mark if the registrant is a well-known seasoned issuer, as defined  in Rule 405 of the Securities Act. [  ] Yes [**X**] No                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|      Indicate  by check mark if the registrant is not required to file reports pursuant to  Section 13 or Section 15(d) of the Act. [  ] Yes [**X**] No                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|      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. [**X**] Yes [  ] No.                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|      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).  (Not yet applicable to  registrant).  [  ] Yes [  ] No.                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|      Indicate by check mark if  disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not  contained herein, and will not be contained, to the best of registrant's  knowledge, in definitive proxy or information statements incorporated by  reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|      Indicate by check mark  whether the registrant is a large accelerated filer, an accelerated filer, a  non-accelerated filer, or a smaller reporting company.  See  definitions of "large accelerated filer," "accelerated filer,"  and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

           Large  accelerated filer [  ]      Accelerated  filer [**X**]      Non-accelerated filer [  ]      Smaller  Reporting Company [  ]                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|      Indicate by check mark whether the  registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  [  ]  Yes [**X** ]  No.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|     As of June 30, 2010 the last  business day of the registrant's most recently completed second fiscal  quarter, the aggregate market value of the Common Stock held by nonaffiliates  (based upon the price at which stock was last sold prior to such date) was  approximately $133,152,165.  As of March 1, 2011, there were 1,664,621  shares of Common Stock of CNB Corporation outstanding.                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Documents incorporated by reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Portions of the Company's Proxy Statement to be used in connection  with the Annual Meeting of Stockholders to be held May 10, 2011 are  incorporated by reference in Part III of this Form 10-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |  |

----

| **CNB  CORPORATION AND SUBSIDIARY  2010 ANNUAL REPORT ON FORM 10-K**** ** |
|--------------------------------------------------------------------------------|
| **TABLE OF  CONTENTS**                                                         |
|                                                                           |  | ** ** |
|                                                                           | **PART I** | ** ** |
|                                                                           |  | **Page** |
| **ITEM 1   **                                                             | **Business** | 1-22 |
| **ITEM 1A   **                                                            | **Risk Factors** | 23-26 |
| **ITEM 1B   **                                                            | **Unresolved Staff Comments** | 27 |
| **ITEM 2   **                                                             | **Properties** | 27 |
| **ITEM 3   **                                                             | **Legal Proceedings** | 27 |
| **ITEM 4   **                                                             | **(Removed  and Reserved)** | 27 |
| ** **                                                                     | ** ** |   |
| ** **                                                                     | ** ** |   |
| ** **                                                                     | **PART II** |   |
| ** **                                                                     | ** ** |   |
| **ITEM 5   **                                                             | **Market for the Registrant's Common Equity, Related  Stock Holder  Matters and Issuer Purchases of Equity Securities** | 28 |
| **ITEM 6   **                                                             | **Selected Financial Data** | 28 |
| **ITEM 7   **                                                             | **Management's Discussion and Analysis of Financial  Condition and Results  of Operations** | 30-36 |
| **ITEM 7A   **                                                            | **Quantitative and Qualitative Disclosures About Market  Risk** | 36 |
| **ITEM 8   **                                                             | **Financial Statements and Supplementary Data** | 37-75 |
| **ITEM 9 **                                                               | **Changes in and Disagreements with Accountants on  Accounting and  Financial Disclosure   ** | 76 |
| **ITEM 9A   **                                                            | **Controls and Procedures** | 76 |
| **ITEM 9B   **                                                            | **Other Information** | 76 |

**PART III**
| **ITEM 10   **    | **Directors, Executive Officers, and Corporate Governance   **                                  | 77     |
|------------------------|------------------------------------------------------------------------------------------------------|--------|
| **ITEM 11   **    | **Executive Compensation**                                                                           | 77     |
| **ITEM 12   **    | **Security Ownership of Certain Beneficial Owners and  Management and  Related Stockholder Matters** | 77     |
| **ITEM 13 **      | **Certain Relationships and Related Transactions, and  Director  Independence   **              | 77     |
| **ITEM 14   **    | **Principal Accountant Fees and Services**                                                           | 77     |
| ** **             | **PART IV**                                                                                          |   |
| ** **             | ** **                                                                                           |   |
| **ITEM 15**            | **Exhibits and Financial Statement Schedules**                                                       | 78     |
| **   Signatures** | 79                                                                                                   |

 

----

**CAUTIONARYNOTICE WITH RESPECT TOFORWARD LOOKING STATEMENTS**

             Thisreport contains "forward-looking statements" within the meaning ofthe securities laws.  The Private Securities Litigation Reform Act of1995 provides a safe harbor for forward-looking statements.  In orderto comply with the terms of the safe harbor, the Company notes that a varietyof factors could cause the Company's actual results and experience to differmaterially from the anticipated results or other expectations expressed in theCompany's forwarding-looking statements.

             Allstatements that are not historical facts are statements that could be "forward-lookingstatements." You can identify these forward-looking statements through theuse of words such as "may," "will," "should," "could,""would," "expect," "anticipate," "assume,""indicate," "contemplate," "seek," "plan,""predict," "target," "potential," "believe,""intend," "estimate," "project," "continue,"or other similar words.  Forward-looking statements include, but arenot limited to, statements regarding the Company's future business prospects,revenues, working capital, liquidity, capital needs, interest costs, income,business operations and proposed services.

             Theseforward-looking statements are based on current expectations, estimates andprojections about the banking industry and the economy, management's beliefs,and assumptions made by management.  Such information includes,without limitation, discussions as to estimates, expectations, beliefs, plans,strategies, and objectives concerning future financial and operatingperformance.  These statements are not guarantees of futureperformance and are subject to risks, uncertainties and assumptions that aredifficult to predict. Therefore, actual results may differ materially fromthose expressed or forecasted in such forward-looking statements.  Therisks and uncertainties include, but are not limited to:

| ● | future economic and business  conditions;                                                                                                                                                                                                                                                                                                  |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● | lack of sustained growth in the  economies of the Company's market areas;                                                                                                                                                                                                                                                                  |
| ● | government monetary and fiscal  policies;                                                                                                                                                                                                                                                                                                  |
| ● | the effects of changes in  interest rates on the levels, composition and costs of deposits, loan demand,  and the values of loan collateral, securities, and interest sensitive assets  and liabilities;                                                                                                                                   |
| ● | the effects of competition from  a wide variety of local, regional, national and other providers of financial,  investment, and insurance services, as well as competitors that offer banking  products and services by mail, telephone, computer and/or the Internet;                                                                     |
| ● | credit risks;                                                                                                                                                                                                                                                                                                                              |
| ● | higher than anticipated levels  of defaults on loans;                                                                                                                                                                                                                                                                                      |
| ● | perceptions by depositors about  the safety of their deposits;                                                                                                                                                                                                                                                                             |
| ● | ability to weather the current  economic downturn;                                                                                                                                                                                                                                                                                         |
| ● | loss of consumer or investor  confidence;                                                                                                                                                                                                                                                                                                  |
| ● | the failure of assumptions  underlying the establishment of the allowance for loan losses and other  estimates, including the value of collateral securing loans;                                                                                                                                                                          |
| ● | the risks of opening new  offices, including, without limitation, the  related costs and time  of building customer relationships and  integrating operations as  part of these endeavors and the failure to  achieve expected gains,  revenue growth and/or expense savings from  such endeavors; |
| ● | increases in deposit insurance  premiums;                                                                                                                                                                                                                                                                                                  |
| ● | changes in laws and  regulations, including tax, banking and securities laws and regulations;                                                                                                                                                                                                                                              |
| ● | changes in accounting policies,  rules and practices;                                                                                                                                                                                                                                                                                      |
| ● | the effect of agreements with  regulatory authorities, which restrict various activities and impose  additional administrative requirements without commensurate benefits;                                                                                                                                                                 |
| ● | changes in requirements of  regulatory authorities;                                                                                                                                                                                                                                                                                        |
| ● | changes in technology or  products may be more difficult or costly, or less effective, than  anticipated;                                                                                                                                                                                                                                  |
| ● | the effects of war or other  conflicts, acts of terrorism or other  catastrophic events that may  affect general economic conditions and  economic confidence; and                                                                                                                                                     |
| ● | other factors and information  described in this report and in any of the other reports that we file with  the Securities and Exchange Commission under the Securities Exchange Act of  1934.                                                                                                                                              |

Allforward-looking statements are expressly qualified in their entirety by thiscautionary notice.  The Company has no obligation, and does notundertake, to update, revise or correct any of the forward-looking statementsafter the date of this report.  The Company has expressed itsexpectations, beliefs and projections in good faith and believes they have areasonable basis.  However, there is no assurance that theseexpectations, beliefs or projections will result or be achieved oraccomplished.

****

----

**PART IITEM 1.  BUSINESSDESCRIPTION OF CNB CORPORATION**

CNB Corporation (the "Company") is a South Carolinabusiness corporation organized in 1985 for the purpose of becoming a bankholding company for The Conway National Bank (the "Bank") under theBank Holding Company Act.  The Company's only business is ownershipof the Bank.  The activities of the Company are subject to thesupervision of the Federal Reserve, and the Company may engage directly orthrough subsidiary corporations in those activities closely related to bankingwhich are specifically permitted under the Bank Holding Company Act.  See"Supervision and Regulation."  Although the Company, afterobtaining the requisite approval of the Federal Reserve and any otherappropriate regulatory agency, may seek to enter businesses closely related tobanking or to acquire existing businesses already engaged in such activities,the Company has not engaged in, and has no present intent to engage in, suchother permissible activities.

**DESCRIPTION OF THE SUBSIDIARY**

The Bank is an independent community bank engaged in the general commercialbanking business in Horry County and the "Waccamaw Neck" portion ofGeorgetown County, South Carolina. The Bank was organized in 1903.  TheBank's Main Office consists of an Operations and Administration Center alongwith an adjacent branch office known as the Conway Banking Office.  TheBank also operates thirteen other branch offices throughout Horry County andthe "Waccamaw Neck" area of Georgetown County.    TheBank employs approximately 250 full-time-equivalent employees at its MainOffice and fourteen branch offices.

The Bank performs the full range of normal commercial banking functions. Someof the major services provided include checking accounts, NOW accounts, moneymarket deposit accounts, IRA accounts, Health Savings Accounts, savings andtime deposits of various types and loans to individuals for personal use, homemortgages, home improvement, automobiles, real estate, agricultural purposesand business needs.   Commercial lending operations include varioustypes of credit for business, industry, and agriculture.   Inaddition, the Bank offers safe deposit boxes, wire transfer services, 24-hour automatedteller machines on the STAR Network, internet banking, bank by phone, directdeposits, a MasterCard/Visa program, cash management services, commercial lockboxservices, and remote deposit capture. The Bank offers discount brokerageservices through a correspondent relationship.  Additionally, theBank provides long-term mortgage loans through its secondary mortgagedepartment which acts in an agency only capacity for various investors.  TheBank does not provide trust services; does not sell annuities; does not sellmutual funds; and does not sell insurance.

The majority of the Bank's customers are individuals and small to medium-sizedbusinesses headquartered within the Bank's service area.  The Bankhas no material concentration of deposits from any single customer or group ofcustomers. At December 31, 2010 the Bank had two concentrations of creditto single industries (See Note 1 to the consolidated financial statements,contained elsewhere in this report).  There are no material seasonalfactors that would have any adverse effect on the Bank nor does the Bank relyon foreign sources of funds or income.

Further information about the Bank's business is set forth below under "SupplementaryFinancial Data, Guide 3 Statistical Disclosure by Bank Holding Companies"and in Item 7, "Management's Discussion and Analysis of FinancialCondition and Results of Operations."

**COMPETITION**

The Bank actively competes with other institutions in Horry County and the "WaccamawNeck" region of Georgetown County in providing customers with deposit,credit and other financial services.  The principal competitors ofthe Bank include local offices of nine regional banks, nine state-wide banks, sixlocally owned banks in Horry and Georgetown Counties and various otherfinancial and thrift institutions.  At June 30, 2010, the Bank rankedsecond in Horry County and eleventh in Georgetown County in deposits among itscompetitors. The Bank also competes with credit unions, money market funds,brokerage houses, insurance companies, mortgage companies, leasing companies,consumer finance companies and other financial institutions. Significantcompetitive factors include interest rates on loans and deposits, prices andfees for services, office location, customer service, community reputation, andcontinuity of personnel.

1

----

**SUPERVISION AND REGULATION**

**General**

The Company and the Bank are subject to an extensive array of state and federalbanking laws and regulations which impose specific requirements andrestrictions on, and provide for general regulatory oversight with respect to,virtually all aspects of the Company's and the Bank's operations.  The federal banking regulators (theFederal Reserve, the FDIC and the OCC) periodically examine the Company and theBank to assess compliance with applicable requirements and the level of riskexisting with respect to the Company's and the Bank's capital, asset quality,management, earnings, liquidity and sensitivity to market risk.  When theresults of examinations are less than satisfactory, the regulators areauthorized to require the Company and the Bank to take appropriate correctiveactions through the mechanisms of agreements with the Company or the Bank orenforcement orders.  The federal regulators also have the power toenforce compliance with laws, regulations, regulatory policies and agreementsas well as regulatory orders by the imposition of civil moneypenalties.  The Company and theBank are also affected by government monetary policy and by regulatory measuresaffecting the banking industry in general.  The actions of theFederal Reserve System affect the money supply and, in general, the Bank'slending abilities in increasing or decreasing the cost and availability offunds to the Bank.  Additionally, the Federal Reserve Systemregulates the availability of bank credit in order to combat recession and curbinflationary pressures in the economy by open market operations in UnitedStates government securities, changes in the discount rate on member bankborrowings, and changes in the reserve requirements against bank deposits.

The Company is also subject to limited regulation and supervision by the SouthCarolina State Board of Financial Institutions (the "State Board").  ASouth Carolina bank holding company may be required to provide the State Boardwith information with respect to the financial condition, operations,management and inter-company relationships of the holding company and itssubsidiaries.  The State Board also may require such otherinformation as is necessary to keep itself informed about whether theprovisions of South Carolina law and the regulations and orders issuedthereunder by the State Board have been complied with, and the State Board mayexamine any bank holding company and its subsidiaries. Furthermore, pursuant toapplicable law and regulations, the Company must receive approval of, or givenotice to (as applicable) the State Board prior to engaging in the acquisitionof banking or non-banking institutions or assets.

**Obligations of Holding Company to its Subsidiary Banks**

A number of obligations and restrictions are imposed on bank holding companiesand their depository institution subsidiaries by federal law and regulatorypolicies that are designed to reduce potential loss exposure to the depositorsof such depository institutions and to the FDIC insurance funds in the eventthe depository institution is in danger of becoming insolvent or is insolvent.  Forexample, under the policy of the Federal Reserve and Federal Deposit InsuranceAct, a bank holding company is required to serve as a source of financialstrength to its subsidiary depository institutions and to commit resources tosupport such institutions in circumstances where it might not do so absent sucha requirement.  In addition, the "cross-guarantee"provisions of the Federal Deposit Insurance Act, as amended ("FDIA"),require insured depository institutions under common control to reimburse theFDIC for any loss suffered or reasonably anticipated by the FDIC as a result ofthe default of a commonly controlled insured depository institution or for anyassistance provided by the FDIC to a commonly controlled insured depositoryinstitution in danger of default.  The FDIC may decline to enforcethe cross-guarantee provisions if it determines that a waiver is in its bestinterest.  The FDIC's claim for damages is superior to claims ofstockholders of the insured depository institution or its holding company butis subordinate to claims of depositors, secured creditors and holders ofsubordinated debt (other than affiliates) of the commonly controlled insureddepository institutions.

The FDIA also provides that amounts received from the liquidation or otherresolution of any insured depository institution by any receiver must bedistributed (after payment of secured claims) to pay the deposit liabilities ofthe institution prior to payment of any other general or unsecured seniorliability, subordinated liability, general creditor or stockholder.  Thisprovision gives depositors a preference over general and subordinated creditorsand stockholders in the event a receiver is appointed to distribute the assetsof the bank.

Any capital loans by a bank holding company to any of its subsidiary banks aresubordinate in right of payment to deposits and to certain other indebtednessof such subsidiary bank. In the event of a bank holding company's bankruptcy,any commitment by the bank holding company to a federal bank regulatory agencyto maintain the capital of a subsidiary bank will be assumed by the bankruptcytrustee and entitled to a priority of payment.

Under the National Bank Act, if the capital stock of a national bank isimpaired by losses or otherwise, the OCC is authorized to require payment ofthe deficiency by assessment upon the bank's shareholders, pro rata, and to theextent necessary, if any such assessment is not paid by any shareholder afterthree months notice, to sell the stock of such shareholder to make good thedeficiency.

**Capital Adequacy Guidelines for Bank Holding Companies and Banks**

The various federal bank regulators, including the Federal Reserve and theFDIC, have adopted risk-based and leverage capital adequacy guidelinesassessing bank holding company and bank capital adequacy.  Thesestandards define what qualifies as capital and establish minimum capitalstandards in relation to assets and off-balance-sheet exposures, as adjustedfor credit risks. The capital guidelines and the Company's capital position aresummarized in Note 16 to the Consolidated Financial Statements, containedelsewhere in this report.

2

----

**Capital Adequacy Guidelines for Bank Holding Companies and Banks, continued**

Failure to meet capital guidelines could subject the Bank to a variety ofenforcement remedies, ranging from, for example, a prohibition on the taking ofbrokered deposits to the termination of deposit insurance by the FDIC or theappointment of a receiver for the Bank.

The risk-based capital standards of both the Federal Reserve and the FDICexplicitly identify concentrations of credit risk and the risk arising fromnon-traditional activities, as well as an institution's ability to manage theserisks, as important factors to be taken into account by the agencies inassessing an institution's overall capital adequacy.  The capitalguidelines also provide that an institution's exposure to a decline in theeconomic value of its capital due to changes in interest rates be considered bythe agencies as a factor in evaluating a bank's capital adequacy.  TheFederal Reserve also has issued additional capital guidelines for bank holdingcompanies that engage in certain trading activities.

**Payment of Dividends**

The Company is a legal entity separate and distinct from the Bank.  Mostof the revenues of the Company result from dividends paid to the Company by theBank.  There are statutory and regulatory requirements applicable tothe payment of dividends by subsidiary banks as well as by the Company to itsshareholders.

Each national banking association is required by federal law to obtain theprior approval of the OCC for the payment of dividends if the total of alldividends declared by the board of directors of such bank in any year willexceed the total of (i) such bank's net profits (as defined and interpreted byregulation) for that year plus (ii) the retained net profits (as defined andinterpreted by regulation) for the preceding two years, less any requiredtransfers to surplus.  In addition, national banks can only paydividends to the extent that retained net profits (including the portiontransferred to capital in excess of par value of stock) exceed bad debts (asdefined by regulation).

The payment of dividends by the Company and the Bank may also be affected orlimited by other factors, such as the requirements to maintain adequate capitalabove regulatory guidelines.  In addition, if, in the opinion of theapplicable regulatory authority, a bank under its jurisdiction is engaged in oris about to engage in an unsafe or unsound practice (which, depending on thefinancial condition of the Bank, could include the payment of dividends), suchauthority may require, after notice and hearing, that such bank cease anddesist from such practice.  The OCC has indicated that payingdividends that deplete a national bank's capital base to an inadequate levelwould be an unsafe and unsound banking practice.  The FederalReserve, the OCC and the FDIC have issued policy statements, which provide thatbank holding companies and insured banks should generally only pay dividendsout of current operating earnings.

**Certain Transactions by the Company with its Affiliates**

Federal law regulates transactions among the Company and its affiliates,including the amount of the Bank's loans to or investments in nonbankaffiliates and the amount of advances to third parties collateralized bysecurities of an affiliate.  Further, a bank holding company and itsaffiliates are prohibited from engaging in certain tie-in arrangements inconnection with any extension of credit, lease or sale of property orfurnishing of services.

**FDIC Insurance Assessments**

The FDIC merged the Bank Insurance Fund and the Savings Association InsuranceFund to form the Deposit Insurance Fund ("DIF") on March 31, 2006 inaccordance with the Federal Deposit Insurance Reform Act of 2005.  TheFDIC maintains the DIF by assessing depository institutions an insurancepremium.  The amount each institution is assessed is based uponstatutory factors that include the balance of insured deposits as well as thedegree of risk the institution poses to the insurance fund.  The FDICuses a risk-based premium system that assesses higher rates on thoseinstitutions that pose greater risks to the DIF.  Since January 1,2007, the FDIC has placed each institution in one of four risk categories usinga two-step process based first on capital ratios (the capital group assignment)and then on other relevant information (the supervisory group assignment).  Asof  January 1, 2007, rates ranged between 5 and 43 cents per $100 inassessable deposits.  Asa result of the actual and predicted impact on the DIF of bank failures in 2008and 2009, the FDIC altered its methodology for computing assessments, beginningwith assessments due in September 2009 based on assessable deposits at June 30,2009.  Under this methodology, assessments ranged between 7 and 77.5cents per $100 in assessable deposits.  The FDIC also made anadditional "emergency assessment" of 5 cents per $100 of assessable assetsheld on June 30, 2009, not to exceed to 10 cents per $100 of an institution'sdeposit insurance base for the second quarter of 2009, which was payable inSeptember 2009.  In November of 2009 the FDIC adopted a final rule amending theassessment regulation to require insured depository institutions to prepaytheir quarterly risk-based assessments for the fourth quarter of 2009, and forall of 2010, 2011, and 2012 on December 30, 2009, along with each institution'srisk-based assessment for the third quarter of 2009.  In February 2011, theFDIC again implemented a rule that amends the deposit insurance assessmentregulations.  The rule implements a provision of the Dodd-Frank Wall StreetReform and Consumer Protection Act ("Dodd-Frank Act"), discussed below, whichchanges the assessment base from one based on domestic deposits to one based onassets.  The assessment base changes from adjusted domestic deposits to averageconsolidated total assets minus average tangible equity, and assessment rateshave been lowered.  Under this methodology, assessments will range between 0.5and 35.0 cents per $100 in assessable assets.  The change in assessments willbe effective as of April 1, 2011and payable September 30, 2011.

3

----

**Regulation of the Bank**

The Bank is also subject to regulation and examination by the OCC.  Inaddition, the Bank is subject to various other state and federal laws andregulations, including state usury laws, laws relating to fiduciaries, consumercredit laws and laws relating to branch banking.  The Bank's loanoperations are subject to certain federal consumer credit laws and regulationspromulgated thereunder, including, but not limited to:  the federalTruth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;the Home Mortgage Disclosure Act, requiring financial institutions to providecertain information concerning their mortgage lending; the Equal CreditOpportunity Act and the Fair Housing Act, prohibiting discrimination on the basisof certain prohibited factors in extending credit; and the Fair Debt CollectionAct, governing the manner in which consumer debts may be collected bycollection agencies.  The deposit operations of the Bank are subjectto the Truth in Savings Act, requiring certain disclosures about rates paid onsavings accounts; the Expedited Funds Availability Act, which deals withdisclosure of the availability of funds deposited in accounts and thecollection and return of checks by banks; the Right to Financial Privacy Act,which imposes a duty to maintain certain confidentiality of consumer financialrecords; the Electronic Funds Transfer Act and regulations promulgatedthereunder, which govern automatic deposits to and withdrawals from depositaccounts and customers' rights and liabilities arising from the use ofautomated teller machines and other electronic banking services; and Check 21,governing the creation and clearing of digital images of checks, substitutechecks, check truncation, clearing error crediting, and all disclosures relatedthereto.  The Bank is also subject to the requirements of theCommunity Reinvestment Act (the "CRA") which imposes on financialinstitutions an affirmative and ongoing obligation to meet the credit needs oftheir local communities, including low and moderate-income neighborhoods,consistent with the safe and sound operation of those institutions. Eachfinancial institution's actual performance in meeting community credit needs isevaluated as part of the examination process, and also is considered inevaluating mergers, acquisitions and applications to open a branch or facility.  TheBank is also subject to provisions of the Gramm-Leach-Bliley Act of 1999 (Seethe section below of the same title); the Fair Credit Reporting Act, governingthe use and provision of information to credit reporting agencies; the BankSecrecy Act, dealing with, among other things, the reporting of certaincurrency transactions; the USA Patriot Act, dealing with, among other things,requiring the establishment of anti-money laundering programs, includingstandards for verifying customer information at account opening; and activitiesof the Office of Foreign Assets Control (OFAC) as set forth by Executive Orderor Acts of Congress primarily to prevent U.S. entities from engaging intransaction with enemies of the U.S.

**Other Safety and Soundness Regulations**

Prompt Corrective Action.  The federal banking agencies have broadpowers under current federal law to take prompt corrective action to resolveproblems of insured depository institutions.  The extent of thesepowers depends upon whether the institutions in question are "wellcapitalized," "adequately capitalized," "undercapitalized,""significantly undercapitalized" or "criticallyundercapitalized."

A bank that is "undercapitalized" becomes subject to provisions ofthe Federal Deposit Insurance Act: restricting payment of capital distributionsand management fees; requiring the OCC to monitor the condition of the bank;requiring submission by the bank of a capital restoration plan; restricting thegrowth of the bank's assets; and requiring prior approval of certain expansionproposals.  A bank that is "significantly undercapitalized"is additionally subject to restrictions on compensation paid to seniormanagement of the bank, and a bank that is "critically undercapitalized"is further subject to restrictions on the activities of the bank andrestrictions on payments of subordinated debt of the bank, and will ordinarilybe placed in receivership.  The purpose of these provisions is torequire banks with less than adequate capital to act quickly to restore theircapital and to have the OCC move promptly to take over banks that are unwillingor unable to take such steps.

Brokered Deposits.  Under current FDIC regulations, "well-capitalized"banks may accept brokered deposits without restriction, "adequatelycapitalized" banks may accept brokered deposits with a waiver from theFDIC (subject to certain restrictions on payments of rates), while "undercapitalized"banks may not accept brokered deposits.  The regulations provide thatthe definitions of "well capitalized," "adequately capitalized"and "undercapitalized" are the same as the definitions adopted by theagencies to implement the prompt corrective action provisions described in theprevious paragraph.

**Interstate Banking**

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal"),the Company and any other adequately capitalized bank holding company locatedin South Carolina can acquire a bank located in any other state, and a bankholding company located outside South Carolina can acquire any SouthCarolina-based bank, in either case subject to certain deposit percentage andother restrictions.  TheDodd-Frank Act amended a number of provisions of the Riegle-Neal Act toincrease the authority of banks to branch across state lines.  The authority ofa bank to establish and operate branches within a state continues to be subjectto applicable state branching laws, but interstate branching is permitted tothe same extent it would be permitted under state law if the branching bank'shome office were located in the state in which the branch will be located.

The Riegle-Neal Act, together with legislation adopted in South Carolina,resulted in a number of South Carolina banks being acquired by large  out-of-state  bank  holding  companies.  Size  gives  the  larger  banks certain  advantages  in  competing  for  business  from  larger

4

----

**Interstate Banking, continued**

customers.  Theseadvantages include higher lending limits and the ability to offer services inother areas of South Carolina and the region.  As a result, the Bankdoes not generally attempt to compete for the banking relationships of largecorporations, but concentrates its efforts on small to medium-sized businessesand on individuals.  The Company believes the Bank has competedeffectively in this market segment by offering quality, personal service.

**Gramm-Leach-Bliley Act of 1999**

TheGramm-Leach-Bliley Act expanded the activities in which a bank holding companyand a bank can engage through affiliations created under a holding companystructure or through a financial subsidiary if certain conditions are met. Significantly, the permitted financial activities for financial holding companiesinclude authority to engage in merchant banking and insurance activities,including insurance portfolio investing.  The Act also established aminimum federal standard of privacy to protect the confidentiality of aconsumer's personal financial information and gives the consumer the power tochoose how personal financial information may be used by financialinstitutions.  The regulations adopted pursuant to the Act govern theconsumer's right to opt-out of further disclosure of nonpublic personal financialinformation and require the Bank to provide initial and annual privacynotices.  The Act and regulations also required the Bank to developand maintain a comprehensive plan for the safeguarding of customer information whichencompasses all aspects of the Bank's technological environment, business practices,and Bank facilities.

Although the Act and the regulations created new opportunities for the Companyto offer expanded services to customers in the future, the Company has notdetermined what the nature of the expanded services might be or whether andwhen the Company might find it feasible to offer them.  The Act hasincreased competition from larger financial institutions that are currentlymore capable than the Company of taking advantage of the opportunity to providea broader range of services.  However, the Company continues tobelieve that its commitment to providing high quality, personalized service tocustomers will permit it to remain competitive in its market area.

**Sarbanes-Oxley Act of 2002**

The Sarbanes-Oxley Act became effective in 2002, and mandated extensive reformsand requirements for public companies.  The SEC has adopted extensiveregulations pursuant to the requirements of the Sarbanes-Oxley Act.  TheSarbanes-Oxley Act and the SEC's implementing regulations have increased theCompany's cost of doing business, particularly its fees for internal andexternal audit services and legal services, and the law and regulations areexpected to continue to do so.  However, the Company has not beenaffected by Sarbanes-Oxley and the SEC regulations in ways that are materiallydifferent or more onerous than those of other public companies of similar sizeand in similar business.

**Government Response to the Financial Crisis commencing in 2008**

During the fourth quarter of 2008 and continuing through 2009 and 2010 theFDIC, the Federal Reserve, the Department of the Treasury and Congress took anumber of actions designed to alleviate or correct mounting systemic problemsin the financial services industry.  A number of these initiativeswere directly applicable to community banks.

Congress enacted theEmergency Economic Stabilization Act of 2008 which, among other things,temporarily increased the maximum amount of FDIC deposit insurance from $100,000to $250,000, which was recently made permanent by the Dodd-Frank Act discussedbelow, and created a Troubled Assets Relief Program ("TARP") administered byTreasury.  In October, 2008, Treasury announced a Capital PurchaseProgram ("CPP") under TARP to increase the capital of healthy banks.  Underthe CPP, Treasury would purchase preferred stock with warrants from qualifiedbanks and bank holding companies in an amount up to 3% of the seller'srisk-weighed assets as of September 30, 2008.  Institutions wishingto participate in the CPP were required to file an application with theirprincipal federal regulators.  The Company elected not to participatein the CPP because of (i) the cost of the preferred stock, (ii) the open-endedadministrative burdens associated with the preferred stock including having toagree to allow Treasury to unilaterally amend the stock purchase agreement tocomply with subsequent changes in applicable federal statutes, and (iii) thefact that the Company and the Bank were already well capitalized underregulatory guidelines and expected to continue to be so.

FDIC also implemented in October, 2008 a Temporary Liquidity Guarantee Program (TLGP)pursuant to which it undertook to provide deposit insurance in an unlimitedamount for non-interest bearing transaction accounts and a debt guaranteecomponent to fully guarantee senior, unsecured debt issued by banks or bankholding companies.  Coverage of both components was automatic untilDecember 5, 2008 at which time covered institutions could opt out of one orboth of the components.  Institutions not opting out would be chargedfees for their participation in the components.  The Company and Bankopted out of the debt guarantee component.  Under provisions of the Dodd-FrankAct, discussed below, the transaction account guarantee component of the TLGPwas extended to December 31, 2012.  However, NOW accounts are no longer coveredby the plan.

An unfortunate consequence of the difficulties that have beset the bankingindustry in the last two years has been a large increase in bank failures  which  has  led  to  substantial   claims  being   made  against   the  FDIC's  Deposit  Insurance Fund.  In  order  to  increase  the

5

----

**GovernmentResponse to the Financial Crisis commencing in 2008, continued**

amount in the Deposit Insurance Fund to reflect the increased risk ofadditional bank failures and insurance claims, FDIC raised its assessments onbanks for 2009 and also made a one-time special assessment of 5 cents per $100of assessable deposits at June 30, 2009.  Under this methodology,assessments ranged between 7 and 77.5 cents per $100 in assessabledeposits.  The FDIC also made an additional "emergencyassessment" of 5 cents per $100 of assessable assets held on June 30,2009, not to exceed to 10 cents per $100 of an institution's deposit insurancebase for the second quarter of 2009, which was payable in September 2009.  InNovember of 2009 the FDIC adopted a final rule amending the assessmentregulation to require insured depository institutions to prepay their quarterlyrisk-based assessments for the fourth quarter of 2009, and for all of 2010,2011, and 2012 on December 30, 2009, along with each institutions risk-basedassessment for the third quarter of 2009.  In February 2011, the FDIC againimplemented a rule that amends the deposit insurance assessment regulations. The rule implements a provision of the Dodd-Frank Act, discussed below, whichchanges the assessment base from one based on domestic deposits to one based onassets.  The assessment base changes from adjusted domestic deposits to averageconsolidated total assets minus average tangible equity, and assessment rateshave been lowered.  Under this methodology, assessments will range between 0.5and 35.0 cents per $100 in assessable assets.  The change in assessments willbe effective as of April 1, 2011and payable September 30, 2011.

**Dodd-Frank Wall Street Reform and Consumer Protection Act**

The Dodd-Frank Act was passed into law on July 21, 2010.  The Act is a sweepingand comprehensive new regulatory framework which will significantly impact thefinancial services industry.  The Act includes changes to the financialregulatory systems, enhanced bank capital requirements, creates the FinancialStability Oversight Council, provides for mortgage reform provisions regardinga customer's ability to repay, changes the assessment base for federal depositinsurance from the amount of insured deposits to consolidated assets lesstangible capital, makes permanent the $250,000 limit for federal depositinsurance, provides for unlimited federal deposit insurance fornoninterest-bearing transaction accounts until December 31, 2012, implementscorporate governance requirements for public companies with regard to executivecompensation including providing shareholders the right to vote on executivecompensation, repeals the federal prohibitions on the payment of interest ondemand deposits, and amends the Electronic Fund Transfer Act to give theFederal Reserve the authority to establish rules regarding interchange feescharged for electronic debit transactions, among other measures.  The Dodd-Frank Act alsoestablishes the Bureau of Consumer Financial Protection as an independententity within the Federal Reserve, which will be given the authority to promulgateconsumer protection regulations applicable to all entities offering consumerfinancial services or products, including banks.  Additionally, the Dodd-FrankAct includes a series of provisions covering mortgage loan originationstandards affecting originator compensation, minimum repayment standards, andpre-payments.

The Dodd-Frank Act requires regulatory agencies to implement new regulationsthat will establish the parameters of the new regulatory framework and providea clearer understanding of the legislation's effect on banks.  The Company isin the process of evaluating this new legislation and determining the impact itwill have on current and future operations.  However, the manner and degree towhich it affects the Company's business will be significantly impacted by theimplementing regulations that are ultimately adopted.  Accordingly, at thepresent time the Company cannot fully assess the impact that the act will have,though management is confident that it will increase the cost of doing businessand the time spent by management on regulatory compliance matters.

**The Small Business Jobs Act of 2010**

The Small Business Jobs Act of 2010 was signed into law on September 27, 2010. The Act created the Small Business Lending Fund (SBLF), which is a $30 billionfund designed to encourage lending to small businesses by providing Tier 1capital to qualified community banks.  The Company does not plan to participatein the SBLF becauseof (i) the cost and tiered cost structure of the plan and (ii) the fact thatthe Company and the Bank were already well capitalized under regulatoryguidelines and expected to continue to be so.

**Legislative Proposals**

Legislation which could significantly affect the business of banking isintroduced in Congress from time to time.  Forexample, broader problems in the financial sector of the economy which becameapparent in 2008 led to numerous calls for legislative restructuring of theregulation of the sector.  This urgency has culminated in theDodd-Frank Act, discussed above.  While various requirements of theDodd-Frank Act are known and, in some instances, implemented, the amount andimpact of potential regulation promulgated by the Financial Stability OversightCouncil is unknown.  The Companycannot predict the future course of additional potential legislative andregulatory proposals or their impact on the Company should they be adopted.

6

----

| **Available Information**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The Company  electronically files with the Securities and Exchange Commission  ("SEC") its annual reports on Form 10-K, its quarterly reports on  Form 10-Q, its current reports on Form 8-K, amendments to those reports filed  or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934  (the "1934 Act"), and proxy materials pursuant to Section 14 of the  1934 Act. The SEC maintains a site on the Internet, www.sec.gov, that  contains reports, proxy and information statements, and other information  regarding issuers that file electronically with the SEC. The Company also  makes its filings available, free of charge, through The Conway National  Bank's Web site, www.conwaynationalbank.com, as soon as reasonably  practical after the electronic filing of such material with the  SEC.  The Company's 2010 Annual Report to shareholders and proxy  materials will be available free of charge, from The Conway National Bank's  website, www.conwaynationalbank.com, upon mailing of these materials  to shareholders and the filing of the proxy materials with the SEC. |

** **

**SUPPLEMENTARY FINANCIAL DATAGUIDE 3 STATISTICAL DISCLOSURE BY BANKHOLDING COMPANIES**

The following tables present additional statistical information about CNBCorporation and its operations and financial condition and should be read inconjunction with the consolidated financial statements and related notesthereto contained elsewhere in this report.

**DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY;INTEREST RATES AND INTEREST DIFFERENTIAL**

The tables on the following three pages present selected financial data and ananalysis of average balance sheets, average yield and the interest earned onearning assets, and the average rate paid and the interest expense oninterest-bearing liabilities for the years ended December 31, 2010, 2009, and2008.

****7

----

|                                                                                            |
|-------------------------------------------------------------------------------------------------|
| **CNB Corporation and Subsidiary  Average Balances, Yields, and Rates  (Dollars in Thousands)** |
|                                                                                            |
|                                                                                            |
|                                                                                                 | **Twelve Months Ended 12/31/10** | ** ** |
|                                                                                                 | ** ** | **Interest** | **Avg. Annual** | ** ** | ** ** | ** ** |
|                                                                                                 | **Avg.** | **Income/** | **Yield or** | ** ** | ** ** | ** ** |
|                                                                                                 | **Balance** | **Expense** | **     Rate   ** | ** ** | ** ** | ** ** |
| **Assets:**                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |  
   Earning  assets:

** **

** **

** **

** **

** **

** **

 
      Loans,  net of unearned income (1)

$559,823

$  34,382     

6.14%

** **

** **

** **

 
      Securities:

** **

** **

** **

** **

** **

** **

 
        Taxable

251,824

4,252     

1.69   

** **

** **

** **

 
        Tax-exempt

31,650

1,773 (2)

5.60   

** **

** **

** **

 
      Federal  funds sold and securities purchased under 

** **

** **

** **

** **

** **

** **

 
        agreement  to resell

    13,970

         33     

.24   

** **

** **

** **

 
      Other  earning assets

    47,269

         120     

.25   

** **

** **

** **

 
          Total  earning assets

$904,536

$  40,560     

4.48   

** **

** **

** **

 
    Other  assets

    37,045

** **

** **

** **

** **

** **

 
          Total  assets

$941,581

** **

** **

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Liabilities  and stockholders' equity**

** **

** **

** **

** **

** **

** **

 
    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

 
      Interest-bearing  deposits

$623,167

$    8,647     

1.39   

** **

** **

** **

 
      Securities  sold under agreement to repurchase

108,486

791     

.73   

** **

** **

** **

 
      Other  short-term borrowings

      9,674

         182     

1.88   

** **

** **

** **

 
          Total  interest-bearing liabilities

$741,327

$    9,620     

1.30   

** **

** **

** **

 
    Noninterest-bearing  deposits

106,854

** **

** **

** **

** **

** **

 
    Other  liabilities

5,618

** **

** **

** **

** **

** **

 
    Stockholders'  equity

    87,782

** **

** **

** **

** **

** **

 
          Total  liabilities and stockholders' equity

$941,581

** **

** **

** **

** **

** **

 
    Net  interest income and yield as a percent of total

** **

** **

** **

** **

** **

** **

 
       earning  assets

$904,536

$  30,940     

3.42%

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Ratios:**

** **

** **

** **

** **

** **

** **

 
Return  on average total assets

** **

** **

.11%

** **

** **

** **

 
Return  on average stockholders' equity

** **

** **

1.18   

** **

** **

** **

 
Cash  dividends declared as a percent of net income

** **

** **

-   

** **

** **

** **

 
Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

 
  Average  total assets

** **

** **

9.32   

** **

** **

** **

 
  Average  total deposits

** **

** **

12.02   

** **

** **

** **

 
  Average  loans

** **

** **

15.68   

** **

** **

** **

 
Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

 
   average  total assets

** **

** **

96.07%

** **

** **

** **

 
** **

** **

 

** **

** **

** **

 
(1)

The  Company had no out-of-period adjustments or foreign  activities.  Loan fees of $518 are included in interest  income.  Loans on a nonaccrual basis for the recognition of  interest income totaling $25,704 as of December 31, 2010 are included in  loans for purposes of this analysis.

 
 

 
(2)

Tax-exempt  income is presented on a tax-equivalent basis using a 34% tax  rate.  The amount shown includes a tax-equivalent adjustment of $603.

 
 

 
8

 

**CNB Corporation and Subsidiary  Average Balances, Yields, and Rates  (Dollars in Thousands)**

 

 

**Twelve Months Ended 12/31/09**

** **

** **

**Interest**

**Avg. Annual**

** **

** **

** **

**Avg.**

**Income/**

**Yield or**

** **

** **

** **

**Balance**

**Expense**

**     Rate   **

** **

** **

** **

**Assets:**

** **

** **

** **

** **

** **

** **

 
   Earning  assets:

** **

** **

** **

** **

** **

** **

 
      Loans,  net of unearned income (1)

$593,370

$  37,170     

6.26%

** **

** **

** **

 
      Securities:

** **

** **

** **

** **

** **

** **

 
        Taxable

188,454

5,452     

2.89   

** **

** **

** **

 
        Tax-exempt

31,956

1,847 (2)

5.78   

** **

** **

** **

 
      Federal  funds sold and securities purchased under 

** **

** **

** **

** **

** **

** **

 
        agreement  to resell

    13,162

         32     

.24   

** **

** **

** **

 
      Other  Earning Assets

    32,353

           74     

.23   

** **

** **

** **

 
          Total  earning assets

$859,295

$  44,575     

5.19   

** **

** **

** **

 
    Other  assets

    45,571

** **

** **

** **

** **

** **

 
          Total  assets

$904,866

** **

** **

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Liabilities  and stockholders' equity**

** **

** **

** **

** **

** **

** **

 
    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

 
      Interest-bearing  deposits

$579,927

$  10,668     

1.84   

** **

** **

** **

 
      Securities  sold under agreement to repurchase

101,461

1,121     

1.10   

** **

** **

** **

 
      Other  short-term borrowings

    23,242

         340     

1.46   

** **

** **

** **

 
          Total  interest-bearing liabilities

$704,630

$  12,129     

1.72   

** **

** **

** **

 
    Noninterest-bearing  deposits

105,182

** **

** **

** **

** **

** **

 
    Other  liabilities

9,283

** **

** **

** **

** **

** **

 
    Stockholders'  equity

    85,771

** **

** **

** **

** **

** **

 
          Total  liabilities and stockholders' equity

$904,866

** **

** **

** **

** **

** **

 
    Net  interest income and yield as a percent of total

** **

** **

** **

** **

** **

** **

 
       earning  assets

$859,295

$  32,446     

3.78%

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Ratios:**

** **

** **

** **

** **

** **

** **

 
Return  on average total assets

** **

** **

.56%

** **

** **

** **

 
Return  on average stockholders' equity

** **

** **

5.91   

** **

** **

** **

 
Cash  dividends declared as a percent of net income

** **

** **

41.37   

** **

** **

** **

 
Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

 
  Average  total assets

** **

** **

9.48   

** **

** **

** **

 
  Average  total deposits

** **

** **

12.52   

** **

** **

** **

 
  Average  loans

** **

** **

14.45   

** **

** **

** **

 
Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

 
 average  total assets

** **

** **

94.96%

** **

** **

** **

 
** **

** **

 

** **

** **

** **

 
** **

** **

 

** **

** **

** **

 
(1)

The  Company had no out-of-period adjustments or foreign  activities.  Loan fees of $514 are included in interest  income.  Loans on a nonaccrual basis for the recognition of  interest income totaling $12,678 as of December 31, 2009 are included in  loans for purposes of this analysis.

 
 

 
(2)

Tax-exempt  income is presented on a tax-equivalent basis using a 34% tax  rate.  The amount shown includes a tax-equivalent adjustment of  $628.

 
 

 
 

9

 

**CNB Corporation and Subsidiary  Average Balances, Yields, and Rates  (Dollars in Thousands)**

 

 

**Twelve Months Ended 12/31/08**

** **

** **

**Interest**

**Avg. Annual**

** **

** **

** **

**Avg.**

**Income/**

**Yield or**

** **

** **

** **

**Balance**

**Expense**

**   Rate  **

** **

** **

** **

**Assets:**

** **

** **

** **

** **

** **

** **

 
   Earning  assets:

** **

** **

** **

** **

** **

** **

 
      Loans,  net of unearned income (1)

$587,931

$  40,431     

6.88%

** **

** **

** **

 
      Securities:

** **

** **

** **

** **

** **

** **

 
        Taxable

173,483

8,027     

4.63   

** **

** **

** **

 
        Tax-exempt

27,146

1,636 (2)

6.03   

** **

** **

** **

 
      Federal  funds sold and securities purchased under 

** **

** **

** **

** **

** **

** **

 
        agreement  to resell

    24,439

         581     

2.38   

** **

** **

** **

 
          Total  earning assets

$812,999

$  50,675     

6.23   

** **

** **

** **

 
    Other  assets

    47,613

** **

** **

** **

** **

** **

 
          Total  assets

$860,612

** **

** **

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Liabilities  and stockholders' equity**

** **

** **

** **

** **

** **

** **

 
    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

 
      Interest-bearing  deposits

$586,569

$  16,539     

2.82   

** **

** **

** **

 
      Securities  sold under agreement to repurchase

58,843

1,420     

2.41   

** **

** **

** **

 
      Other  short-term borrowings

      8,289

         262     

3.16   

** **

** **

** **

 
          Total  interest-bearing liabilities

$653,701

$  18,221     

2.79   

** **

** **

** **

 
    Noninterest-bearing  deposits

115,724

** **

** **

** **

** **

** **

 
    Other  liabilities

7,049

** **

** **

** **

** **

** **

 
    Stockholders'  equity

    84,138

** **

** **

** **

** **

** **

 
          Total  liabilities and stockholders' equity

$860,612

** **

** **

** **

** **

** **

 
    Net  interest income and yield as a percent of total

** **

** **

** **

** **

** **

** **

 
       earning  assets

$812,999

$  32,454     

3.99%

** **

** **

** **

 
    

** **

** **

** **

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Ratios:**

** **

** **

** **

** **

** **

** **

 
Return  on average total assets

** **

** **

1.04%

** **

** **

** **

 
Return  on average stockholders' equity

** **

** **

10.65   

** **

** **

** **

 
Cash  dividends declared as a percent of net income

** **

** **

48.62   

** **

** **

** **

 
Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

 
  Average  total assets

** **

** **

9.78   

** **

** **

** **

 
  Average  total deposits

** **

** **

11.98   

** **

** **

** **

 
  Average  loans

** **

** **

14.31   

** **

** **

** **

 
Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

 
   average  total assets

** **

** **

94.47%

** **

** **

** **

 
** **

** **

 

** **

** **

** **

 
** **

** **

 

** **

** **

** **

 
(1)

The  Company had no out-of-period adjustments or foreign  activities.  Loan fees of $612 are included in interest income.  Loans  on a nonaccrual basis for the recognition of interest income totaling $2,990  as of December 31, 2008 are included in loans for purposes of this analysis.

 
 

 
(2)

Tax-exempt  income is presented on a tax-equivalent basis using a 34% tax  rate.  The amount shown includes a tax-equivalent adjustment of $556.

 
 

 

10

The table "Rate/Volume Variance Analysis" provides a summary ofchanges in net interest income resulting from changes in rate and changes involume.  The changes due to rate are the difference between thecurrent and prior year's rates multiplied by the prior year's volume.  Thechanges due to volume are the difference between the current and prior year'svolume multiplied by rates earned or paid in the current year.  Rate/VolumeVariance has been allocated to change due to volume.

**CNB Corporation and Subsidiary   Rate/Volume Variance Analysis   For the Twelve Months Ended December 31, 2010 and 2009   (Dollars in Thousands)**

 
 

 
 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

 

**Average**

**Average**

** **

** **

**Interest**

**Interest**

** **

**Change**

**Change**

** **

 

**Volume**

**Volume**

**Yield/Rate**

**Yield/Rate**

**Earned/Paid**

**Earned/Paid**

** **

**Due to**

**Due to**

** **

 

**2010**

**2009**

**2010**

**2009**

**2010**

**2009**

**Variance**

**Rate**

**Volume**

** **

**Earning   Assets:**

 

 

 

 

 

 

 

 

 

 

**Loans,   Net of unearned Income (1)**

$559,823

$593,370

6.14%

6.26%

$34,382

$37,170

$  (2,788)

$    (728)

$(2,060)

 

**  Investment   securities:**

 

 

 

 

 

 

 

 

 

 

**    Taxable**

251,824

188,454

1.69%

2.89%

4,252

5,452

(1,200)

(2,270)

1,070 

 

**    Tax-exempt   (2)**

31,650

31,956

5.60%

5.78%

1,773

1,847

(74)

(57)

            (17)

 

**  Federal   funds sold and Securities**

 

 

 

 

 

 

 

 

 

 

**    purchased   under agreement to resell**

    13,970

   13,162

.24%

.24%

       33

       32

       1  

      (1)

   2 

 

**  Other   Earning Assets**

    47,269

    32,353

  .25%

  .23%

       120

          74

          46  

           8 

         38 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Earning Assets**

$904,536

$859,295

4.48%

5.19%

$40,560

$44,575

$ (4,015 )

$ (3,048)

$   (967)

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest-bearing   Liabilities:**

 

 

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**  Interest-bearing   deposits**

$623,167

$579,927

1.39%

1.84%

$  8,647

$10,668

$ (2,021)

$ (2,621)

$    600  

 

**  Securities   sold under agreement to       repurchase**

108,486

101,461

.73%

1.10%

791

1,121

(330)

(381)

51  

 

**  Other   short-term borrowings**

      9,674

    23,242

1.88%

1.46%

       182

       340

         (158)

         97  

     (255)

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Interest-bearing Liabilities**

  741,327

  704,630

1.30%

1.72%

    9,620

  12,129

   (2,509)

   (2,905)

      396  

 

**Interest-free  Funds   Supporting**

 

 

 

 

 

 

 

 

 

 

**  Earning   Assets**

163,209

154,665

 

 

 

 

 

 

 

 

** **

               

               

          

          

             

             

               

               

              

 

**Total   Funds Supporting Earning Assets**

$904,536

$859,295

1.06%

1.41%

$  9,620

$12,129

$ (2,509)

$ (2,905)

$    396  

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest   Rate Spread**

 

 

3.18%

3.47%

 

 

 

 

 

 

**Impact   of Noninterest-bearing Funds**

 

 

 

 

 

 

 

 

 

 

**  on   Net Yield on Earning Assets**

 

 

  .24%

  .31%

             

              

 

 

 

 

**Net   Yield on Earning Assets**

 

 

3.42%

3.78%

$30,940

$ 32,446

 

 

 

 

(1)  Includes non-accruing loans which do not have a material effecton the Net Yield on Earning Assets.(2)  Tax-equivalent adjustment based on a 34% tax rate. 

11

**CNB Corporation and Subsidiary   Rate/Volume Variance Analysis   For the Twelve Months Ended December 31, 2009 and 2008   (Dollars in Thousands)**

 
 

 
 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

 

**Average**

**Average**

** **

** **

**Interest**

**Interest**

** **

**Change**

**Change**

** **

 

**Volume**

**Volume**

**Yield/Rate**

**Yield/Rate**

**Earned/Paid**

**Earned/Paid**

** **

**Due to**

**Due to**

** **

 

**2009**

**2008**

**2009**

**2008**

**2009**

**2008**

**Variance**

**Rate**

**Volume**

** **

**Earning   Assets:**

 

 

 

 

 

 

 

 

 

 

**Loans   , Net of unearned Income (1)**

$593,370

$587,931

6.26%

6.88%

$37,170

$40,431

$  (3,261)

$ (3,602)

$     341 

 

**  Investment   securities:**

 

 

 

 

 

 

 

 

 

 

**    Taxable**

188,454

173,483

2.89%

4.63%

5,452

8,027

(2,575)

(3,008)

433 

 

**    Tax-exempt   (2)**

31,956

27,146

5.78%

6.03%

1,847

1,636

211 

(67)

278 

 

**  Federal   funds sold and Securities**

 

 

 

 

 

 

 

 

 

 

**    purchased   under agreement to resell**

    13,162

   24,439

.24%

2.38%

       32

       581

       (549)

      (522)

   (27)

 

**  Other   Earning Assets**

    32,353

             0

  .23%

0.00%

         74

           0

          74  

           0 

         74 

 

 

 

 

 

 

 

 

 

 

 

** Total   Earning Assets**

$859,295

$812,999

5.19%

6.23%

$44,575

$50,675

$ (6,100 )

$ (7,199)

$  1,099 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest-bearing   Liabilities:**

 

 

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**  Interest-bearing   deposits**

$579,927

$586,569

1.84%

2.82%

$10,668

$16,539

$ (5,871)

$ (5,749)

$  (122) 

 

**  Securities   sold under agreement to       repurchase**

101,461

58,843

1.10%

2.41%

1,121

1,420

(299)

(770)

471  

 

**  Other   short-term borrowings**

    23,242

      8,289

1.46%

3.16%

       340

       262

         78  

      (141)

      219  

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Interest-bearing Liabilities**

  704,630

  653,701

1.72%

2.79%

  12,129

  18,221

   (6,092)

   (6,660)

      568  

 

**Interest-free  Funds   Supporting**

 

 

 

 

 

 

 

 

 

 

**  Earning   Assets**

154,665

159,298

 

 

 

 

 

 

 

 

** **

               

               

          

          

             

             

               

               

              

 

**Total   Funds Supporting Earning Assets**

$859,295

$812,999

1.41%

2.24%

$12,129

$18,221

$ (6,092)

$ (6,660)

$    568  

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest   Rate Spread**

 

 

3.47%

3.44%

 

 

 

 

 

 

**Impact   of Noninterest-bearing Funds**

 

 

 

 

 

 

 

 

 

 

**  on   Net Yield on Earning Assets**

 

 

  .31%

  .55%

             

              

 

 

 

 

**Net   Yield on Earning Assets**

 

 

3.78%

3.99%

$32,446

$ 32,454

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

(1)  Includes non-accruing loans which do nothave a material effect on the Net Yield on Earning Assets.(2)  Tax-equivalent adjustment based on a 34% tax rate. 

12

**INVESTMENTSECURITIES**

The goal of the investment policy of the Bank is to provide for management ofthe investment securities portfolio in a manner designed to maximize portfolioyield over the long term consistent with liquidity needs, pledgingrequirements, asset/liability strategies, and safety/soundness concerns.  Specificinvestment objectives include the desire to: provide adequate liquidity forloan demand, deposit fluctuations, and other changes in balance sheet mix;manage interest rate risk; maximize the institution's overall return; provideavailability of collateral for pledging; and manage asset-qualitydiversification of the bank's assets. At December 31, 2010 and 2009, investmentsecurities represented 32.4% and 24.9% of total assets, respectively.  Total loans increased moderately during 2008 after a minimal increase in 2007.  Loangrowth in 2008 was attributable to an increase in loans secured by real estateand some growth in consumer loans.  Loans declined in 2009 due to weakened loandemand as a result of the recessionary economy during the first three quartersof the year and continued pressure on local real estate markets.  The decliningtrend in loan volume continued throughout 2010.  At December 31, 2010, 2009,and 2008, the Loans/Total Assets ratios were 59.0%, 63.0%, and 68.4%,respectively.  Investment securities have correspondingly risen as apercentage of total assets.

Investment securities with a par value of $204,917,000, $207,233,000, and $174,673,000at December 31, 2010, 2009, 2008, respectively, were pledged to secure publicdeposits and for other purposes as required by law.

The following summaries reflect the book value, unrealized gains and losses,approximate market value, weighted-average tax-equivalent yields, andmaturities on investment securities at December 31, 2010, 2009, 2008.

**                               December  31, 2010                               **

**(Dollars in Thousands)**

** **

**Book**

**Unrealized Holding**

**Fair**

** **

** **

**Value**

**Gains**

**Losses**

**Value**

**Yield(1)**

**AVAILABLE  FOR SALE**

 

 

 

 

 

 

 

 

 

 

 
 Government  Sponsored Enterprises

 

 

 

 

 

 
     One  to five years

$  186,938

$     349

$     652

$  186,635

1.13%

 
     Six  to ten years

      58,047

       137

       322

      57,862

    1.87%

 
    244,985

       486

       974

    244,497

    1.30%

 
  Mortgage  Backed Securities

 

 

 

 

 

 
     Six  to ten years

2,112

90

-

2,202

4.01%

 
     Over  ten years

       8,090

       102

         86

        8,106

    3.31%

 
     10,202

       192

         86

      10,308

    3.46%

 
  State,  county and municipal

 

 

 

 

 

 
    Within  one year

950

4

-

954

6.26%

 
    One  to five years

1,395

40

-

1,435

6.28%

 
    Six  to ten years

12,531

332

82

12,781

5.41%

 
    Over  ten years

       4,442

           5

       142

        4,305

    4.93%

 
     19,318

       381

       224

      19,475

    5.41%

 
  Other  Investments

 

 

 

 

 

 
    CRA  Qualified Investment Fund

1,065

-

-

1,065

-%

 
    Other

            36

           -

           -

             36

         -%

 
       1,101

           -

           -

        1,101

         -%

 
 

 

 

 

 

 
  Total  available for sale

$ 275,606

$ 1,059

$  1,284

$  275,381

   1.67%

 
 

 

 

 

 

 
**HELD  TO MATURITY**

 

 

 

 

 

 
 

 

 

 

 

 
 Government  Sponsored Enterprises

 

 

 

 

 

 
     One  to five years

     10,000

        25

           4

     10,021

   1.33%

 
     10,000

        25

           4

     10,021

   1.33%

 
 

 

 

 

 

 
  State,  county and municipal

 

 

 

 

 

 
    One  to five years

$     1,103

$      46

$          -

$     1,149

4.74%

 
    Six  to ten years

5,847

149

14

5,982

5.60%

 
    Over  ten years

       3,728

           -

         96

       3,632

   4.85%

 
     10,678

      195

       110

     10,763

   5.25%

 
 

 

 

 

 

 
  Total  held to maturity

$   20,678

$    220

$     114

$   20,784

  3.34%

 
 

 

 

 

 

 
(1)Tax equivalent adjustment on tax exempt obligations based on a 34% tax rate.

As of the year ended December 31, 2010, the Bank did not hold any securities ofan issuer thatexceeded 10% of stockholders' equity.

13

**INVESTMENT SECURITIES, continued **

**                               December  31, 2009                               **

**(Dollars in Thousands)**

** **

**Book**

**Unrealized Holding**

**Fair**

** **

** **

**Value**

**Gains**

**Losses**

**Value**

**Yield(1)**

**AVAILABLE  FOR SALE**

 

 

 

 

 

 

 

 

 

 

 
 Government  Sponsored Enterprises

 

 

 

 

 

 
     One  to five years

$135,494

$    945

$      11

$136,428

2.18%

 
     Six  to ten years

    42,907

      116

      144

    42,879

    2.61%

 
  178,401

   1,061

      155

  179,307

    2.28%

 
  Mortgage  Backed Securities

 

 

 

 

 

 
     Six  to ten years

2,240

63

1

2,302

3.87%

 
     Over  ten years

      6,975

      165

          -

      7,140

    3.94%

 
      9,215

      228

          1

      9,442

    3.92%

 
  State,  county and municipal

 

 

 

 

 

 
    Within  one year

1,381

13

-

1,394

7.04%

 
    One  to five years

2,543

93

-

2,636

6.64%

 
    Six  to ten years

16,563

442

68

16,937

5.61%

 
    Over  ten years

    4,010

        62

          -

      4,072

    5.39%

 
    24,497

      610

        68

    25,039

    5.77%

 
  Other  Investments

 

 

 

 

 

 
    CRA  Qualified Investment Fund

780

-

-

780

-%

 
    MasterCard  International Stock

          11

          -

          -

           11

         -%

 
    Other

          36

          -

          -

           36

         -%

 
        827

          -

          -

         827

         -%

 
 

 

 

 

 

 
  Total  available for sale

$212,940

$ 1,899

$    224

$214,615

   2.76%

    
 

 

 

 

 
**HELD  TO MATURITY**

 

 

 

 

 

 
 

 

 

 

 

 
 Government  Sponsored Enterprises

 

 

 

 

 

 
     One  to five years

       6,003

          -

        17

      5,986

   1.29%

 
       6,003

          -

        17

      5,986

   1.29%

 
 

 

 

 

 

 
  State,  county and municipal

 

 

 

 

 

 
    Within  one year

$       645

$        5

$        -

$       650

6.98%

 
    One  to five years

826

26

-

852

4.41%

 
    Six  to ten years

6,232

161

28

6,365

5.80%

 
    Over  ten years

      1,243

        69

           -

      1,312

   6.44%

 
      8,946

      261

        28

      9,179

   5.85%

 
 

 

 

 

 

 
  Total  held to maturity

$  14,949

$    261

$      45

$  15,165

  4.01%

 
 

 

 

 

 

 
(1) Tax equivalent adjustment on tax exempt obligations based on a 34% taxrate.

As of the year ended December 31, 2009, the Bank did not hold any securities ofan issuer that exceeded 10% of stockholders' equity.

14

**INVESTMENT SECURITIES, continued **

**                               December  31, 2008                               **

**(Dollars in Thousands)**

** **

**Book**

**Unrealized Holding**

**Fair**

** **

** **

**Value**

**Gains**

**Losses**

**Value**

**Yield(1)**

**AVAILABLE  FOR SALE**

 

 

 

 

 

 

 

 

 

 

 
 Government  Sponsored Enterprises

 

 

 

 

 

 
     Within  one year

$    3,725

$      41

$       -

$    3,766

4.56%

 
     One  to five years

151,174

2,030

-

153,204

3.66%

 
     Six  to ten years

    14,522

      583

         -

    15,105

    4.84%

 
  169,421

   2,654

         -

  172,075

    3.78%

 
  Mortgage  Backed Securities

 

 

 

 

 

 
     Six  to ten years

507

18

-

525

4.91%

 
     Over  ten years

      3,021

        63

         -

      3,084

    4.65%

 
      3,528

        81

         -

      3,609

    4.66%

 
  State,  county and municipal

 

 

 

 

 

 
    Within  one year

1,370

15

-

1,385

7.11%

 
    One  to five years

4,243

133

-

4,376

7.03%

 
    Six  to ten years

11,271

16

362

10,925

5.57%

 
    Over  ten years

    1,115

           -

       39

      1,076

    5.91%

 
    17,999

       164

     401

    17,762

    6.05%

 
  Other  Investments

 

 

 

 

 

 
    CRA  Qualified Investment Fund

721

-

-

721

-%

 
    MasterCard  International Stock

          11

          -

          -

           11

         -%

 
    Other

          36

           -

          -

           36

         -%

 
        768

           -

          -

         768

         -%

 
 

 

 

 

 

 
  Total  available for sale

$191,716

$ 2,899

$    401

$194,214

   4.01%

 
 

 

 

 

 

 
**HELD  TO MATURITY**

 

 

 

 

 

 
 

 

 

 

 

 
  State,  county and municipal

 

 

 

 

 

 
    Within  one year

$       795

$      11

$        -

$       806

6.71%

 
    One  to five years

1,481

9

8

1,482

5.40%

 
    Six  to ten years

4,589

12

70

4,531

5.51%

 
    Over  ten years

      2,893

           -

      142

      2,751

   5.75%

 
    Total held to maturity

  $    9,758

  $       32

  $    220

  $    9,570

    5.66%

 
 

 

 

 

 

 
 

 
(1)Tax equivalent adjustment on tax exempt obligations based on a 34% tax rate.

As of the year ended December 31, 2008, the Bank did not hold any securities ofan issuer that exceeded 10% of stockholders' equity.

15

**LOAN PORTFOLIOLENDING ACTIVITIES**

The Company engages, through the Bank, in a full complement of lendingactivities, including commercial, consumer, installment and real estate loans.

**Real Estate Loans**

Loans secured by first or second mortgages on residential and commercial realestate are one of the primary components of the Bank's loan portfolio.  Theseloans will generally consist of commercial real estate loans, construction anddevelopment loans and residential real estate loans (including home equity andsecond mortgage loans).  Interest rates are generally fixed butadjustable rates are also utilized for some commercial purpose loans.  TheBank seeks to manage credit risk in the commercial real estate portfolio byemphasizing loans on owner-occupied office and retail buildings.   Inaddition, the Bank typically requires personal guarantees of the principalowners of the property.  The Bank may also originate mortgage loansfunded and owned by investors in the secondary market, earning a fee, butavoiding the interest rate risk of holding long-term, fixed-rate loans. Theprincipal economic risk associated with all loans, including real estate loans,is the creditworthiness of the Bank's borrowers.  The ability of aborrower to repay a real estate loan will depend upon a number of economicfactors, including employment levels and fluctuations in the value of realestate.  In the case of a real estate construction loan, there isgenerally no income from the underlying property during the constructionperiod, borrowings may exceed the current value of the improvements to theproperty, and the developer's personal obligations under the loan may belimited.  Each of these factors increases the risk of nonpayment bythe borrower.  In the case of a real estate purchase loan and otherfirst mortgage real estate loans structured with a balloon payment, theborrower may be unable to repay the loan at the end of the loan term and maythus be forced to refinance the loan at a higher interest rate, or, in certaincases, the borrower may default as a result of an inability to refinance theloan.  In either case, the risk of nonpayment by the borrower isincreased.  The Bank will also face additional credit risks to theextent that it engages in making adjustable rate mortgage loans ("ARMs").  Inthe case of an ARM, as interest rates increase, the borrower's requiredpayments increase periodically, thus increasing the potential for default (See "AdjustableRate Mortgage Loans" below). The marketability of all real estate loans,including ARMs, is also generally affected by the prevailing level of interestrates.  Bank management monitors loans with loan-to-value ratios inexcess of regulatory guidelines and secured by real estate in accordance withguidance as set forth by regulatory authorities.  Aggregate levels ofboth commercial and residential real estate loans with loan-to-value ratiosabove regulatory guidelines at the time the loans were made are reported to theBank's Board of Directors on a quarterly basis in total dollars and as apercent of capital.  Additionally, loans in excess of $500,000 with aloan-to-value ratio exception are simultaneously reported on an individualbasis.  The total of loans with loan-to-value ratio exceptions aremaintained within regulatory limitations.  The total amount of loanswith loan-to-value ratios in excess of regulatory guidelines at the time theloans were made totaled $46,075,000 and $64,552,000 or 8.6% and 11.1% of totalloans at fiscal year-ends December 31, 2010 and 2009, respectively.

**Commercial Loans**

The Bank makes loans for commercial purposes in various lines of business.  Thecommercial loans will include both secured and unsecured loans for workingcapital (including inventory and receivables), loans for business expansion(including acquisition of real estate and improvements), and loans for purchasesof equipment.  When taken, security usually consists of liens oninventories, receivables, equipment, and furniture and fixtures.  Unsecuredbusiness loans are generally short-term with emphasis on repayment strengthsand low debt-to-worth ratios.  Commercial lending involvessignificant risk because repayment usually depends on the cash flows generatedby a borrower's business, and debt service capacity can deteriorate because ofdownturns in national and local economic conditions.  Managementgenerally seeks to control risks by conducting more in-depth and ongoingfinancial analysis of a borrower's cash flows and other financial information.

**Consumer Loans**

The Bank makes a variety of loans to individuals for personal and householdpurposes, including secured and unsecured installment and term loans, homeequity loans and lines of credit and unsecured revolving lines of credit suchas credit cards.  The secured installment and term loans to consumerswill generally consist of loans to purchase automobiles, boats, recreationalvehicles, mobile homes and household furnishings, with the collateral for eachloan being the purchased property.  The underwriting criteria forhome equity loans will generally be the same as applied by the Bank when makinga first mortgage loan, as described above, but more restrictive for home equitylines of credit. Consumer loans generally involve more credit risks than otherloans because of the type and nature of the underlying collateral or because ofthe absence of any collateral.  Consumer loan repayments aredependent on the borrower's continuing financial stability and are likely to beadversely affected by job loss, divorce and illness.  Furthermore,the application of various federal and state laws, including federal and statebankruptcy and insolvency laws, may limit the amount which can be recovered onsuch loans in the case of default.  In most cases, any repossessedcollateral will not provide an adequate source of repayment of the outstandingloan balance.  Although the underwriting process for consumer loansincludes a comparison of the value of the security, if any, to the proposedloan amount, the Bank cannot predict the extent to which the borrower's abilityto pay, and the value of the security, will be affected by prevailing economicand other conditions.

16

**LOANPORTFOLIOLENDING ACTIVITIES (Continued)**

**Adjustable Rate Mortgage Loans**

The Bank offers adjustable rate mortgages (ARMs)(as defined byregulatory authorities) for consumer purpose real estate loans only in the formof revolving equity lines of credit.  ARMs are more typically offeredas an alternative structuring on commercial purpose real estate loans and othercommercial purpose loans.  Variable rate loans, the majority of whichare real estate secured, totaled $78,879,000 and $90,829,000 or 14.8% and 15.7%of total loans at fiscal year-ends December 31, 2010 and 2009, respectively.  (TheBank does not offer any loan products which provide for planned graduatedpayments or loans which allow negative amortization.)

**Loan Approval and Review**

The Bank's loan approval policies provide for various levels of officer lendingauthority. When the amount of aggregate loans to a single borrower exceeds anindividual officer's lending authority, the loan request will be considered andapproved by an officer with a higher lending limit or by the Credit Committeeas established by the Board of Directors. The Loan Committee of the Board ofDirectors recommends to the Board of Directors the lending limits for theBank's loan officers.  The Bank has an in-house lending limit to asingle borrower, group of borrowers, or related entities, of the lesser of$10,000,000 or 15% of capital.  An unsecured limit (aggregate) forthe Bank is set at 75% of total capital. 

**CATEGORIES OF LOANS**

The following is a summary of loans, in thousands of dollars, at December 31,2010, 2009, 2008, 2007, 2006 by major category:

**  2010   **

**  2009   **

**  2008   **

**  2007   **

**  2006   **

**Real  Estate Loans - mortgage**

$362,998 

$375,741 

$366,948 

$350,138 

$361,707 

**                                - construction**

63,080 

81,311 

92,010 

83,398 

74,564 

**Commercial  and industrial loans**

61,127 

74,565 

89,348 

88,106 

83,375 

**Loans to  individuals for household    family and other consumer    expenditures**

  43,350 

  44,865 

  46,278 

  47,731 

  44,124 
**Agriculture**
3,282 

2,930 

3,119 

3,264 

3,097 

**All other  loans, including**

 

 

 

 

 

**  Overdrafts  and deferred loan costs**

          349 

          384 

         578 

      1,114 

         458 

**  Gross  Loans**

  534,186 

  579,796 

  598,281 

  573,751 

  567,325 

**   Less  allowance for loan losses**

   (11,627)

    (9,142)

    (7,091)

    (6,507)

    (6,476)

**    Net  loans**

$522,559 

$570,654 

$591,190 

$567,244 

$560,849 

** **

 

 

 

 

 

**MATURITIES AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES(Thousands of Dollars)**

For the year ended December 31, 2010, the Company's loanportfolio contained approximately $455,307 in fixed rate loans and approximately$78,879 in variable rate loans.  The following schedule summarizes theCompany's commercial, financial and agricultural, real estate - construction,and all other loans by maturity and sensitivity to changes in interest rates forDecember 31, 2010.

**For the Year Ended December 31, 2010**      **Loans Maturing in      One Year or Less****Loans Maturing      after One through      Five Years****Loans Maturing      after Five Years****Total****Total loans by category**      $  31,465               $  30,999                $   1,945                  $  64,409          **  Commercial, financial and agriculture**      37,290               25,356                434                  63,080          **  Real-estate construction** 111,606           233,559             61,532             406,697          **  All other loans** 180,361           289,914             63,911             534,186          **    Total**         **Fixed rate loans by category**    **  Commercial, financial and agriculture**      $  23,103               $  25,168                $      454                  $  48,725          **  Real-estate construction**      23,375               22,037                434                  45,846          **  All other loans**   92,166           216,334             52,236             360,736          **    Total** 138,644           263,539             53,124             455,307               **Variable rate loans by category**    **  Commercial, financial and agriculture**      $  8,362               $5,831                $  1,491                  $  15,684          **  Real-estate construction**      13,915               3,319                -                  17,234          **  All other loans**  19,440           17,225              9,296               45,961          **    Total**  41,717           26,375            10,787               78,879          
17

**NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS**

The following schedule summarizes the amount of nonaccrual, past due, and restructuredloans, in thousands of dollars, for the periods ended December 31, 2010, 2009,2008, 2007, and 2006:

**  2010**

**  2009**

**  2008**

**  2007**

**  2006**

** **

** **

** **

** **

** **

**  Nonaccrual  loans**

$ 25,704

$ 12,678

$ 2,990

$   861

$   897

**  Accruing loans which are contractually       past due 90 days or more as to principal       or interest payments**

  $   1,042

  $      961

  $    607

  $   147

  $   232

**  Restructured troubled debt**

$        20

$        22

$      24

  $     25

  $       -

Accruingloans which are contractually past due 90 days or more are graded substandardwithin the Bank's internal loan grading system and come under heightenedscrutiny. Typically, a loan will not remain in the 90 days past due category,but will either show improvement or be moved to nonaccrual loans.  Loansare placed in a nonaccrual status when, in the opinion of management, thecollection of additional interest is questionable.  Thereafter, nointerest is taken into income unless received in cash or until such time as theborrower demonstrates the ability to pay principal and interest.  At December31, 2010, the Company had $25,704 of nonaccrual loans consisting of 110 loansaveraging $234.  Nonaccrual loans are written down to the fair value of theunderlying collateral at the time of transfer to nonaccrual, or as soon asreasonably possible, based on a current appraisal.  At December 31, 2010, theCompany had $1,042 of accruing loans which were contractually past due 90 daysor more consisting of 60 consumer purpose loans averaging $17.  At December 31,2010, the Company had $20 of restructured troubled debt consisting of 1consumer loan.  

Information relating to interest income on nonaccrual and renegotiated loansoutstanding, in thousands of dollars, for the years ended December 31, 2010,2009, 2008, 2007, and 2006 is as follows:

** 2010**

**2009**

**2008**

**2007**

**2006**

** **

** **

** **

** **

** **

**   Interest included in income during  the year**

$    408 

$ 318   

$ 103   

$ 33    

$ 27    

**   Interest which would have been included at the original        contract rates (includes amount included  in income)**

  $ 1,847 

  $ 953   

  $ 288   

  $ 94    

  $ 65    

 

**POTENTIAL PROBLEM LOANS**

In addition to those loans disclosed under "Nonaccrual, Past Due, andRestructured Loans," there are certain loans in the portfolio which are notyet 90 days past due but about which management has concerns regarding theability of the borrower to comply with present loan repayment terms.  Suchloans and nonaccrual loans are classified as impaired.  Problem loanidentification includes a review of individual loans, the borrower's and guarantor'sfinancial capacity and position, loss potential, and present economicconditions. A specific allocation is provided for impaired loans not yet placedin nonaccrual status and not yet written down to fair value in management'sdetermination of the allowance for loan losses.

As of December 31, 2010, all loans which management had identified as impairedtotaled $3,370, excluding $25,704 of nonaccrual loans outlined in the precedingschedule.

**FOREIGN OUTSTANDINGS**

As of the year ended December 31, 2010, the Company had no foreign loansoutstanding.

**LOAN CONCENTRATIONS**

As of the year ended December 31, 2010, the Company did not have anyconcentration of loans to multiple borrowers engaged in similar activities thatwould cause them to be similarly affected by economic or other conditionsexceeding 10% of total loans which are not otherwise disclosed as a category ofloans in the tables above.  However, because the Company is engagedin the business of community banking, most of its loans are geographicallyconcentrated to borrowers in the Horry County and Waccamaw Neck areas of SouthCarolina.

18

**SUMMARY OF LOAN LOSS EXPERIENCE**

**ALLOWANCE FOR LOAN LOSSES**

The following table summarizes loan balances as of the end of each period indicated,averages for each period, changes in the allowance for loan losses arising fromcharge-offs and recoveries by loan category, and additions to the allowancewhich have been charged to expense.

The allowance for loan losses is increased by the provision for loan losses,which is a direct charge to expense.  Losses on specific loans arecharged against the allowance in the period in which management determines thatsuch loans become uncollectible.  Recoveries of previouslycharged-off loans are credited to the allowance.

**                        Years  Ended December 31,                        **

**  2010    **

**  2009    **

**  2008    **

**  2007    **

**  2006    **

**(Thousands of Dollars)**

**Loans:**

 

 

 

 

 

  Average  loans outstanding for the period

$559,823

$593,370

$587,931

$563,864

$545,451

**Allowance  for loan losses:**

 

 

 

 

 

** **

 

 

 

 

 

**Balance  at the beginning of period**

$   9,142

$   7,091

$   6,507

$   6,476

$   5,918

** **

 

 

 

 

 

**  Charge-offs:**

 

 

 

 

 

    Commercial,  financial, and agricultural

$   3,273

$    2,251

$      896

$      732

$      188

    Real  Estate - construction and mortgage

7,444

4,383

750

127

44

    Loans  to individuals

        899

     1,141

        836

        587

        677

 

 

 

 

 

**      Total  charge-offs**

$ 11,616

$   7,775

$   2,482

$   1,446

$      909

** **

 

 

 

 

 

  **Recoveries**:

 

 

 

 

 

   Commercial,  financial, and agricultural

$      259

$      593

$      278

$        96

$      201

   Real  Estate - construction and mortgage

73

16

44

25

154

   Loans  to individuals

        372

        469

        211

        211

        304

 

 

 

 

 

**     Total  recoveries**

$      704

$   1,078

$      533

$      332

$      659

** **

 

 

 

 

 

**Net  charge-offs**

$ 10,912

$   6,697

$   1,949

$   1,114

$      250

**Additions  charged to operations**

$ 13,397

$   8,748

$   2,533

$   1,145

$      808

**Balance  at end of period**

$ 11,627

$   9,142

$   7,091

$   6,507

$   6,476

** **

 

 

 

 

 

**Net  Charge-offs as a Percentage of Average Loans Outstanding**

  1.95%  

  1.13%  

    .33%  

   .20%  

   .05%   

Theallowance for loan losses is maintained at an amount based on considerations ofclassified and internally-identified problem loans, the current trend indelinquencies, the volume of past-due loans, historical loss experience,current economic conditions, over-margined real estate loans, if any, the effectsof changes in risk selection or underwriting practices, the experience, abilityand depth of lending management and staff, industry conditions, the effect ofchanges in concentrations of credit, and loan administration risks.  Inaddition, the Asset/Liability Management Committee and the Credit Committeereview the adequacy of the allowance quarterly and make recommendations regardingthe appropriate degree of consideration to be given the various factorsutilized in determining the allowance and to make recommendations as to theappropriate amount of the allowance.

The Bank's real estate loan portfolio and consequently the allowance for loanlosses has been significantly impacted by deterioration of local real estatemarkets in terms of both real estate market activity and real estate values duringthe most recent recession, 2007 through 2009, and although local real estatemarkets have begun to recover, management expects that full recovery of thiseconomic sector will not be evident before 2012 or later.  Management hassought to maintain the allowance for loan losses at a level commensurate withthe level of risk identified in the loan portfolio and has continuouslymonitored the methodologies employed in determining the allowance for loanlosses.  Management believes it has reduced all real estate exposures to levelsbelow acceptable thresholds established by regulatory authorities.  As a resultof these actions and growth in past due, nonaccrual, and impaired loans(outlined in the "Nonaccrual, Past Due, and Restructured Loans" and "PotentialProblem Loans" above), provisions for loan losses and the allowance for loanlosses have exceeded historical norms since the onset of the recession in 2007.

The Board of Directors maintains an independent Loan Review function which hasestablished controls and procedures to monitor loan portfolio risk on anon-going basis.  Credit reviews on all major relationships areconducted on a continuing basis as is the monitoring of past-due  trends  and  classified assets.  The function utilizes various methodologies inits assessment of the adequacy of the Allowance  for 

19

LoanLosses.  Three primary measurements are reported to the Board ofDirectors on a quarterly basis, the Graded Loan Method based on a bank-widerisk grading model, the Migration Analysis Method which tracks risk patterns oncharged-off loans for the previous 10 years, and the Percentage of Net LoansMethod.  The graded loans and migration methodologies are calculatedbased on gross charge offs.  Additionally, the function annually reviews theeconomic assessment conducted by Loan Administration, addresses portfolio riskby industry concentration, reviews loan policy changes and marketing strategiesfor any effect on portfolio risk, and conducts tests addressing portfolioperformance by type of portfolio, collateral type, and loan officerperformance.

Management utilizes the best information available to establish the allowancefor loan losses.  However, future adjustments to the allowance or tothe reserve adequacy methodology may be necessary if economic conditions differsubstantially, the required methodology is altered by regulatory authoritiesgoverning the Company or the Bank, or alternative accounting methodologies arepromulgated by the Public Company Accounting Oversight Board.  During2010, one primary change to the methodology of determining the allowance forloan losses was implemented.  This change was to provide a provisionfor selling cost based on the underlying collateral of nonaccrual loans at thetime a loan is placed in a nonaccrual status and when management has determinedthat liquidation of the collateral is imminent. 

The following table presents an estimated allocation of the allowance for loanlosses at December 31, 2010, 2009, 2008, 2007, and 2006. This table ispresented based on the regulatory reporting classifications of theloans.  This allocation of the allowance for loan losses iscalculated on an approximate basis and is not necessarily indicative of futurelosses or allocations.  The entire amount of the allowance isavailable to absorb losses occurring in any category of loans and leases.

 

**ALLOCATION  OF ALLOWANCE FOR LOAN LOSSES**

**(Dollars in Thousands)**

** **

** **

** **

** **

** **

** **

** **

**2010**

**2009**

**2008**

**2007**

**2006**

** **

**Amount**

**%  Loans  in eachcategory**

**Amount**

**%  Loans  in eachcategory**

**Amount**

**%  Loans  in eachcategory**

**Amount**

**%  Loans  in eachcategory**

**Amount**

**%  Loans  in eachcategory**

**Balance  applicable to:**

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

**Commercial    Industrial,    Farm Loans**

$  3,507 

12.1%

$3,509  

13.4%

$2,411  

15.5%

$2,212  

17.3%

$2,202  

16.0%

** **

 

 

 

 

 

 

 

 

 

 

**Real  Estate -    Construction    and    Mortgage**

6,419 

79.7%

4,342  

78.8%

3,616  

76.7%

3,319  

74.0%

3,303  

75.5%

** **

 

 

 

 

 

 

 

 

 

 

**Loans to     Individuals**

1,400 

8.1%

1,205  

7.7%

985  

7.7%

864  

7.7%

759  

7.4%

** **

 

 

 

 

 

 

 

 

 

 

**Other  Loans**

191 

  .1%

71  

  .1%

79  

  .1%

72  

1.0%

73  

1.1%

** **

 

 

 

 

 

 

 

 

 

 

**Unallocated**

       110 

     -  

         15 

     -  

          -  

     -  

       40  

     -  

      139  

     -  

** **

 

 

 

 

 

 

 

 

 

 

**Total**

$11,627  

100%

$9,142  

100%

$7,091  

100%

$6,507  

100%

$6,476  

100%

****20

**DEPOSITSAVERAGE DEPOSITS BY CLASSIFICATION**

The following table sets forth the classification of average deposits for theindicated period, in thousands of dollars:

 

**                                         Years Ended December  31,              **

** **

**      2010     **

**      2009     **

**     2008      **

** **

** **

** **

** **

**Noninterest  bearing demand deposits**

** **

$106,854

$105,182

$115,724

**Interest  bearing demand deposits**

 

93,260

89,172

87,711

**Money  market deposits**

 

84,919

75,979

81,783

**Savings  deposits**

 

56,605

51,743

47,596

**Health  savings deposits**

 

1,028

896

818

**Time  deposits**

 

335,296

314,367

328,629

**Individual  retirement accounts**

 

    52,059

    47,770

    40,032

**  Total deposits**

 

$730,021

$685,109 

$702,293

**AVERAGE RATES PAID ON DEPOSITS**

The following table sets forth average rates paid on categories ofinterest-bearing deposits for the periods indicated:

**                  Years Ended December 31,                 **

**   2010   **

**   2009   **

**   2008     **

** **

** **

** **

**Interest  bearing demand deposits**

.12%   

.14%   

.34%   

**Money  Market Deposits**

.75%   

1.03%   

1.53%   

**Savings  deposits**

.66%   

.81%   

1.29%   

**Health savings deposits**

1.32%   

1.85%   

3.06%   

**Time deposits**

1.88%   

2.48%   

3.85%   

**Individual retirement account deposits**

2.33%   

3.23%   

4.20%   

**MATURITIES OF TIME DEPOSITS**

The following table sets forth the maturity of time deposits in thousands ofdollars, at December 31, 2010:

** **

**Time   Deposits of  $100,000 ormore**

**Time Deposits  of Less Than$100,000**

**Total  Time    Deposits**

**Maturity within 3 months or less**

$  82,437      

$  41,520       

$123,957     

**Over 3 through 6 months**

38,575      

41,165       

79,740     

**Over 6 through 12 months**

59,864      

57,539       

117,403     

**Over 12 months**

    35,059      

     19,277       

     54,336     

**    Total**

$215,935      

$159,501       

$375,436     

**RETURN ON EQUITY AND ASSETS**

The following table presents certain ratios relating to the Company's equityand assets:

**             Years Ended December 31,           **

**   2010  **

**   2009  **

**    2008   **

 

 

 

**   Return  on average total assets(1)**

.11%

.56%  

1.04%  

**   Return  on average stockholders' equity(2)**

1.18%

5.91%  

 10.65%  

**   Cash  dividend payout ratio(3)**

-%

41.25%  

49.07%  

**   Average equity to average assets  ratio (4)**

9.32%

9.48%  

9.78%  

** **

 

 

 

**   (1) Net income divided by average  total assets.**

 

 

 

**   (2) Net income divided by average  equity.**

 

 

 

**   (3) Dividends per share divided by  net income per share**

 

 

 

**   (4) Average equity divided by average  total assets.**

 

 

 

21

**SHORT-TERM BORROWINGS**

Securities sold under repurchase agreements are short-term borrowings whichgenerally mature within 180 days from the dates of issuance.  Noother category of short-term borrowings had an average balance outstandingduring the reported period which represented 30 percent or more ofstockholders' equity at the end of the period.

The following is a summary of securities sold under repurchase agreementsoutstanding at December 31 of each reported period, in thousands of dollars:

**                    December  31,                       **

**  2010  **

**  2009  **

**  2008  **

**Securities sold under agreement to repurchase**

  $99,153

  $104,654

  $67,415

The following information relates to outstanding securities sold underrepurchase agreements during 2010, 2009, and 2008, in thousands of dollars:

**Maximum  Amount               Outstanding at Any                               Month  End                    **

**Weighted  Average               Interest Rate                             at  December 31,                **

** **

**2010**

**2009**

**2008**

**2010**

**2009**

**2008**
   
**  Securities sold  under      agreement to repurchase**

$113,463

$114,267

$67,415

.46%

.94%

1.86%

**               Years  ended December 31,            **

**2010     **

** 2009      **

**2008       **

**Securities sold under agreement to repurchase -    average daily amount outstanding during the year**

$108,392 

$101,286 

$58,843 

 

 

 

**  Weighted average interest rate paid**

.73%

1.11%

2.41%

22

**ITEM 1A.   RISK FACTORS**

An investment in our common stock involves a significant degree of risk.  Anyof the following risks could adversely affect our business, our results ofoperations and our financial condition, as well as the price of our commonstock.  The risks discussed below also include forward-lookingstatements, and our actual results may differ substantially from thosediscussed in these forward-looking statements.

**Risks Relatedto Our Business**

**Our growth strategymay not be successful.**

We have plans to maintain our recent asset and deposit growth through theopening of additional branch locations and the hiring of additional bankers. Wemay not be successful in identifying or obtaining suitable new branch locationsor receiving regulatory approval for them, or employing and retaining suitablebankers, on terms that we can afford and that are attractive to us. Even if wesuccessfully open additional branch locations and hire additional bankers, wemay not achieve the asset and deposit growth that we seek because ofcompetition or poor economic conditions, or for other reasons.

**Our growth strategy may reduce our earnings in the near term.**

We expect eachnew office we open to take several years to become profitable and we cannotguarantee that any new office will ever become profitable.  We expectthat by having a number of new offices at any given time, our ability tooperate at higher levels of profitability will be reduced until our new officescan operate at levels of profitability that equal or exceed our older offices.

**Our growth strategy may require future increases in capital that we may not beable to accomplish.**

We are requiredby banking regulators to maintain various ratios of capital to assets. As ourassets continue to grow we expect our capital ratios to decline unless we canalso continue to increase our earnings or raise sufficient new capital to keeppace with asset growth.  Our ability to raise additional capital, ifneeded, will depend, among other things, on conditions in the capital marketsat that time, which are outside our control, and on our financial condition andperformance.  If we are unable to limit a capital ratio decline byincreasing our capital, we will have to restrict our asset growth to the amountour earnings will support. 

**We may be unable to manage our sustained growth successfully.**

We have grown substantially in the last several years.  Although wemay not continue to grow as fast as we have in the past, we intend to expandour asset base.  Our future profitability will depend in part on ourability to manage growth successfully.  Our ability to manage growthsuccessfully will depend on our ability to maintain cost controls and assetquality while attracting additional loans and deposits, as well as on factorsbeyond our control, such as economic conditions and interest rate trends.  Ifwe grow quickly and are not able to control costs and maintain asset quality,growth could materially adversely affect our financial performance.

**We depend on the services of a number of key personnel, and a loss of any ofthose personnel could disrupt our operations and result in reduced revenues.**

We are a relationship-driven organization.  Our growth anddevelopment in recent years have depended in large part on the efforts ofseveral members of our senior management team.  These senior officershave primary contact with our customers and are extremely important inmaintaining personalized relationships with our customer base, which are keyaspects of our business strategy, and in increasing our market presence.  Theunexpected loss of services of one or more of these key employees could have amaterial adverse effect on our operations and possibly result in reducedrevenues if we were unable to find suitable replacements promptly.

**If our loan customers do not pay us as they have contracted to, we mayexperience losses.**

Our principalrevenue producing business is making loans.  If our customers do notrepay the loans, we will suffer losses. Even though we maintain an allowancefor loan losses, the amount of the allowance may not be adequate to cover thelosses we experience.  We attempt to mitigate this risk by a thoroughreview of the creditworthiness of loan customers. Nevertheless, there is riskthat our credit evaluations will prove to be inaccurate due to changedcircumstances, unanticipated economic conditions, or otherwise.

**Our assets includesubstantial amounts of real estate acquired through foreclosure or insettlement of loans, which we may not be able to sell without incurringadditional losses.**

We have acquired, and expect tocontinue to acquire, substantial amounts of real estate through foreclosure orsettlement of loans in default. When we acquire such real estate, it is writtendown to its estimated fair market value less the estimated costs of selling. If we cannot sell the property for that amount we will incur additional losswhich, for one or more properties, could materially reduce our earnings.

23

**ITEM 1A.   RISK FACTORS -Continued**

**Risks Related to Our Business - Continued**

**Our business is concentrated in Horry County and the "Waccamaw Neck"region of Georgetown County, and a downturn in the economy of the Horry Countyand the Waccamaw Neck area, a decline in real estate values in the Horry Countyand the Waccamaw Neck areas or other events in our market area may adverselyaffect our business.**

Substantially all of our business is located in the Horry County and the "WaccamawNeck" region of Georgetown County areas in coastal South Carolina.  Asa result, our financial condition and results of operations are affected bychanges in the Horry County and the Waccamaw Neck economies.  Overthe past three years, we have experienced the adverse effects of the economicrecession in the form of increased nonpayment and delinquent payment of loans,and decreases in the value of collateral securing loans and of real estateacquired through foreclosures.  If the economic recession and general declinein real estate values in our market areas, or other adverse economic conditionscontinue, we would expect continuing decreases in demand for our services,increases in nonpayment of loans and decreases in the value of collateralsecuring loans.  The existence of adverse economic conditions, declines in realestate values or the occurrence of other adverse economic conditions in HorryCounty, the Waccamaw Neck and South Carolina could have a material adverseeffect on our business, future prospects, financial condition or results ofoperations.

**We operate in an area susceptible to hurricane and other weather related damagewhich could disrupt our business and reduce our profitability.**

Nearly all of our business and our customers are located in coastal SouthCarolina, an area that often experiences damage from hurricanes and otherweather phenomena.  We attempt to mitigate such risk with insuranceand by requiring insurance on property taken as collateral.  However,catastrophic weather damage to a large portion of our market area could causesubstantial disruptions to our business and our customers' businesses whichwould reduce our profitability for some period.

**We face strong competition from larger, more established competitors which mayadversely affect our ability to operate profitably.**

We encounter strong competition from financial institutions operating in thegreater Horry/Georgetown County and Grand Strand areas of South Carolina.  Inthe conduct of our business, we also compete with credit unions, insurancecompanies, money market mutual funds and other financial institutions, some ofwhich are not subject to the same degree of regulation as we are.  Manyof these competitors have substantially greater resources and lending abilitiesthan we have and offer services, such as investment banking, insurance, trustand international banking services that we do not provide.  Webelieve that we have been able to, and will continue to be able to, competeeffectively with these institutions because of our experienced bankers andpersonalized service, as well as through loan participations and otherstrategies and techniques.  However, we cannot promise that we arecorrect in our belief.  If we are wrong, our ability to operateprofitably may be negatively affected.

**Technologicalchanges affect our business, and we may have fewer resources than many of ourcompetitors to invest in technological improvements.**

The financial services industry continues to undergo rapid technologicalchanges with frequent introductions of new technology-driven products andservices.  In addition to enabling financial institutions to servecustomers better, the effective use of technology may increase efficiency andmay enable financial institutions to reduce costs.  Our futuresuccess may depend, in part, upon our ability to use technology to provideproducts and services that provide convenience to customers and to createadditional efficiencies in our operations.  We may need to makesignificant additional capital investments in technology in the future, and wemay not be able to effectively implement new technology-driven products andservices.  Many of our competitors have substantially greaterresources to invest in technological improvements.

**Our profitability and liquidity may be affected by changes in interest ratesand economic conditions.**

Our profitability depends upon our net interest income, which is the differencebetween interest earned on our interest earning assets, such as loans andinvestment securities, and interest expense on interest bearing liabilities,such as deposits and borrowings.  Our net interest income will beadversely affected if market interest rates change such that the interest wepay on deposits and borrowings increases faster than the interest earned onloans and investments, or, conversely, if the interest earned on loans andinvestments decreases faster than the interest we pay on deposits and borrowings.  Interestrates, and consequently our results of operations, are affected by generaleconomic conditions (domestic and foreign) and fiscal and monetary policies.  Monetaryand fiscal policies may materially affect the level and direction of interestrates.  Beginning in June 2004 through June 2006, the Federal Reserveraised rates 17 times for a total increase of 4.25%.  Increases ininterest rates generally decrease the market values of interest earninginvestments and loans held and therefore may adversely affect our liquidity andearnings.  Increased interest rates also generally affect the volumeof mortgage loan originations, and the ability of borrowers to perform underexisting loans of all types.  Since September 18, 2007, the FederalReserve has decreased interest rates significantly, to near zero in 2010.  Decreasesin interest rates generally have the opposite affect on market values ofinterest-bearing assets, the volume of mortgage loan originations, and theability of borrowers to perform under existing loans of all types.

24

**ITEM1A.   RISK FACTORS - Continued**

**Risks Related to Our Common Stock**

**Our common stock has a limited trading market, which may make the promptexecution of sale transactions difficult.**

Although our commonstock may be traded from time to time on an individual basis, no active tradingmarket has developed and none is expected to develop in the foreseeable future.  Ourcommon stock is not traded on any exchange.  Accordingly, shareholders who wish to sell shares may experience a delayor have to sell them at lower prices than they seek in order to sell thempromptly, if at all.

**There is no guarantee we will continue to pay cash dividends in the future atthe same or any level.**

Declaration and payment of dividends are within the discretion of our board ofdirectors.  Our bank is currently our only source of funds with whichto pay cash dividends.  Our bank's declaration and payment of futuredividends to us are within the discretion of the bank's board of directors, andare dependent upon its earnings, financial condition, its need to retainearnings for use in the business and any other pertinent factors.  Thebank's payment of dividends is also subject to various regulatory requirementsand the ability of the bank's regulators to forbid or limit its payment ofdividends.

**Provisions in our articles of incorporation and South Carolina law maydiscourage or prevent takeover attempts, and these provisions may have theeffect of reducing the market price for our stock.**

Our articles of incorporation include several provisions that may have theeffect of discouraging or preventing hostile takeover attempts. The provisionsinclude staggered terms for our board of directors and requirements ofsupermajority votes to approve certain business transactions.  In addition, South Carolina lawcontains several provisions that may make it more difficult for a third partyto acquire control of us without the approval of our board of directors, andmay make it more difficult or expensive for a third party to acquire a majorityof our outstanding common stock.  Tothe extent that these provisions are effective in discouraging or preventingtakeover attempts, they may tend to reduce the market price for our stock.

**Our common stock is not insured, so shareholders could lose their totalinvestments.**

Our common stock is not a deposit or savings account, and is not insuredby the Federal Deposit Insurance Corporation or any other government agency.  Shouldour business fail, shareholders could lose their total investments.

**Risks Related to Our Industry**

**There can beno assurance that recent government actions will help stabilize the U.S.financial system.**

In response to the financial crises affecting the banking system and financialmarkets and going concern threats to investment banks and other financialinstitutions, various branches and agencies of the U.S. government have put inplace laws, regulations, and programs to address capital and liquidity issuesin the banking system. There can be no assurance, however, as to the actual long-termimpact that such laws, regulations, and programs will have on the financialmarkets, including the extreme levels of volatility, liquidity and confidenceissues, and limited credit availability recently experienced. The failure ofsuch laws, regulations, and programs to continue to stabilize the financialmarkets and a continuation or worsening of current financial market conditionscould materially and adversely affect our business, financial condition,results of operations, access to credit or the trading price of our commonstock.

**Recent levels of market volatility are unprecedented.**

The volatility and disruption of financial and credit markets in the past fewyears has reached unprecedented levels for recent times. In some cases, themarkets produced downward pressure on stock prices and credit availability forcertain issuers without regard to those issuers' underlying financial strength.If recent levels of market disruption and volatility continue or worsen, therecan be no assurance that we will not experience an adverse effect, which may bematerial, on our ability to access capital and on our business, financialcondition, and results of operations.

****25

**ITEM 1A.   RISK FACTORS - Continued**

**Risks Related to Our Industry - Continued**

**The soundness of other financial institutionscould adversely affect us.**

Financial servicesinstitutions are interrelated as a result of trading, clearing, counterparty,or other relationships.  We have exposure to many differentindustries and counterparties, and we routinely execute transactions withcounterparties in the financial services industry, including brokers, dealers,commercial banks, investment banks, and government sponsoredenterprises.  Many of these transactions expose us to credit risk inthe event of default of our counterparty. In addition, our credit risk may beexacerbated when the collateral held by us cannot be realized or is liquidatedat prices not sufficient to recover the full amount of the loan or other obligationdue us.  There is no assurance that any such losses would notmaterially and adversely affect our results of operations or earnings.  Our primary source of funding for ouroperations is deposits from customers in our local market.  Shouldother banks in or near our market areas fail, it could cause our depositcustomers to lose confidence in banks and cause them to withdraw orsubstantially restrict their deposits with us.  If such activityreached a high enough level, it could substantially disrupt our business. There is no assurance that such disruptions, were they to occur, would notmaterially and adversely affect our results of operations or earnings.

**Recent market developments may adversely affect our industry, business, andresults of operations.**

Dramatic declines in the housing market during the prior three years, withfalling home prices and increasing foreclosures and unemployment, have resultedin significant write-downs of asset values by financial institutions, includinggovernment-sponsored entities and major commercial and investmentbanks.  These write-downs, initially of mortgage-backed securitiesbut spreading to credit default swaps and other derivative securities, as wellas other financial assets, including loans, have caused many financialinstitutions to seek additional capital, to merge with larger and strongerinstitutions and, in some cases, to fail.  Reflecting concern aboutthe stability of the financial markets generally and the strength ofcounterparties, many lenders and institutional investors have reduced, and insome cases, ceased to provide funding to borrowers, including other financialinstitutions.  The resulting lack of available credit, lack ofconfidence in the financial sector, increased volatility in the financial markets,and reduced business activity could materially and adversely, directly orindirectly, affect our business, financial condition and results of operations.

**We are subject to governmental regulation which could change and increaseour cost of doing business or have an adverse affect on our business.**

We operate in a highly regulated industry and are subject toexamination, supervision and comprehensive regulation by various federal andstate agencies.  Most of this regulation is designed to protect our depositorsand other customers, not our shareholders.  Our compliance with therequirements of these agencies is costly and may limit our growth and restrictcertain of our activities, including, payment of dividends, mergers andacquisitions, investments, loans and interest rates charged, and locations ofoffices.  We are also subject to capitalization guidelinesestablished by federal authorities and our failure to meet those guidelinescould result, in an extreme case, in our bank's being placed in receivership.

Various laws,including the Federal Deposit Insurance Act, the Emergency EconomicStabilization Act of 2008 ("EESA"), and the Dodd-Frank Act, and relatedregulations are structured to spread the governmental costs of problems in thefinancial industry broadly over the financial industry in order to prevent thetaxpayers from having to pay such costs.  As a result, assessments by the FDICto pay for deposit insurance have increased, and will likely continue toincrease, substantially, and the total our bank will be required to pay couldincrease enough to materially affect our income and our ability to operateprofitably.  Additionally, EESA contains a provision for the financial industryto be required to absorb, in an as yet undetermined fashion, any lossessuffered by the government on account of its acquiring troubled assets underthe Troubled Assets Relief Program of EESA.  The Dodd-Frank Act also makes numerouschanges in the way financial institutions are regulated, and creates a newagency to regulate consumer protection as well as expanding and modifyingconsumer protection laws.

We arealso subject to the extensive and expensive requirements imposed on publiccompanies by the Sarbanes-Oxley Act of 2002 and on financial servicesbusinesses by the Dodd-Frank Act, and related regulations.

The laws and regulations applicable to the banking industry could change at anytime, and numerous regulations required by the Dodd-Frank Act are yet to beadopted.  Therefore, we cannot predict the impact of these changes on ourbusiness or profitability.  Because government regulation greatlyaffects the business and financial results of all commercial banks and bankholding companies, such regulation may not put us at a competitive disadvantagewith respect to other similarly situated banks and holding companies, but ourcost of compliance could adversely affect our ability to operate profitably.

**We are susceptible to changes in monetary policy and other economic factorswhich may adversely affect our ability to operate profitably.**

Changes in governmental, economic and monetary policies may affect theability of our bank to attract deposits and make loans.  The rates ofinterest payable on deposits and chargeable on loans are affected bygovernmental regulation and fiscal policy as well as by national, state andlocal economic conditions.  All of these matters are outside of ourcontrol and affect our ability to operate profitably.

26

**ITEM 1B.   UNRESOLVED STAFF COMMENTS**

The Company has no unresolved comments from the SEC staff regarding its1934 Act filings in the 180 days prior to fiscal year-end December 31, 2010.

**ITEM 2.   PROPERTIES**

The Company's subsidiary, The Conway National Bank, has twelve permanentbanking offices in Horry County and two permanent banking offices in GeorgetownCounty, for a total of fourteen banking offices.  In addition, theBank has an Operations and Administration Building, located at 1400 ThirdAvenue in Conway, which houses the Bank's administrative offices and dataprocessing facilities.  This three-story structure containsapproximately 33,616 square feet.  Adjacent to the Operations andAdministration Building is a 24,000 square foot branch banking office, known asthe Conway Banking Office, which provides retail banking functions at theBank's principal site.  In addition, the Bank has a 1,450 square footbuilding for express banking services adjacent to the Conway Banking Office.  TheBank has a two-story office on Main Street in Conway containing 8,424 squarefeet, banking offices located at Red Hill in Conway (3,760 square feet), WestConway in Conway (3,286 square feet), North Conway in Conway (3,600 squarefeet), Surfside in Surfside Beach (6,339 square feet), Northside, north ofMyrtle Beach (2,432 square feet), Socastee in the southern portion of MyrtleBeach (3,498 square feet), Aynor in the Town of Aynor (2,809 square feet),Myrtle Beach in the City of Myrtle Beach (12,000 square feet), Murrells Inletin Murrells Inlet, Georgetown County (3,600 square feet), North Myrtle Beach inthe City of North Myrtle Beach (3,600 square feet), Pawleys Island in PawleysIsland, Georgetown County (3,900 square feet), and Little River northwest ofNorth Myrtle Beach (3,900 square feet).  In addition to the existingfacilities, the Company has purchased one future office site.  Thesite consists of 1.63 acres at Loop Road and River Oaks Drive, Carolina Forest,Myrtle Beach.  The Company anticipates building a banking office onthe site within the next two to six years, depending on market conditions. Thephysical addresses of each location are as follows:  The Operationsand Administration Building at 1400 Third Avenue, Conway; Conway Banking Officeat 1411 Fourth Avenue, Conway; Main Street at 309 Main Street, Conway; WestConway at Highway 501 & Cultra Road, Conway; North Conway at 2601 MainStreet, Conway; Surfside at Highway 17 & 5th Avenue North,Surfside Beach; Northside at 9726 Highway 17 North, Myrtle Beach; Red Hill atHighways 544 & 501, Conway; Socastee at 3591 North Gate Road, Myrtle Beach;Aynor at 2605 Highway 501, Aynor; Myrtle Beach at 1353 21st AvenueNorth, Myrtle Beach; Murrells Inlet at 4345 Highway 17 Bypass, Murrells Inlet;  NorthMyrtle Beach at 110 Highway 17 North, North Myrtle Beach; Pawleys Island at10608 Ocean Highway, Pawleys Island; and Little River at 2380 Highway 9 East,Longs, S.C. The Bank owns all of its facilities.

**ITEM 3.   LEGAL PROCEEDINGS**

There were no material legal proceedings against the Company or its subsidiary,The Conway National Bank, as of December 31, 2010.

**ITEM 4. (REMOVED AND RESERVED)**

27

**PART II**

**ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITYRELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES**

As of March 1, 2011, there were approximately 1,010 holdersof record of Company common stock. There is no established market for shares ofCompany common stock and only limited trading in such shares has occurred sincethe formation of the Company on June 10, 1985.  During 2010 and 2009, managementwas aware of a few transactions, including a few transactions in which theCompany was the purchaser and a few transactions in which the Company was the seller(including the sale in 2009 of 37,652 shares at a price of $79.00 per share (asadjusted as set forth in footnote 1 below) in a private offering that wasexempt from registration under Section 4(2) of the Securities Act of 1933 andRule 506 thereunder), in which the Company's common stock traded in the rangesset forth below. However, management has not ascertained that thesetransactions resulted from arm's length transactions between the partiesinvolved, and because of the limited number of shares involved, these pricesmay not be indicative of the value of the common stock.

**2010**

**2009(1)**

  First  Quarter  Second Quarter  Third  Quarter  Fourth Quarter

**High**  $80.50  $80.50  $80.00  $81.00

**Low**  $80.50  $75.00  $79.50  $61.00

**High**  $82.50  $85.00  $91.50  $81.75

**Low**  $79.00  $79.00  $79.00  $80.00

(1)  Market prices for 2009 have been adjusted to give retroactiveeffect for a two-for-one stock split declared October 13, 2009 and      distributed November 5, 2009.

Holders of shares of Company stock are entitled to such dividends as may bedeclared from time to time by the Board of Directors of the Company. TheCompany did not pay an annual cash dividend in 2010.  The Company paid anannual cash dividend of $1.25 per share in 2009.  There can be noassurance as to the payment of dividends by the Company in the future.  Paymentof dividends is within the discretion of the Board of Directors, and isdependent upon the earnings and financial condition of the Company and the Bank,and other related factors.  The Company's primary source of fundswith which to pay dividends are dividends paid to the Company by the Bank.  Thereare legal restrictions on the Bank's ability to pay dividends.  See "Supervisionand Regulation-Payment of Dividends" under Item 1, Part I of this Form10-K for a description of these legal restrictions.

The Company does not have any equity compensation plans.  Accordingly,no information is required to be disclosed pursuant to Item 201(d) ofRegulation S-K. 

The Company made one sale of securities during 2010.  On August 27,2010 the Company sold 254 shares of common stock to The Conway National Bank ProfitSharing and Savings Plan for a price of $20,193, or $79.50 per share.  Thissale was exempt from registration pursuant to Section 4(2) of the SecuritiesAct of 1933 because no public offering was involved.

Purchases of stock during the fourth quarter of 2010 are outlined in the belowtable.  Information about all other purchases during 2010 have beenpreviously reported on Forms 10-Q, filed May 10, 2010, August 9, 2010, andNovember 9, 2010, and is incorporated herein by reference.

**Period**

**(a) Total Number  of Shares  Purchased**

**(b) Average Price  Paid per Share**

**(c) Total Number  of Shares  Purchased as  Part of Publicly  Announced Plans  or Programs**

**(d) Maximum  Number (or  approximate  dollar value) of  Shares that May  Yet Be Purchased  Under the Plans  or Programs**

October 1 - October 31, 2010

       1,343          

$  79.50       

  -

    -

November 1 - November 30, 2010

       15     

$  61.00       

  -

    -

December 1 - December 31, 2010

   469     

$  61.00       

  -

    -

Total

1,827     

$  74.60       

  -

    -

(1) During the fourth quarter of 2010, the Company purchased 1,827 shares ofstock from shareholders, at the request of the shareholders, which are held bythe Company as authorized and unissued shares.  These shares werepurchased on a case-by-case basis and not pursuant to any formal program.

28

**ITEM 6. SELECTED FINANCIAL DATACNB CorporationFINANCIAL SUMMARY(All Dollar Amounts, Except Per Share Data, in Thousands)**

The following table sets forth certain selected financial data relating to theCompany and subsidiary and is qualified in its entirety by reference to themore detailed financial statements of the Company and subsidiary and notesthereto included elsewhere in this report.

**                                       Years Ended  December 31,                                          **

**    2010  **

**    2009  **

**    2008  **

**    2007   **

**     2006    **** **

**Selected Income Statement Data:**

 

 

 

 

 

**Total Interest Income**

$     39,957

$     43,947

$     50,119

$     53,755

$     49,411

**Total Interest Expense**

         9,620

       12,129

       18,221

       22,858

       18,396

**Net Interest Income**

       30,337

       31,818

       31,898

       30,897

       31,015

**Provision for Loan Losses**

       13,397

         8,748

         2,533

         1,145

            808

**Net  Interest Income**

 

 

 

 

 

**  after  Provision for Loan Losses**

       16,940

       23,070

       29,365

       29,752

       30,207

**Total  Noninterest Income**

   7,549

   8,179

   7,182

   7,002

   6,958

**Total Noninterest  Expenses**

       23,405

       24,069

       23,102

       22,019

       22,339

**Income  Before Income Taxes**

         1,084

         7,180

       13,445

       14,735

       14,826

**Income  Taxes**

              44

         2,113

         4,488

         5,015

         4,780

**Net Income**

$       1,040

$       5,067

$       8,957

$       9,720

$     10,046

** **

 

 

 

 

 

**Per Share*:**

 

 

 

 

 

**Net Income  Per Weighted Average**

 

 

 

 

 

**  Shares  Outstanding**

$           .62

$         3.03

$         5.36

$         5.65

$         5.80

**Cash  Dividend Paid Per Share**

$              -

$         1.25

$         2.63

$         2.63

$         2.63

**Weighted  Average Shares Outstanding**

1,671,568

1,672,527

1,672,566

1,722,130

1,731,178

** **

 

 

 

 

 

***Years2008-2006 adjusted for the effect of a two-for-one stock split issued during2009, year 2006 adjusted for the effect  of a 10% stock   dividend issued during 2007.**

**Selected Balance Sheet Data:**

 

 

 

 

 

**Assets**

$   911,271

$   920,641

$  874,625

$  865,638

$  837,622

**Net Loans**

522,559

570,654

591,190

567,244

560,849

**Investment Securities**

298,788

232,605

206,996

216,177

179,634

**Federal Funds Sold**

14,000

14,000

21,000

26,000

26,000

**Deposits:**

 

 

 

 

 

**  Noninterest-Bearing**

$   108,031

$     96,834

$   100,560

$  112,450

$  129,763

**  Interest-Bearing**

     610,109

     608,436

     578,659

  579,839

    545,289

**   Total Deposits**

$   718,140

$   705,270

$   679,219

$  692,289

$  675,052

**Stockholders' Equity**

$     86,333

$     87,429

$     83,527

$    82,112

$    76,663

** **

 

 

 

 

 

****29

**ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

"Management's Discussion and Analysis" is provided to afford aclearer understanding of the major elements of the Company's financialcondition, results of operations, liquidity, and capital resources. Thefollowing discussion should be read in conjunction with the Company's financialstatements and notes thereto and other detailed information appearing elsewherein this report.  References to dollar amounts in this section are inthousands, except per share data.

**Economic Conditions**

The national recession which began in 2007 and (according to the classicaldefinition of recession with reference to gross domestic product figures) endedin September of 2009 has significantly impacted the Company's market area, twocoastal counties of South Carolina, Horry County and the Waccamaw Neck regionof Georgetown County.  Although many industries within our market have been affectedduring this difficult period, the primary impact of this recession was todepress real estate sales, and consequently real estate values.  The decline inreal estate values, ensuing defaults, and foreclosures has had a moderatelynegative impact on the Company, resulting in historically low profitability.  With the national and local economies expected toremain subdued through much of 2011, we anticipate that profitability willremain below historical levels, but will improve moderately from 2010 levelsand, at the same time, expect that the Bank will continue to grow, furtherstrengthen, and generally prosper.  Although the Bank's creditconcerns have remained moderate in comparison to the magnitude ofnon-performing assets in the industry and local markets, we will continue toaddress credit concerns during 2011.  Loan losses leveled in thethird quarter of 2010 and began to decline in the fourth quarter of 2010, butwill still remain above historical levels during 2011.

Although the national and local economies have begun to show somestrengthening, much uncertainty remains about the sustainability and speed ofthe current recovery.  The Bureau ofEconomic Analysis, a division of the U.S. Department of Commerce, indicatedthat real gross domestic product (GDP) increased at an annual rate of 2.6% forthe third quarter of 2010, and the second advance estimate for the fourthquarter indicates that GDP increased at an annual rate of 2.8%.  Thefourth quarter increase reflects positive contributions from personalconsumption expenditures, exports, and nonresidential fixed investment thatwere partly offset by negative contributions from private sector inventoryinvestment and state and local government spending.  Locally, the real estatesector fell in the fourth quarter of 2010 with the total number of real estatetransactions decreasing approximately 12% as compared to the fourth quarter of2009.  This is a decline from the approximate 1% decline and 35%, and35% increases experienced for the third, second, and first quarters of 2010,respectively, in comparison to the same periods in 2009.  The bankingindustry has continued to experience significant difficulties, with 157 bankfailures occurring nationally in 2010 (including two in or near our market) compared,to 140 for 2009, and 25 for 2008.  Further failures are anticipatedfor 2011.

**Critical Accounting Policies**

The Company has adopted various accounting policies which govern theapplication of accounting principles generally accepted in the United States inthe preparation of the Company's financial statements. The significantaccounting policies of the Company are described in the footnotes to theconsolidated financial statements.

Certain accounting policies involve significant judgments and assumptions bymanagement which have a material impact on the carrying value of certain assetsand liabilities; management considers such accounting policies to be criticalaccounting policies. The judgments and assumptions used by management are basedon historical experience and other factors, which are believed to be reasonableunder the circumstances. Because of the nature of the judgments and assumptionsmade by management, actual results could differ from these judgments andestimates which could have a material impact on the carrying values of assetsand liabilities and the results of operations of the Company.

The Company believes the allowance for loan losses is a critical accountingpolicy that requires the most significant judgments and estimates used inpreparation of its consolidated financial statements. Refer to "Provisionfor Loan Losses" below for a detailed description of the Company'sestimation process and methodology related to the allowance for loan losses.

30

**Distribution of Assets and Liabilities**

The Company maintains a conservative approach in determining the distributionof assets and liabilities.  Loans decreased 3.1% from $598,281 atDecember 31, 2008 to $579,796 at December 31, 2009; and decreased 7.9% fromDecember 31, 2009 to $534,186 at December 31, 2010.  Loan demand fromcreditworthy borrowers in our market area was moderate in 2008 and decreasedduring 2009 and 2010.   Loans decreased as a percentage of totalassets from 68.4% at year-end 2008 to 63.0% at year-end 2009, and decreased to 58.6%at year-end 2010.  Investment securities, federal funds sold, andother earning assets increased as a percentage of total assets from 26.1% atyear-end 2008 to 30.8% at year-end 2009, and increased to 35.6% at year-end 2010.  Investmentsand federal funds sold provide for an adequate supply of secondary liquidity.  Year-endother assets as a percentage of total assets increased from 5.5% at year-end2008 to 6.2% at year-end 2009, and decreased to 5.8% at year-end 2010.  Managementhas sought to build the deposit base with stable, relatively noninterest-ratesensitive deposits by offering the small to medium account holders a wide arrayof deposit instruments at competitive rates. Noninterest-bearing demanddeposits, as a percent of total assets declined from 11.5% at year-end 2008 to10.5% at year-end 2009, and increased to 11.8% at year-end 2010. The Companyhas anticipated a decline in these deposits over the long-term as morecustomers utilize interest-bearing deposit accounts and repurchase agreements.  Interest-bearingliabilities as a percentage of total assets increased from 77.8% at December31, 2008 to 79.2% at December 31, 2009, and decreased slightly to 78.1% atDecember 31, 2010.  Stockholders' equity as a percentage of totalassets was 9.5% for December 31, 2008, 2009 and 2010.  The Bankremains well-capitalized (see Note 16 to the consolidated financial statements,contained elsewhere in this report).

The table below sets forth the percentage relationship to total assets ofsignificant components of the Company's balance sheet as of December 31, 2010,2009, and 2008:

 

**                       December  31,                     **

**Assets:**

**2010  **

**2009  **

**2008  **

**   Earning assets:**

** **

** **

** **

**     Loans**

58.6%

63.0%

68.4%

**     Investment  securities:**

 

 

 

**     Taxable**

29.5   

21.6   

20.6   

**     Tax-exempt**

3.3   

3.7   

3.1   

**     Federal funds sold  and securities purchased**

 

 

 

**       under  agreement to resell**

    1.5   

    1.5   

    2.4   

**     Other earning assets**

    1.3   

    4.0   

    0.0   

**        Total  earning assets**

  94.2   

  93.8   

  94.5   

**     Other assets**

    5.8   

    6.2   

    5.5   

**        Total  assets**

100.0%

100.0%

100.0%

** **

 

 

 

**Liabilities and stockholders' equity:**

 

 

 

**     Interest-bearing  liabilities:**

 

 

 

**       Interest-bearing  deposits**

66.9%

66.1%

66.2%

**       Securities  sold under agreement to resell**

10.9   

11.4   

7.7   

**       FHLB  Advances and other borrowings**

      .3   

    1.7   

    3.9   

**         Total  interest-bearing liabilities**

  78.1   

  79.2   

  77.8   

**     Noninterest-bearing  deposits**

11.8   

10.5   

11.5   

**     Other liabilities**

.6   

.8   

1.2   

**     Stockholders' equity**

    9.5   

    9.5   

    9.5   

**       Total  Liabilities and stockholders' equity**

100.0%

100.0%

100.0%

****31

**Results of Operations**

CNB Corporation and the Bank recognized earnings in 2010, 2009, and 2008of $1,040, $5,067, and $8,957, respectively, resulting in a return on averageassets of .11%, .56%, and 1.04%, and a return on average stockholders' equityof 1.18%, 5.91%, and 10.65%. The earnings were primarily attributable tofavorable but generally declining net interest margins in each period (see "NetIncome-Net Interest Income"). Other factors include management's ongoingeffort to maintain other income at adequate levels (see "Net Income ‐Noninterest Income") and to control other expenses (see "Net Income -Noninterest Expenses").  Earnings, coupled with a moderatedividend policy, have supplied the necessary capital funds to support bankoperations. Total assets were $911,271 at December 31, 2010 as compared to $920,641at December 31, 2009 and $874,625 at December 31, 2008.  Thefollowing table sets forth the financial highlights for fiscal years 2010, 2009,and 2008.

**CNB Corporation and SubsidiaryFINANCIAL HIGHLIGHTS(All Dollar Amounts, Except Per Share Data, in Thousands)**

** **

**December 31,        2010       **

** 2009   to   2010  Percent  Increase(Decrease)**

**December 31,       2009      **

** 2008   to   2009  Percent  Increase(Decrease)**

**December 31,       2008        **

** **

 

 

 

 

 

**Net interest income**

 

 

 

 

 

**     after provision for  loan losses**

$  16,940

     (26.6)% 

 $   23,070

(21.4)% 

$  29,365        

**Income before income taxes**

1,084

     (84.9)    

        7,180

(46.6)    

13,445        

**Net Income**

1,040

     (79.5)    

        5,067

(43.4)    

8,957        

** **

 

 

 

 

 

**Per Share (1)**

 

 

 

 

 

**(weighted average shares outstanding)**

$        .62

     (79.5)    

   $      3.03

(43.5)    

$      5.36        

** **

 

 

 

 

 

**Cash dividends declared**

-

   (100.0)    

      2,096

(51.9)    

4,355        

** **

 

 

 

 

 

**  Per Share (1)**

$            -

   (100.0)    

$      1.25

(52.5)    

$      2.63        

** **

 

 

 

 

 

**Total assets**

$911,271

       (1.0)% 

  $ 920,641 

5.3%  

$874,625        

**Total deposits**

718,140

        1.8     

   705,270

3.8     

679,219        

**Total loans**

534,186

       (7.9)    

   579,796

(3.1)    

598,281        

**Investment securities**

298,788

      28.5     

   232,605

12.4     

206,996        

**Stockholders' equity**

86,333

       (1.3)    

    87,429

4.7     

83,527        

**    Book value per share (1)**

$    51.86

         (.5)    

$    52.13

3.5     

$    50.35        

** **

 

 

 

 

 

**Ratios (2):**

 

 

 

 

 

**Return on average total assets**

.11%

     (80.4)    

      .56%

(46.2)    

1.04%      

**Return on average stockholders' equity**

1.18%

     (80.0)    

    5.91%

(44.5)    

10.65%     

** **

 

 

 

 

 

** **

 

 

 

 

 

(1)  2008  per share data adjusted for the effect of two-for-one stock split issued  during 2009.

** **

 

 

 

 

(2)  For  the fiscal years ended December 31, 2010, 2009, and 2008 average total assets  amounted to        $941,581, $904,866, and $860,612,   respectively, with average stockholders' equity totaling      $87,782,  $85,771,  and $84,138, for the same periods.

32

**NET INCOME**

**Net Interest Income**

Earnings aredependent to a large degree on net interest income, defined as the differencebetween gross interest and fees earned on earning assets, primarily loans andinvestment securities, and interest paid on deposits and borrowed funds.  Netinterest income is affected by the interest rates earned or paid and by volumechanges in loans, investment securities, deposits, and borrowed funds.

The Bank maintained net interest margins in 2010, 2009, and 2008 or 3.42%, 3.78%,and 3.99%, respectively, as compared to management's long-term target of 4.20%.Net interest margins have been compressed for the Bank and industry-wide, as aresult of competitive lending practices, softening loan demand, and the historicallylow and prolonged market interest rate environment.  Loan demandremained strong throughout 2005 and 2006, declined in 2007, was moderate in2008, and declined in 2009 and 2010.   Fully-tax-equivalent net interestincome decreased slightly from $32,454 in 2008 to $32,446 in 2009, and decreasedto $30,940 in 2010.  During the three-year period, totalfully-tax-equivalent interest income decreased by 12.0% from 2008 to 2009, from$50,675 to $44,575, respectively, and decreased 9.0% from 2009 to 2010 to $40,560.  Overthe same period, total interest expense decreased 33.4% from 2008 to 2009, from$18,221 to $12,129, respectively, and decreased 20.7% from 2009 to 2010 to $9,620. Fully-tax-equivalent net interest income as a percentage of average totalearning assets was 3.99% in 2008, 3.78% in 2009, and 3.42% in 2010.

Interest rates paid on deposits and borrowed funds and earned on loans andinvestments have generally followed the fluctuations in market interest ratesin 2010, 2009, and 2008.  However, fluctuations in market interestrates may not necessarily have a significant impact on net interest income,depending on the Bank's rate sensitivity position.  A rate sensitiveasset (RSA) is any loan or investment that can be repriced up or down ininterest rate within a certain time interval.  A rate sensitiveliability (RSL) is an interest paying deposit or other liability that can be repricedeither up or down in interest rate within a certain time interval. When aproper balance between RSA and RSL exists, market interest rate fluctuationsshould not have a significant impact on earnings.  The larger theimbalance, the greater the interest rate risk assumed by the Bank and thegreater the positive or negative impact of interest rate fluctuations onearnings.  When RSAs exceed RSLs for a specific repricing period, apositive interest sensitivity gap results.  The gap is negative wheninterest-sensitive liabilities exceed interest-sensitive assets.  Fora bank with a positive gap, rising interest rates would be expected to have apositive effect on net interest income and falling rates would be expected tohave the opposite effect.  However, gap analysis, such as set forthin the table below, does not take into account actions a bank or its customers maytake during periods of changing rates, which could significantly change theeffects of rate changes that would otherwise be expected.  The Bankseeks to manage its assets and liabilities in a manner that will limit interestrate risk and thus stabilize long-term earning power. The following table setsforth the Bank's estimated gap rate sensitivity position, including anticipatedcalls of investment securities, at each of the time intervals indicated.  Thetable illustrates the Bank's rate sensitivity position on specific dates andmay not be indicative of the position at other points in time. Managementbelieves that a 200, 300, or 400 basis point rise or fall in interest rateswill have less than a 10 percent effect on before-tax net interest income overa one-year period, which is within bank guidelines.

**Interest Rate Sensitivity AnalysisDecember 31, 2010(Dollars in Thousands)**

**1 Day**

**90 Days**

**180 Days**

**365 Days**

**Over 1    to  5 Years**

**Over  5 Years**

**Rate Sensitive  Assets (RSA)**

** **

** **

** **

** **

** **

** **

**  Federal  Funds Sold**

$  14,000

$           -  

$           - 

$              -

$            -

$           -

**  Interest  Bearing Due From**

11,818

-  

             - 

           -

-

-

**    Federal  Reserve**

 

 

 

 

 

**  Investment  Securities (net of  FRB and      FHLB stock in the amount of $2,729      and other investments of $1,065)**

-

83,871 

30,952 

       39,019

110,491

30,661

**  Loans (net of nonaccruals of  $25,704)**

    78,879

     33,290 

    36,690 

       45,011

  260,971

    53,641

**Total, RSA**

$104,697

$ 117,161 

$  67,642 

$     84,030

$371,462

$  84,302

** **

 

 

 

 

 

 

**Rate Sensitive  Liabilities (RSL)**

 

 

 

 

 

 

**Deposits:**

 

 

 

 

 

 

**Certificates of  Deposit of $100,000      or more**

$           -

$   83,538 

   34,147 

       63,393

34,857

-

**All Other Time  Deposits**

-

45,082 

   40,747 

       55,506

18,166

-

**Securities Sold  under Repurchase    Agreements**

82,255

15,898 

           - 

         1,000

-

-

**Federal Home Loan  Bank Advances**

             -

               -  

              -  

                - 

               -

               -

**Total RSL**

$  82,255

$  144,518 

$   74,894 

$   119,899 

$   53,023

$              -

**RSA-RSL**

$  22,442

$  (27,357)

$    (7,252)

$   (35,869)

$ 318,439

$    84,302

**Cumulative  RSA-RSL**

$  22,442

$    (4,915)  

$  (12,167)

$   (48,036)

$ 270,403

$  354,705

**Cumulative  RSA/RSL**

    1.27

.98 

         .96 

.89 

1.57

1.75

33

**NETINCOME (continued)**

**Provision for Loan Losses**

It is thepolicy of the Bank to maintain the allowance for loan losses in an amountcommensurate with management's ongoing evaluation of the loan portfolio and deemedappropriate by management to cover estimated losses inherent in the portfolio.  TheCompany complies with the provisions of ASC 310-10, "Accounting by Creditors forImpairment of a Loan," in connection with the allowance for loan losses (seeNote 1 to the Consolidated Financial Statements - SUMMARY OF SIGNIFICANTACCOUNTING POLICIES AND ACTIVITIES).  The provision for loan losses was $13,397in 2010, $8,748 in 2009, and $2,533 in 2008.  Net loan charge-offs totaled$10,912 in 2010, $6,697 in 2009, and $1,949 in 2008, with net charge-offs beingconcentrated in consumer purpose, commercial and industrial loans, and realestate loans in 2010, 2009 and 2008.   The allowance for loan losses as apercentage of gross loans was 2.18% at December31, 2010, 1.58% at December 31, 2009, and 1.19% at December 31, 2008. 

**Securities Transactions**

Net unrealized gains/(losses) in the investment securitiesportfolio were $(120) at December 31, 2010, $1,891 at December 31, 2009, and$2,310 at December 31, 2008.  The market value of investment securitiesincreased during 2008 due to the declines in market interest rates, increaseddemand for bonds, and the consequent increase in prices. This trend leveled in2009 as market interest rates leveled. However, the yield curve steepened formost of 2010, flattening slightly in the fourth quarter.  The netunrealized gains on investment securities decreased during 2009 primarily due tothe realization of gains from sales of investment securities.  In 2010, thenet unrealized gain on investment securities moved to a loss position due, inpart, to the steepening of the yield curve during most of the year, but wasprimarily due to the realization of gains from sales of investment securities. In 2010, securities gains of $993 and $73 were realized on sales proceeds of $21,733and $2,322 in short and mid-term  available for sale and held to maturityinvestment securities, respectively  (See Note 3 to theConsolidated Financial Statements - INVESTMENT SECURITIES).  Security gains of$1,576 were realized on sales of $55,192 in short and mid-term available for salesecurities during 2009.  No security gains or losses were realized in 2008.  

**Noninterest Income**

Noninterestincome, net of any securities gains, decreased by 8.1% from $7,182 in 2008 to $6,603in 2009, and decreased by 1.8% from $6,603 in 2009 to $6,483 in 2010.   During2008, service charge income on deposit accounts increased due to increased servicecharges as a result of declines in demand deposit balances and increasednon-sufficient funds and overdraft charges.  During 2009, servicecharge income on deposit accounts decreased due to decreased non-sufficientfunds and overdraft charges.  During 2009 noninterest income also decreased dueto declines in credit card merchant discount income, mortgage negotiation fees,and other miscellaneous noninterest income.  In 2010, noninterest income, netof any securities gains, declined only slightly and as a result of declines invarious immaterial and miscellaneous noninterest income items.

**Noninterest Expenses**

Noninterestexpenses increased by 4.2% from $23,102 in 2008 to $24,069 in 2009, and decreasedby 2.8% from $24,069 in 2009 to $23,405 in 2010.  The components ofother expenses are salaries and employee benefits of $14,865, $14,005, and $13,315;occupancy and furniture and equipment expenses of $3,047, $3,313, and $3,340; andother operating expenses of $5,190, $6,751, and $6,750 for 2008, 2009, and 2010,respectively.

The decrease in salary and employee benefits during 2010 reflects declines inthe number of employees and the consequent reduction in salaries and benefits expense.

Occupancy expense during 2010 remained stable for the year.

The decrease in other operating expenses during 2010 is attributable to adecrease in FDIC insurance premiums, office supplies expense, and otheroperating expenses partially offset by increases in examination andprofessional fees, credit card expenses, and the net cost of operation of otherreal estate.

**Income Taxes**

Provisionsfor income taxes decreased 52.9% from $4,488 in 2008 to $2,113 in 2009, anddecreased 97.9% from $2,113 in 2009 to $44 in 2010 based on reduced earnings ineach respective year.  Income taxliability decreased in both of 2009 and 2010, as income before income taxesdecreased 46.6% and 84.9%, respectively.

**Liquidity**

The Bank's liquidity position isprimarily dependent on short-term demands for funds caused by customer creditneeds and deposit withdrawals and upon the liquidity of bank assets to meetthese needs.  The Bank's liquidity sources include cash and due frombanks, federal funds sold, and short-term investments.  In addition,the Bank has established federal funds lines of credit from correspondent banksand has a line of credit from the Federal Home Loan Bank of Atlanta (see Note 9to the Consolidated Financial Statements-LINES OF CREDIT).  TheCompany had cash balances on hand of $96, $3,259, and $5,142 at December 31, 2010,2009, and 2008, respectively.  At December 31, 2010, the Company, on a parentonly basis, had no liabilities.  At December 31, 2009, the Company, on a parentonly basis, had liabilities consisting of cash dividends payable totaling$2,096.  At December 31, 2008 the Company, on a parent only basis, had liabilities,consisting of cash dividends payable and a short-term note payable, includingaccrued interest, in the amounts of $4,355 and $1,132, respectively. Managementbelieves that liquidity sources are more than adequate to meet funding needs.

34

**Off Balance Sheet Arrangementsand Contractual Obligations**

The Company, through the operations of the Bank, makescontractual commitments to extend credit in the ordinary course of business.  Thesecommitments are legally binding agreements to lend money to customers of theBank at predetermined interest rates for a specified period of time.  Inaddition to commitments to extend credit, the Bank also issues standby lettersof credit which are assurances to a third party that they will not suffer aloss if the Bank's customer fails to meet its contractual obligation to a thirdparty.  The Bank may also have outstanding commitments to buy/sellsecurities.  At December 31, 2010, the Bank had issued commitments toextend credit of $38.3 million, standby letters of credit of $1.6 million, andno commitments to buy or sell securities (see Note 11 to the ConsolidatedFinancial Statements-FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK). Themajority of the commitments and standby letters of credit typically maturewithin one year and past experience indicates that many of the commitments andstandby letters of credit will expire unused.  However, through itsvarious sources of liquidity, the Bank believes that it will have the necessaryresources to meet these obligations should the need arise.

Neither the Company nor the Bank is involved in other off-balance sheetcontractual relationships, unconsolidated related entities that haveoff-balance sheet arrangements or transactions that could result in liquidityneeds or other commitments or significantly impact earnings.

The following table presents, as of December 31, 2010, the Company's and theBank's fixed and determinable contractual obligations by payment date.  Thepayment amounts represent those amounts contractually due to the recipient.

 

**Contractual  Obligations and Other Commitments**
**December 31, 2010**
**(Dollars in  Thousands)**   
             
 
**Less than**
**1 to 3  **
**3 to 5     **   
**Total   **
**One Year**
**Years  **
**Years     ****Contractual Cash  Obligations**
 
 
    
  Operating leases
$          8
$            2
$          4
$        2        Time  deposits
  375,436
  321,100
  44,175
  10,161        Securities  sold under agreement to repurchase
99,153
99,153
-
-        United  States treasury demand notes
      2,324
      2,324
            -
            -           Total  contractual cash obligations
$476,921
$422,579
$44,179
$10,163    
Obligations under non-cancelable operating lease agreements totaled $8 atDecember 31, 2010.  These obligations are payable over four years asshown in Note 12 to the Consolidated Financial Statements - COMMITMENTS ANDCONTINGENCIES.  Further information regarding the nature of timedeposits is outlined in Note 6 to the Consolidated Financial Statements -DEPOSITS.  At December 31, 2010, securities sold under agreement to repurchasetotaled $99,153 and are due and payable within one year.  Further informationon securities sold under agreement to repurchase is outlined in Note 8 to theConsolidated Financial Statements - SECURITIES SOLD UNDER REPURCHASEAGREEMENTS.  At December 31, 2010, the Company had $2,324 of United States treasurynotes payable on demand. Further information on the United States treasury notespayable is outlined in Note 9 to the Consolidated Financial Statements - LINESOF CREDIT.

**Capital Resources**

Total stockholders' equity was $86,333,$87,429, and $83,527 at December 31, 2010, 2009, and 2008, representing 9.47%, 9.50%,and 9.55% of total assets, respectively.  The increases reflect netearnings retained during each year.  At December 31, 2010, theCompany and the Bank exceeded quantitative measures established by regulationto ensure capital adequacy (see Note 16 to the Consolidated FinancialStatements - REGULATORY MATTERS).  Capital is considered sufficientby management to meet current and prospective capital requirements and,together with anticipated retained earnings, to support anticipated growth inbank operations.

**Effects of Inflation**

Inflation normally has the effectof accelerating the growth of both a bank's assets and liabilities.  Oneresult of this inflationary effect is an increased need for equity capital.  Incomeis also affected by inflation.  While interest rates havetraditionally moved with inflation, the effect on net income is diminishedbecause both interest earned on assets and interest paid on liabilities varydirectly with each other.  In some cases, however, rate increases aredelayed on fixed-rate instruments.  Loan demand normally declinesduring periods of high inflation. Inflation has a direct impact on the Bank'snoninterest expense. The Bank responds to inflation changes throughre-adjusting noninterest income by repricing services.

**Accounting Issues**

Accounting standards that havebeen issued or proposed by the Financial Accounting Standards Board that do notrequire adoption until a future date are not expected to have a material impacton the consolidated financial statements upon adoption.  (See Note 1to the Consolidated Financial Statements - SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES AND ACTIVITIES).

35

**Risks and Uncertainties**

In the normal course of its business, the Company encounters two significanttypes of risks: economic and regulatory.  There are three maincomponents of economic risk: interest rate risk, credit risk and market risk.  TheCompany is subject to interest rate risk to the degree that its interest-bearingliabilities mature or reprice at different speeds, or on different bases, thanits interest-earning assets.  Credit risk is the risk of default onthe Company's loan portfolio that results from borrowers' inability orunwillingness to make contractually required payments.  Market risk,in regard to lending, reflects changes in the value of collateral underlyingloans receivable and the valuation of real estate held by the Company.

The Company is subject to the regulations of various governmental agencies.  Theseregulations can and do change significantly from period to period.  TheCompany also undergoes periodic examinations by the regulatory agencies, whichmay subject it to further changes with respect to asset valuations, amounts ofrequired loss allowances and operating restrictions as a result of theregulators' judgments based on information available to them at the time oftheir examination.

******ITEM 7.AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Market risk, in regard to interest rate risk, is the risk of loss from adversechanges in market prices and rates. The Company's market risk arisesprincipally from the interest rate risk inherent in its lending, deposit andborrowing activities.  Management actively monitors and manages itsinterest rate risk exposure.  In addition to other risks which theCompany manages in the normal course of business, such as credit quality andliquidity risk, management considers interest rate risk to be a significantmarket risk that could potentially have a material effect on the Company'sfinancial condition and results of operations (See Item 7 - MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - NetIncome - Net Interest Income).  Other types of market risks, such asforeign currency risk and commodity price risk, do not arise in the normalcourse of the Company's business activities.

36

**ITEM8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

**CNB CORPORATION AND SUBSIDIARY****REPORT ON CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDEDDECEMBER 31, 2010, 2009 and 2008**37

***CNB CORPORATION AND SUBSIDIARYCONWAY, SOUTH CAROLINA*****CONTENTS**

****

**PAGE**

** **

**REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING  FIRM  FINANCIAL STATEMENTS     **Consolidated balance sheets     Consolidated statements of income     Consolidated statements of stockholders' equity     Consolidated statements of comprehensive income     Consolidated statements of cash flows**NOTES TO FINANCIAL STATEMENTS**

39 - 41  42  43  44  45  46  47 - 75

****38

**Elliott Davis, LLC  Advisors-CPAs-Consultants  1901 Main Street, Suite 1650  P.O. Box 2227  Columbia, SC  29202-2227  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

  The Directors and Stockholders***CNB Corporation***Conway, South Carolina

We have audited the consolidated balance sheets of CNB Corporation and  subsidiary as of December 31, 2010 and 2009, and the related consolidated  statements of income, stockholders' equity, comprehensive income and cash  flows for each of the three years in the period ended December 31, 2010.   These consolidated financial statements are the responsibility of the  Company's management.  Our responsibility is to express an opinion on  these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company  Accounting Oversight Board (United States).  Those standards require that  we plan and perform the audits to obtain reasonable assurance about whether  the financial statements are free of material misstatement.  An audit  includes examining, on a test basis, evidence supporting the amounts and  disclosures in the financial statements.  An audit also includes  assessing the accounting principles used and significant estimates made by  management as well as evaluating the overall financial statement presentation.   We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above  present fairly, in all material respects, the financial position of CNB  Corporation and subsidiary as of December 31, 2010 and 2009, and the results  of their operations and their cash flows for each of the three years in the  period ended December 31, 2010 in conformity with United States generally  accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company  Accounting Oversight Board (United States), CNB Corporation and subsidiary's  internal control over financial reporting as of December 31, 2010, based on  criteria established in "Internal Control-Integrated Framework" issued by the  Committee of Sponsoring Organizations of the Treadway Commission (COSO) and  our report dated March 16, 2011 expressed an unqualified opinion on the  effectiveness of CNB Corporation and subsidiary's internal control over  financial reporting.

*/s/ Elliott Davis LLC*  Columbia, South Carolina  March 16, 2011

****-39-

**Elliott Davis, LLC  Advisors-CPAs-Consultants  1901 Main Street, Suite 1650  P.O. Box 2227  Columbia, SC  29202-2227  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

  To the Board of Directors and Stockholders***CNB Corporation***Conway, South Carolina

We have audited CNB Corporation and subsidiary's internal control over  financial reporting as of December 31, 2010, based on criteria established in  "Internal Control-Integrated Framework," issued by the Committee of Sponsoring  Organizations of the Treadway Commission (COSO)*.*  CNB  Corporation's management is responsible for maintaining effective internal  control over financial reporting and for its assessment of the effectiveness  of internal control over financial reporting included in the accompanying  Management's Report on Internal Control Over Financial Reporting.  Our  responsibility is to express an opinion on the effectiveness of the company's  internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company  Accounting Oversight Board (United States).  Those standards require that  we plan and perform the audit to obtain reasonable assurance about whether  effective internal control over financial reporting was maintained in all  material respects. Our audit included obtaining an understanding of internal  control over financial reporting, assessing the risk that a material weakness  exists, and testing and evaluating the design and operating effectiveness of  internal control based on the assessed risk.  Our audit also included  performing such other procedures as we considered necessary in the  circumstances.  We believe that our audit provides a reasonable basis for  our opinion.

A company's internal control over financial reporting is a process designed to  provide reasonable assurance regarding the reliability of financial reporting  and the preparation of financial statements for external purposes in  accordance with generally accepted accounting principles.  A company's  internal control over financial reporting includes those policies and  procedures that (1) pertain to the maintenance of records that, in reasonable  detail, accurately and fairly reflect the transactions and dispositions of the  assets of the company; (2) provide reasonable assurance that transactions are  recorded as necessary to permit preparation of financial statements in  accordance with generally accepted accounting principles, and that receipts  and expenditures of the company are being made only in accordance with  authorizations of management and directors of the company; and (3) provide  reasonable assurance regarding prevention or timely detection of unauthorized  acquisition, use, or disposition of the company's assets that could have a  material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting  may not prevent or detect misstatements.  Also, projections of any  evaluation of effectiveness to future periods are subject to the risk that  controls may become inadequate because of changes in conditions, or that the  degree of compliance with the policies or procedures may deteriorate.

  -40-

In our opinion, CNB Corporation maintained, in all material respects,  effective internal control over financial reporting as of December 31, 2010,  based on criteria established in Internal Control-Integrated Framework issued  by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company  Accounting Oversight Board (United States), the consolidated balance sheets of  CNB Corporation and subsidiary as of December 31, 2010 and 2009, and the  related consolidated statements of income, stockholders' equity, comprehensive  income and cash flows for each of the three years in the period ended December  31, 2010, and our report dated March 16, 2011 expressed an unqualified opinion  thereon.

*/s/ Elliott Davis LLC*  Columbia, South Carolina  March 16, 2011

  -41-
***CNB CORPORATION AND SUBSIDIARY  CONSOLIDATED BALANCE SHEETS  (amounts, except share data, in thousands)***
** **
**             December 31,         **
***ASSETS***
**     2010    **
**    2009    **** **
 
 **CASH AND CASH EQUIVALENTS**
 
    Cash and due from banks
$   20,699
$   25,879   Due from Federal Reserve Bank, balance        in excess of requirement
11,818
36,765   Federal Funds Sold
     14,000
     14,000      Total cash and cash equivalents
$   46,517
$   76,644** **
 
 **INVESTMENT SECURITIES AVAILABLE FOR SALE**
275,381
214,615** **
 
 **INVESTMENT SECURITIES HELD TO MATURITY**
20,678
14,949   (Fair value $20,784 in 2010 and $15,165        in 2009)
 
 ** **
 
 **OTHER INVESTMENTS, AT COST**
2,729
3,041** **
 
 **LOANS**
534,186
579,796**   **Less allowance for loan losses
     11,627
        9,142      Net loans
522,559
570,654** **
** **
** ****PREMISES AND EQUIPMENT**
22,088
23,251** **
** **
** ****OTHER REAL ESTATE OWNED**
5,476
1,622** **
** **
** ****ACCRUED INTEREST RECEIVABLE**
4,650
5,498** **
** **
** ****OTHER ASSETS**
     11,193
     10,367** **
** **
** **** **
**$ 911,271**
**$ 920,641**** **
 
 
***LIABILITIES AND STOCKHOLDERS' EQUITY***
 
 **LIABILITIES**
 
 **   **Deposits
 
       Noninterest-bearing
$  108,031
$   96,834      Interest-bearing
   610,109
   608,436         Total deposits
718,140
705,270
 
    Securities sold under repurchase        agreements
99,153
104,654 |