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| **SECURITIES  AND EXCHANGE COMMISSION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **Washington,  D.C.  20549**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **FORM  10-Q**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (Mark One)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| [**X**]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                    For  the quarterly period ended**                             September  30, 2008                                             **                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| OR                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| [  ]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|                    For  the transition period from                                                    to                                                        |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Commission file number:  ** 000-24523 **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ***                     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, Conway, S.C.               **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | **                            29526                      ** |
| (Address of  principal executive offices)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | (Zip Code)                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| (Registrant's telephone number, including area  code):  **(843)  248-5721**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|       Indicate  by check mark whether the registrant (1) has filed all reports required to be  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during  the preceding 12 months (or for such shorter period that the registrant was  required to file such reports), and (2) has been subject to such filing  requirements for the past 90 days.  Yes **  X  **.   No       .                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|      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 the 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 [  ](Do not check if a smaller  reporting company)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|      State  the number of shares outstanding of each of the issuer's classes of common  equity as of the latest practical date:  830,449 shares of common stock, par  value $10 per share, November 1, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |  |

 

----

| **CNB  Corporation**                                                                                                                                                                                                                     |            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                               | **Page**   |
| ** **                                                                                                                                                                                                                               |       |
| **Forward-Looking  Statements**                                                                                                                                                                                                          | 1          |
| ** **                                                                                                                                                                                                                               |            |
| **PART  I.    FINANCIAL INFORMATION **                                                                                                                                                                          |            |
| ** **                                                                                                                                                                                                                               |            |
| **Item  1.       Financial Statements:**                                                                                                                                                              | ** ** |
| ** **                                                                                                                                                                                                                               | ** ** |
| **Condensed  Consolidated Balance Sheets as of  September  30, 2008,  December 31, 2007, and September 30, 2007**                                                                                                              | 2          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Income for the Three and Nine  Months Ended September 30, 2008 and 2007**                                                                                                                        | 3          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Comprehensive Income for the  Three and Nine Months Ended September 30, 2008 and 2007**                                                                                                          | 4          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Changes in Stockholders' Equity  for the Nine Months Ended September 30, 2008 and 2007**                                                                                                         | 5          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Cash Flows for the Nine Months  Ended September 30, 2008 and 2007**                                                                                                                              | 6          |
| ** **                                                                                                                                                                                                                               |       |
| **Notes  to Consolidated Financial Statements**                                                                                                                                                                                          | 7-17       |
| ** **                                                                                                                                                                                                                               |       |
| **Item  2.     Management's Discussion and Analysis of  Financial                   Condition  and Results of Operations** | 17-27      |
| ** **                                                                                                                                                                                                                               |       |
| **Item  3.     Quantitative and Qualitative Disclosures  About Market Risk**                                                                                                                                    | 27         |
| ** **                                                                                                                                                                                                                               |       |
| **Item  4.     Controls and Procedures**                                                                                                                                                                        | 27         |
| ** **                                                                                                                                                                                                                               |       |
| ** **                                                                                                                                                                                                                               |       |
| **PART  II.   OTHER INFORMATION**                                                                                                                                                                                         |       |
| ** **                                                                                                                                                                                                                               |       |
| **Item  1A.   Risk Factors**                                                                                                                                                                                              | 28         |
| ** **                                                                                                                                                                                                                               |       |
| **Item  2.     Unregistered Sales of Equity Securities and  Use of Proceeds**                                                                                                                                   | 29         |
| ** **                                                                                                                                                                                                                               |       |
| **Item  6.    Exhibits**                                                                                                                                                                                             | 29         |
| **SIGNATURE**                                                                                                                                                                                                                            | 29         |

 

----

**CAUTIONARYNOTICE WITH RESPECT TOFORWARD LOOKING STATEMENTS**

             Thisreport contains "forward-looking statements" within the meaning ofthe securities laws.  The Private Securities Litigation Reform Act of 1995provides a safe harbor for forward-looking statements.  In order to comply withthe terms of the safe harbor, the Company notes that a variety of factors couldcause the Company's actual results and experience to differ materially from theanticipated results or other expectations expressed in the Company's forwarding-lookingstatements.

             Allstatements that are not historical facts are statements that could be"forward-looking statements." You can identify these forward-lookingstatements through the use of words such as "may," "will,""should," "could," "would," "expect,""anticipate," "assume," indicate,""contemplate," "seek," "plan,""predict," "target," "outlook," "potential,""believe," "intend," "estimate," "project," "continue," or other similar words.  Forward-lookingstatements include, but are not limited to, statements regarding the Company'sfuture 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, management's beliefs, and assumptionsmade by management.  Such information includes, without limitation, discussionsas to estimates, expectations, beliefs, plans, strategies, and objectivesconcerning future financial and operating performance.  These statements arenot guarantees of future performance and are subject to risks, uncertaintiesand assumptions that are difficult to predict. Therefore, actual results maydiffer materially from those expressed or forecasted in such forward-lookingstatements.  The risks 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 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; |
| ● | changes  in laws and regulations, including tax, banking and securities laws and regulations;                                                                                                                                                                                                                          |
| ● | changes  in accounting policies, rules and practices;                                                                                                                                                                                                                                                                  |
| ● | 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 not undertake, toupdate, revise or correct any of the forward-looking statements after the date ofthis report.  The Company has expressed its expectations, beliefs andprojections in good faith and believes they have a reasonable basis.  However,there is no assurance that these expectations, beliefs or projections willresult or be achieved or accomplished.

****-1-

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| **PART  I.**                                                                                                                                                                                                                                              |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                |
| **Item  1. Financial Statements**                                                                                                                                                                                                                         |
| **CNB Corporation and Subsidiary  Condensed Consolidated Balance Sheets  (All Dollar Amounts, Except Per Share Data, in Thousands)**                                                                                                                      |
| **ASSETS:**                                                                                                                                                                                                                                               | **September 30,** | **December 31,** | **September 30,** |
| ** **                                                                                                                                                                                                                                                | **2008** | **2007** | **2007** |
| ** **                                                                                                                                                                                                                                                | (Unaudited) |                           | (Unaudited) |
| ** **                                                                                                                                                                                                                                                |   |   |   |
| **    Cash  and due from banks**                                                                                                                                                                                                      | $ 18,110  | $ 20,941   | $ 18,255      |
| **    Investment  securities held to maturity**                                                                                                                                                                                       | 8,297  | 7,711   | 2,817      |
|       (Fair  values of  $8,362 at September 30, 2008,         $7,731 at December 31, 2007, and  $2,864  at         September 30, 2007) |   |   |   |
| **    Investment  securities available for sale**                                                                                                                                                                                     | 188,374  | 206,133   | 204,150      |
|       (Amortized  cost of  $186,666 at September 30,         2008, $204,425 at December 31, 2007,  and                                                                              |   |   |   |
|        $204,023  at September 30, 2007                                                                                                                                                                                 |   |   |   |
| **    Federal  funds sold and securities purchased**                                                                                                                                                                                  |   |   |   |
| **      under  agreement to resell**                                                                                                                                                                                        | 20,000  | 26,000   | 30,500       |
| **    Other  investments**                                                                                                                                                                                                            | 2,124  | 2,297   | 1,623       |
| **    Loans:**                                                                                                                                                                                                                        |   |   |   |
| **       Total  loans**                                                                                                                                                                                                | 588,371  | 573,751   | 562,831      |
| **       Less  allowance for possible loan losses**                                                                                                                                                                    |     (6,792) |      (6,507)  |      (6,389)     |
| **         Net  loans**                                                                                                                                                                                      | 581,579  | 567,244   | 556,442      |
| **    Bank  premises and equipment**                                                                                                                                                                                                  | 23,003  | 22,928   | 22,544      |
| **    Other  assets**                                                                                                                                                                                                                 |     12,003  |     12,384   |    12,735      |
| **Total  assets**                                                                                                                                                                                                                                         | $853,490  | $865,638   | $849,066      |
| ** **                                                                                                                                                                                                                                                |   |   |   |
| **LIABILITIES AND STOCKHOLDERS' EQUITY:**                                                                                                                                                                                                                 |   |   |   |
| ** **                                                                                                                                                                                                                                                |   |   |   |
| **    Deposits:**                                                                                                                                                                                                                     |   |   |   |
| **       Non-interest  bearing**                                                                                                                                                                                       | $111,473  | $112,450   | $125,115       |
| **       Interest-bearing**                                                                                                                                                                                            |    574,543  |    579,839   |   552,685       |
| **          Total  deposits**                                                                                                                                                                           |    686,016  |    692,289   |   677,800       |
| **    Federal funds purchased  and securities sold under**                                                                                                                                                                            |   |   |   |
| **          agreement  to repurchase**                                                                                                                                                                  | 60,812  | 60,936   | 72,792       |
| **    United  States Treasury demand notes**                                                                                                                                                                                          | 2,674  | 2,377   | 5,817       |
| **    Federal  Home Loan Bank advances**                                                                                                                                                                                              | 10,000  | 15,000   | 0       |
| **    Short  term note payable**                                                                                                                                                                                                      | 1,119  | 0   | 0       |
| **    Other  liabilities**                                                                                                                                                                                                            |       6,899  |     12,924   |       7,967       |
| ** Total  liabilities**                                                                                                                                                                                                                              |   767,520  |   783,526   |   764,376       |
| ** **                                                                                                                                                                                                                                                |   |   |   |
| **   Stockholders'  equity:**                                                                                                                                                                                                              |   |   |   |
|       **Common  stock**, par value $10 per share:                                                                                                                                                                           | 8,684  | 8,684   | 8,684       |
|        Authorized  1,500,000 in 2008 and 2007; issued                                                                                                                                                                  |   |   |   |
|        868,422  at September 30, 2008, December 31,         2007, and September 30, 2007.                                                                                           |   |   |   |
| **       Capital  in excess of par value of stock**                                                                                                                                                                    | 55,951  | 55,939   | 55,939       |
| **       Retained  earnings**                                                                                                                                                                                          | 26,110  | 19,047   | 21,320       |
| **       Accumulated  other comprehensive income**                                                                                                                                                                     | 1,025  | 1,025   | 76       |
| **       Less:   Treasury stock**                                                                                                                                                                                 |     (5,800) |     (2,583)  |      (1,329)      |
| **   Total  stockholders' equity**                                                                                                                                                                                                         |     85,970  |     82,112   |     84,690       |
| **Total  liabilities and stockholders' equity**                                                                                                                                                                                                           | $853,490  | $865,638   | $849,066       |
| ** **                                                                                                                                                                                                                                                |   |   |   |
| ***See Notes to Consolidated  Financial Statements***                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                           |  |  |  |  |  |

-2-

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| **CNB Corporation and Subsidiary  Condensed Consolidated Statement of Income  (All Dollar Amounts, Except Per Share Data, in Thousands)  (Unaudited)** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                             |
| ** **                                                                                                                                             | **      Three Months Ended** | **       Nine Months Ended** |
| ** **                                                                                                                                             | **         September 30,** | **        September 30,** |
| ** **                                                                                                                                             | **    2008** | **        2007  ** | **   2008** | **            2007  ** |
| **Interest  Income:**                                                                                                                                  | ** ** |
|   Interest and fees on  loans                                                                                                                | $9,914    |   | $10,980  |     $30,653 |   | $32,872   |
|   Interest on  investment securities:                                                                                                        |   |   |   |   |   |   |
|     Taxable  investment securities                                                                                                 | 1,758   |   | 2,022  | 6,158   |   | 5,315   |
|     Tax-exempt  investment securities                                                                                              | 268   |   | 224  | 815   |   | 661   |
|   Interest on federal  funds sold and securities        purchased under agreement to resell                    |         110   |   |        445  |        532   |   |      1,188   |
| **      Total  interest income**                                                                                         |    12,050   |   |   13,671  |   38,158   |   |    40,036   |
|                                                                                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Interest  Expense:**                                                                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|   Interest on deposits                                                                                                                       | 3,686   |   | 5,005  | 13,154   |   | 14,790   |
|   Interest on federal  funds purchased and securities                                                                                        |   |   |   |   |   |   |
|      sold  under agreement to repurchase                                                                                      | 321   |   | 749  | 1,077   |   | 2,076   |
|   Interest on other  short-term borrowings                                                                                                   |           43   |   |          13  |         173   |   |           49   |
| **      Total  interest expense**                                                                                        |     4,050   |   |     5,767  |   14,404   |   |   16,915   |
|                                                                                                                                                   |  |   |  |  |   |  |
| **  Net  interest income**                                                                                                                   |     8,000   |   |     7,904  |   23,754   |   |    23,121   |
| **  Provision  for loan losses**                                                                                                             |        500   |   |        220  |     1,354   |   |         581   |
| **  Net  interest income after provision for loan losses**                                                                                   |     7,500   |   |     7,684  |   22,400   |   |    22,540   |
|                                                                                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **  Noninterest  income:**                                                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|     Service  charges on deposit accounts                                                                                           | 952   |   | 901  | 2,863   |   | 2,690   |
|     Gains on  sale of securities available-for-sale                                                                                | 0   |   | 0  | 0   |   | 9   |
|     Other  operating income                                                                                                        |     1,095   |   |        852  |     2,757   |   |     2,461   |
| **        Total  noninterest income**                                                                          |     2,047   |   |     1,753  |     5,620   |   |     5,160   |
| ** **                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **  Noninterest  expenses:**                                                                                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|     Salaries  and employee benefits                                                                                                | 3,741   |   | 3,751  | 11,152   |   | 10,412   |
|     Occupancy  expense                                                                                                             | 820   |   | 793  | 2,354   |   | 2,406   |
|     Other  operating expenses                                                                                                      |     1,356   |   |     1,159  |     3,872   |   |     3,491   |
| **        Total  noninterest expenses**                                                                        |     5,917   |   |     5,703  |   17,378   |   |   16,309   |
|                                                                                                                                                   |  |   |  |  |   |  |
| **  Income  before income taxes**                                                                                                            |     3,630   |   |     3,734  |   10,642   |   |   11,391   |
| **    Income  tax provision**                                                                                                      |     1,245   |   |     1,188  |     3,580   |   |     3,874   |
| **  Net  income**                                                                                                                            |     2,385   |   |     2,546  |     7,062   |   |     7,517   |
| ** **                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Per  Share Data**                                                                                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **   Net  income per weighted average shares outstanding**                                                                              | $    2.86   |   | $    2.96  | $    8.42   |   | $    8.72   |
| ** **                                                                                                                                             |   |   |   |   |   |   |
| **   Cash  dividend paid per share**                                                                                                    | $          0   |   | $          0  | $         0   |   | $          0   |
| ** **                                                                                                                                             |   |   |   |   |   |   |
| **   Book  value per actual number of shares outstanding**                                                                              | $103.28   |   | $  98.52  | $103.28   |   | $   98.52  |
| ** **                                                                                                                                             |   |   |   |   |   |   |
| **   Weighted  average number of shares outstanding**                                                                                   | 832,897   |   | 860,914  | 838,345   |   | 862,510   |
| ** **                                                                                                                                             |   |   |   |   |   |   |
| **   Actual  number of shares outstanding**                                                                                             | 832,370   |   | 859,617 | 832,370   |   | 859,617   |
| *** ***                                                                                                                                           |
| ***See Notes to Consolidated  Financial Statements***                                                                                                  |
|                                                                                                                                                        |  |  |  |  |  |  |  |  |  |

-3-

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| **CNB Corporation and Subsidiary  Condensed Consolidated Statements of Comprehensive Income  (All Dollar Amounts, Except Per Share Data, in Thousands)  (Unaudited)** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                  | **Three Months EndedSeptember 30,** | **Nine Months EndedSeptember 30,** |  
 

** **

** **

** **

** **

 
 

**    2008    **

**   2007   **

**    2008       **

**   2007       **

 
**Net  Income**

$   2,385  

$  2,546 

$  7,062     

$  7,517  

** **

 
** **

 

 

 

 

 

 
**Other  comprehensive income, net of tax**

 

 

 

 

 

 
** **

 

 

 

 

 

 
    Unrealized  gains on securities:

 

 

 

 

 

 
 

 

 

 

 

 
    Unrealized  holding gains during period

1,337 

1,379 

0     

1,196  

 

 
** **

 

 

 

 

 

 
**               **

**             **

**                  **

**               **

 

 
**Net  Comprehensive Income**

**$   3,722 **

**$ 3,925 **

**$  7,062     **

**$  8,713  **

** **

 
 

***See Notes toConsolidated Financial Statements***

-4-

**CNB Corporation and Subsidiary  Condensed Consolidated Statements of Changes in Stockholders' Equity  (All Dollar Amounts in Thousands)  (Unaudited)**

 

**   Nine   Months Ended         September  30,     **

 

**2008**

**2007  **

**Common  Stock:**

 

 

 
($10  par value; 1,500,000 shares authorized)

 

 

 
Balance,  January 1

$   8,684  

$    8,684  

 
Issuance  of Common Stock   

None  

None  

 
Stock  dividend

     None  

      None  

 
Balance  at end of period

     8,684  

      8,684  

    
 

 

 
**Surplus:**

 

 

 
Balance,  January 1

55,939  

43,555  

 
Issuance  of Common Stock

None  

None  

 
Stock  dividend

None  

12,368  

 
Gain  on sale of Treasury stock

          12  

          16  

 
Balance  at end of period

   55,951  

   55,939  

    
 

 

 
**Undivided  profits:**

 

 

 
Balance,  January 1

19,047  

27,017  

 
Net  Income

7,062  

7,517  

 
Stock  dividend

None  

(13,214) 

 
Cash  dividends declared

     None  

     None  

 
Balance  at end of period

   26,110  

   21,320  

    
 

 

 
**Net  unrealized holding gains/(losses) on**

 

 

 
**  available-for-sale  securities:**

 

 

 
Balance,  January 1

1,025  

(1,120) 

 
Change  in net unrealized gains/losses

            0  

     1,196  

 
Balance  at end of period

     1,025  

          76  

    
 

 

 
**Treasury  stock:**

 

 

 
Balance,  January 1

(2,583) 

(687) 

 
  (16,316  shares in 2008; 4,495 shares in 2007)

 

 

 
Purchase  of treasury stock

(3,217) 

(682) 

 
Issuance  of stock

    None  

         40  

 
Balance  at end of period

  (5,800) 

  (1,329) 

 
  (36,052  shares in 2008; 8,805 shares in 2007)

 

 

    
**               **

**               **

 
**Total  stockholders' equity**

**$85,970  **

**$84,690  **

 
** **

** **

** **

 
**Note:  Columns  may not add due to rounding.**

** **

** **

 
** **

** **

** **

 
** **

** **

** **

 
** **

** **

** **

 
** **

** **

** **

 
***See Notes toConsolidated Financial Statements***-5-
 
**CNB CORPORATION AND SUBSIDIARY  Condensed Consolidated Statements of Cash Flows  (All Dollar Amounts in Thousands)  (Unaudited)**

** **

**For the Nine months ended               September 30,        **

** **

**    2008    **

**     2007   **

 
**OPERATING  ACTIVITIES**

** **

** **

 
  Net  Income

$    7,062 

$    7,517  

 
  Adjustments  to reconcile net income to net cash provided by operating activities

** **

** **

 
    Depreciation  and amortization

1,064  

965  

 
    Provision  for loan losses

1,354  

581  

 
    Provision  for deferred income taxes

434  

1,030  

 
    Discount  accretion and premium amortization on investment securities

(715) 

52  

 
    Gain  on sale of investment securities

-   

(9) 

 
    Gain  on sale of foreclosed assets

(17) 

-   

 
    (Increase)/decrease  in accrued interest receivable

775  

(705) 

 
    Increase  in other assets

(657) 

(171) 

 
    Decrease  in other liabilities

   (1,550) 

      (122) 

 
** **

** **

** **

 
        Net  cash provided by operating activities

     7,750  

     9,138  

 
 

 

 

 
**INVESTING  ACTIVITIES**

 

 

 
  Proceeds  from sale of investment securities available for sale

-  

2,325  

 
  Proceeds  from maturities/calls of investment securities held to maturity

250  

1,498  

 
  Proceeds  from maturities/calls of investment securities available for sale

110,351  

53,479  

 
  Purchase  of investment securities available for sale

(91,866) 

(84,379) 

 
  Purchase  of investment securities held to maturity

(847) 

-  

 
  Proceeds  from sale of foreclosed assets

119  

-  

 
  Net  (increase)/decrease in federal funds sold

6,000  

(4,500) 

 
  Net  (increase)/decrease in loans

(15,961) 

4,868  

 
  Net  proceeds from sales and purchases of equity securities

173  

78  

 
  Premises  and equipment expenditures

   (1,139) 

      (521) 

 
 

 

 
        Net  cash provided/(used) for investing activities

     7,080  

 (27,152) 

 
 

 

 
**FINANCING  ACTIVITIES**

 

 

 
  Dividends  paid

(4,475) 

(4,123) 

 
  Net  increase/(decrease) in deposits

(6,273) 

2,748  

 
  Net  increase/(decrease) in securities sold under repurchase agreement

(124) 

462  

 
  Net  increase/(decrease) in other short-term borrowings

(3,584) 

2,952  

 
  Treasury  stock transactions, net

   (3,205) 

     (642) 

 
 

 

 
        Net  cash provided/(used) by financing activities

 (17,661) 

    1,397  

 
 

 

 
        Net  decrease in cash and due from banks

(2,831) 

(16,617) 

 
 

 

 
**CASH  AND DUE FROM BANKS, BEGINNING OF YEAR**

  20,941  

  34,872  

 
 

 

 
**CASH  AND DUE FROM BANKS,  SEPTEMBER 30, 2008 AND 2007**

$18,110  

$18,255  

 
 

 

 
**CASH  PAID FOR:**

 

 

 
  Interest

$16,682  

$16,483  

 
  Income  taxes

$  3,512  

$  3,860  

 
***See Notes toConsolidated Financial Statements***-6-
 
**CNBCORPORATION AND SUBSIDIARY (The "Company")CNB CORPORATION (The "Parent")THE CONWAY NATIONAL BANK (The "Bank")NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(All Dollar Amounts in Thousands)NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

Net income per share - Net income per share is computed on the basis of theweighted average number of common shares outstanding resulting in 838,345 sharesfor the nine-month period ended September 30, 2008 and 862,510 shares for the nine-monthperiod ended September 30, 2007.

RecentlyIssued Accounting Pronouncements- The following is a summary of recent authoritative pronouncements that couldimpact the accounting, reporting, and/or disclosure of financial information bythe Company.

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations,"("SFAS 141(R)") which replaces SFAS 141. SFAS 141(R) establishes principles andrequirements for how an acquirer in a business combination recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed, and any controlling interest; recognizes and measuresgoodwill acquired in the business combination or a gain from a bargainpurchase; and determines what information to disclose to enable users of thefinancial statements to evaluate the nature and financial effects of thebusiness combination. FAS 141(R) is effective for acquisitions by the Companytaking place on or after January 1, 2009. Early adoption is prohibited. Accordingly,a calendar year-end company is required to record and disclose businesscombinations following existing accounting guidance until January 1, 2009. TheCompany will assess the impact of SFAS 141(R) if and when a future acquisitionoccurs.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests inConsolidated Financial Statements - an amendment of ARB No. 51" ("SFAS 160").SFAS 160 establishes new accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. Before this statement, limited guidance existed for reportingnoncontrolling interests (minority interest). As a result, diversity inpractice exists. In some cases minority interest is reported as a liability andin others it is reported in the mezzanine section between liabilities andequity. Specifically, SFAS 160 requires the recognition of a noncontrollinginterest (minority interest) as equity in the consolidated financialsstatements and separate from the parent's equity. The amount of net incomeattributable to the noncontrolling interest will be included in consolidatednet income on the face of the income statement. SFAS 160 clarifies that changesin a parent's ownership interest in a subsidiary that do not result indeconsolidation are equity transactions if the parent retains its controllingfinancial interest. In addition, this statement requires that a parentrecognize gain or loss in net income when a subsidiary is deconsolidated. Suchgain or loss will be measured using the fair value of the noncontrolling equityinvestment on the deconsolidation date. SFAS 160 also includes expandeddisclosure requirements regarding the interests of the parent and itsnoncontrolling interests. SFAS 160 is effective for the Company on January 1,2009.   Earlier adoption is prohibited. The Company is currently evaluating theimpact, if any, the adoption of SFAS 160 will have on its financial position,results of operations and cash flows. 

In March 2008, the FASB issued SFAS No. 161, "Disclosures about DerivativeInstruments and Hedging Activities" ("SFAS 161").  SFAS 161 requires enhanceddisclosures about an entity's derivative and hedging activities, therebyimproving the transparency of financial reporting.  It is intended to enhancethe current disclosure framework in SFAS 133 by requiring that objectives forusing derivative instruments be disclosed in terms of underlying risk andaccounting designation. This disclosure better conveys the purpose of derivativeuse in terms of the risks that the entity intends to manage. SFAS 161 iseffective for the Company on January 1, 2009. This pronouncement does notimpact accounting measurements but will result in additional disclosures if theCompany is involved in material derivative and hedging activities at that time.

-7-
RecentlyIssued Accounting Pronouncements - Continued
In February 2008, the FASB issued FASB Staff Position No. 140-3, "Accountingfor Transfers of Financial Assets and Repurchase Financing Transactions" ("FSP140-3").  This FSP provides guidance on accounting for a transfer of afinancial asset and the transferor's repurchase financing of the asset. This FSP presumes that an initial transfer of a financial asset and arepurchase financing are considered part of the same arrangement (linkedtransaction) under SFAS No. 140. However, if certain criteria are met, theinitial transfer and repurchase financing are not evaluated as a linkedtransaction and are evaluated separately under Statement 140.  FSP 140-3will be effective for financial statements issued for fiscal years beginningafter November 15, 2008, and interim periods within those fiscal years andearlier application is not permitted. Accordingly, this FSP is effective forthe Company on January 1, 2009.  The Company is currently evaluating theimpact, if any, the adoption of FSP 140-3 will have on its financial position,results of operations and cash flows.

In April 2008, the FASB issued FASB Staff Position No. 142-3, "Determination ofthe Useful Life of Intangible Assets" ("FSP 142-3").  This FSP amends thefactors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder SFAS No. 142, "Goodwill and Other Intangible Assets".  The intent of thisFSP is to improve the consistency between the useful life of a recognizedintangible asset under SFAS No. 142 and the period of expected cash flows usedto measure the fair value of the asset under SFAS No. 141(R), "BusinessCombinations,"and other U.S. generally accepted accounting principles. This FSP is effective for financial statements issued for fiscal yearsbeginning after December 15, 2008, and interim periods within those fiscalyears and early adoption is prohibited.  Accordingly, this FSP is effective forthe Company on January 1, 2009.  The Company does not believe the adoption ofFSP 142-3 will have a material impact on its financial position, results ofoperations or cash flows.

In May, 2008, the Financial Accounting Standards Board("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 162,"The Hierarchy of Generally Accepted Accounting Principles," ("SFAS No. 162"). SFAS No. 162 identifies the sources of accounting principles and the frameworkfor selecting the principles used in the preparation of financial statements ofnongovernmental entities that are presented in conformity with generallyaccepted accounting principles (GAAP) in the United States (the GAAPhierarchy).  SFAS No. 162 will be effective 60 days following the SEC'sapproval of the Public Company Accounting Oversight Board's amendments to AUSection 411, "The Meaning ofPresent Fairly in Conformity With GenerallyAccepted Accounting Principles."  The FASB has stated that it does not expectSFAS No. 162 will result in a change in current practice. The application ofSFAS No. 162 will have no effect on the Company's financial position, resultsof operations or cash flows.

TheFASB issued FASB Staff Position No. APB 14-1, "Accounting for Convertible DebtInstruments That May Be Settled in Cash upon Conversion (Including Partial CashSettlement)," ("FSP No. APB 14-1"). The Staff Position specifies that issuersof convertible debt instruments that may be settled in cash upon conversionshould separately account for the liability and equity components in a mannerthat will reflect the entity's nonconvertible debt borrowing rate when interestcost is recognized in subsequent periods.  FSP No. APB 14-1 provides guidance forinitial and subsequent measurement as well as derecognition provisions.  TheStaff Position is effective for financial statements issued for fiscal yearsbeginning after December 15, 2008, and interim periods within those fiscalyears. Early adoption is not permitted.  The adoption of this Staff Positionwill have no material effect on the Company's financial position, results ofoperations or cash flows.

In June, 2008, the FASB issued FASB Staff Position No. EITF 03-6-1,"Determining Whether Instruments Granted in Share-Based Payment Transactionsare Participating Securities," ("FSP EITF 03-6-1").  The Staff Positionprovides that unvested share-based payment awards that contain nonforfeitablerights to dividends or dividend equivalents are participating securities andmust be included in the earnings per share computation.  FSP EITF 03-6-1 iseffective for financial statements issued for fiscal years beginning afterDecember 15, 2008, and interim periods within those years. All prior-periodearnings per share data presented must be adjusted retrospectively. Earlyapplication is not permitted.  The adoption of this Staff Position will have nomaterial effect on the Company's financial position, results of operations orcash flows.

FSPSFAS 133-1 and FIN 45-4, "Disclosures about Credit Derivatives and CertainGuarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No.45; and Clarification of the Effective Date of FASB Statement No. 161," ("FSPSFAS 133-1 and FIN 45-4") was issued September 2008, effective for reportingperiods (annual or interim) ending after November 15, 2008.  FSP SFAS 133-1 andFIN 45-4 amends SFAS 133 to require the seller of credit derivatives todisclose the nature of the credit derivative, the maximum potential amount offuture payments, fair value of the derivative, and the nature of any recourseprovisions.  Disclosures must be made for entire hybrid instruments that haveembedded credit derivatives.  

Thestaff position also amends FIN 45 to require disclosure of the current statusof the payment/performance risk of the credit derivative guarantee.  If anentity utilizes internal groupings as a basis for the risk, how the groupingsare determined must be disclosed as well as how the risk is managed.

-8-

RecentlyIssued Accounting Pronouncements - Continued

The staff position encourages that the amendments be applied in periods earlierthan the effective date to facilitate comparisons at initial adoption.  Afterinitial adoption, comparative disclosures are required only for subsequentperiods.

FSP SFAS 133-1 and FIN 45-4 clarifies the effective date of SFAS 161 such thatrequired disclosures should be provided for any reporting period (annual orquarterly interim) beginning after November 15, 2008.  The adoption of this StaffPosition will have no material effect on the Company's financial position,results of operations or cash flows. 

The SEC's Office of the Chief Accountant and the staff of the FASB issued pressrelease 2008-234 on September 30, 2008 ("Press Release") to provideclarifications on fair value accounting.  The press release includes guidanceon the use of management's internal assumptions and the use of "market"quotes.  It also reiterates the factors in SEC Staff Accounting Bulletin("SAB") Topic 5M which should be considered when determiningother-than-temporary impairment: the length of time and extent to which themarket value has been less than cost; financial condition and near-termprospects of the issuer; and the intent and ability of the holder to retain itsinvestment for a period of time sufficient to allow for any anticipatedrecovery in market value.

On October 10, 2008, the FASB issued FSP SFAS 157-3, "Determining the FairValue of a Financial Asset When the Market for That Asset Is Not Active" ("FSPSFAS 157-3"). This FSP clarifies the application of SFAS No. 157, "Fair ValueMeasurements" in a market that is not active and provides an example toillustrate key considerations in determining the fair value of a financialasset when the market for that asset is not active.  The FSP is effective uponissuance, including prior periods for which financial statements have not beenissued. For the Company, this FSP is effective for the quarter ended September30, 2008. 

The Company considered the guidance in the Press Release and in FSP SFAS 157-3when conducting its review for other-than-temporary impairment as of September30, 2008 and determined that it did not result in a change to its impairmentestimation techniques.

Otheraccounting standards that have been issued or proposed by the FASB or otherstandards-setting bodies are not expected to have a material impact on theCompany's financial position, results of operations and cash flows.

**NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS**

The Bank is required to maintain average reserve balances either at the Bank oron deposit with the Federal Reserve Bank.  The average amounts of these reservebalances for the nine-month period ended September 30, 2008 and for the yearended December 31, 2007 were approximately $2,795 and $10,486, respectively.

-9-

**NOTE3 - INVESTMENT SECURITIES**

Investment securities with a par value of approximately $181,971 at September 30,2008 and $182,651 at December 31, 2007 were pledged to secure public depositsand for other purposes required by law.

The following summaries reflect the book value, unrealized gains and losses,approximate market value, and tax-equivalent yields of investment securities listedby type of issuer and maturity at September 30, 2008 and at December 31, 2007.

** **

**                       September  30, 2008                        **

** **

**(Dollars in Thousands) **

** **

**Book**

**Unrealized Holding**

**Fair**

** **

** **

**Value**

**Gains**

**Losses**

**Value**

**Yield(1)**

 

 

 

 

 

 

**AVAILABLE  FOR SALE**

 

 

 

 

 

 

 

 

 

 

  Government  Sponsored Enterprises

 

 

 

 

 

    Within  one year

15,725

63

-

15,788

3.88%  

    One  to five years

136,645

1,172

74

137,743

4.02     

    Six  to ten  years

   12,575

        325

             -

    12,900

5.11     

 164,945

     1,560

          74

  166,431

4.09     

  Mortgage  Backed Securities

 

 

 

 

 

    Six  to ten years

525

12

11

526

4.97%  

    Over  ten years

     2,258

            7

          41

      2,224

4.64     

     2,783

          19

          52

      2,750

4.70     

  State,  county and municipal

 

 

 

 

 

    Within  one year

1,580

19

-

1,599

7.11%  

    One  to five years

4,245

157

-

4,402

7.02     

    Six  to ten years

11,004

99

38

11,065

5.56     

    Over  ten years

     1,385

          18

             -

      1,403

5.88     

   18,214

        293

          38

    18,469

6.06     

 

 

 

 

 

  Other  Investments

 

 

 

 

 

     CRA  Qualified Investment Fund

713

-

-

713

-     

     Mastercard  International Stock

          11

             -

            -

           11

-     

        724

             -

            -

         724

-     

 

 

 

 

 

  Total  available for sale

$186,666

$   1,872

$      164

$188,374

4.29%  

 

 

 

 

 

**HELD  TO MATURITY**

 

 

 

 

 

 

 

 

 

 

  State,  county and municipal

 

 

 

 

 

    Within  one year

$      535

$          5

$          -

$       540

6.41%  

    One  to five years

1,744

25

-

1,769

5.68     

    Six  to ten years

4,369

49

2

4,416

5.49     

    Over  ten years

     1,649

            2

          14

      1,637

5.46     

 

 

 

 

 

    Total  held to maturity

$   8,297

$        81

$        16

$    8,362

5.58%  

 

 

 

 

 

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

As of September 30, 2008, the Bank did not hold any securities of an issuerthat exceeded 10% of stockholders' equity. The net unrealized holding gains onavailable-for-sale securities component of capital was $1,025 as of September30, 2008.

-10-

**NOTE3 - INVESTMENT SECURITIES (Continued)**

** **

**                        December  31, 2007                        **

** **

**(Dollars in Thousands) **

** **

**Book**

**Unrealized Holding**

**Fair**

*** ***

** **

**Value**

**Gains**

**Losses**

**Value**

**Yield(1)**

 

 

 

 

 

 

**AVAILABLE  FOR SALE**

 

 

 

 

 

 

 

 

 

 

  Government  Sponsored Enterprises

 

 

 

 

 

    Within  one year

61,611

2

236

61,377

3.56%   

    One  to five years

103,464

1,408

8

104,864

5.03      

    Six  to ten years

   18,276

       407

           -

    18,683

5.28      

 183,351

    1,817

      244

  184,924

4.56      

 

 

 

 

 

  Mortgage  Backed Securities

 

 

 

 

 

    Six  to ten years

389

11

-

400

5.77%   

    Over  ten years

        846

           4

        20

         830

4.88      

     1,235

        15

        20

      1,230

5.16      

 

 

 

 

 

  State,  county and municipal

 

 

 

 

 

    Within  one year

209

3

-

212

7.08%   

    One  to five years

6,244

166

-

6,410

6.98      

    Six  to ten years

1,916

16

6

1,926

5.56      

    Over  ten years

    10,758

        10

         49

    10,719

5.60      

    19,127

      195

         55

    19,267

6.06      

 

 

 

 

 

  Other  Investments

 

 

 

 

 

     CRA  Qualified Investment Fund

701

-

-

701

-      

     Mastercard  International Stock

           11

            -

          -

           11

-      

         712

            -

          -

         712

-      

 

 

 

 

 

  Total  available for sale

$204,425

$  2,027

$   319

$206,133

4.71%   

 

 

 

 

 

**HELD  TO MATURITY**

 

 

 

 

 

 

 

 

 

 

  State,  county and municipal

 

 

 

 

 

    Within  one year

$       250

$         -

$        -

$       250

7.56%   

    One  to five years

1,438

32

-

1,470

6.94      

    Six  to ten years

3,764

20

5

3,779

5.52      

    Over  ten years

      2,259

           -

       27

      2,232

5.41      

 

 

 

 

 

    Total  held to maturity

$    7,711

$       52

$     32

$    7,731

5.82%   

 

 

 

 

 

 

 

 

 

 

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

As of December 31, 2007, the Bank did not hold any securities of an issuer thatexceeded 10% of stockholders' equity. The net unrealized holding gains onavailable-for-sale securities component of capital was $1,025 as of December31, 2007.

-11-
NOTE 4 - LOANS AND ALLOWANCE FORLOAN LOSSES     The following is a summary of loans at September30, 2008 and December 31, 2007 by major classification:
 

**September 30, **

**December 31,**

 

**   2008  **

**        2007   **

 

 

 
**Real  estate loans** -** mortgage**

$ 349,596 

        $ 350,138 

 
                             **- construction**

99,957 

             83,398 

 
**Agricultural  loans**

3,286 

               3,264 

 
**Commercial  and industrial loans**

87,821 

             88,106 

 
**Loans  to individuals for household,**

 

 

 
**  family  and other consumer expenditures**

47,073 

             47,731 

 
**All  other loans, including overdrafts**

          426 

                  794 

 
**Unamortized  deferred loan costs**

          212 

                  320 

 
**     Gross  loans**

$ 588,371 

       $  573,751 

 
**       Less  allowance for loan losses**

     (6,792)

              (6,507)

 
**         Net  loans**

$ 581,579 

       $  567,244 

 
       Changesin the allowance for loan losses for the quarters ended September 30, 2008 and2007, and the year ended December 31, 2007 are summarized as follows:

** **

**   Quarter  Ended**

   **Nine-Months  Ended    Year Ended**
   
**   September 30,**

**             September  30, **

**    December 31,**

 

**  2008   **

**  2007 **

** **

**  2008**

** 2007**

**2007**

 

** **

** **

** **

** **

** **

** **

**Balance,  beginning of period**

$ 6,736 

$ 6,364 

 

$ 6,507 

$ 6,476 

$  6,476      

**Charge-offs:**

** **

** **

** **

** **

** **

** **

   Commercial,  financial, and agricultural

225 

104 

 

625 

514 

732      

   Real  Estate - construction and mortgage

137 

0 

 

240 

52 

127      

   Loans  to individuals

      215 

     175 

** **

       533 

     347 

       587      

**       Total  charge-offs**

$    577 

$   279 

 

$ 1,398 

$   913 

$  1,446      

**Recoveries:**

** **

** **

** **

** **

** **

** **

   Commercial,  financial, and agricultural

$      85 

$     22 

** **

$    161 

$     81 

$       96      

   Real  Estate - construction and mortgage

1 

20 

 

4 

21 

25      

   Loans  to individuals

        47 

       42 

** **

      164 

     143 

       211      

       Total  recoveries

$    133 

$     84 

** **

$    329 

$   245 

$     332      

**Net  charge-offs/(recoveries)**

$    444 

$   195 

 

$ 1,069 

$   668 

$  1,114      

**Additions  charged to operations**

$    500 

$   220   

 

$ 1,354 

$   581 

$  1,145      

**Balance,  end of period**

$ 6,792 

$6,389 

 

$ 6,792 

$6,389 

$  6,507      

 

** **

** **

** **

** **

** **

** **

**Ratio  of net charge-offs during the period**

    .08%

    .03%

 

    .18%

    .12%

     .20%     

**   to  average loans outstanding during the     period**

** **

Theentire balance of the allowance for loan losses is available to absorb futureloan losses.

At September 30, 2008, September30, 2007, and December 31, 2007 loans on which no interest was being accruedtotaled $3,230, $827, and $861, respectively.  Of the loans on which nointerest was being accrued at September 30, 2008, September 30, 2007, andDecember 31, 2007, the Company had classified $2,591, $462, and $523 asimpaired for the same periods, respectively.  The Company had $239 offoreclosed real estate at September 30, 2008, $47 of foreclosed real estate at September30, 2007, and $64 of foreclosed real estate at December 31, 2007.  Loans 90days past due and still accruing interest totaled $248, $267, and $147 at September30, 2008, September 30, 2007, and December 31, 2007, respectively.

At September 30, 2008, September30, 2007, and December 31, 2007 classified assets, the majority consisting ofclassified loans, were $18,885, $17,449, and $15,180, respectively.  At September30, 2008,  September 30, 2007, and December 31, 2007 classified assetsrepresented 20.47%, 19.79%, and 17.63% of total capital (the sum of Tier 1Capital and the Allowance for Loan Losses), respectively.

-12-
NOTE 5 -PREMISES AND EQUIPMENT     Property at September 30, 2008 and December 31,2007 is summarized as follows:
**September 30,**

**December 31,**

**2008**

**2007**

 

 

**Land  and buildings**

      $ 25,191

    $ 25,192

 
**Furniture,  fixtures and equipment**

           8,136

7,768

 
**Construction  in progress**

           1,442

        669

 
** **

      $ 34,769

$ 33,629

 
** **

 

 

 
**Less  accumulated depreciation and amortization**

         11,766

   10,701

 
      $ 23,003

$ 22,928

 
     Depreciation and amortization of bank premisesand equipment charged to operating expense was $1,064 for the nine-month periodended September 30, 2008, and $1,285 for the year ended December 31, 2007.  Theconstruction in progress is primarily related to renovations to the Company'sMain Office in Conway, South Carolina;  the construction of a branch officelocated in Little River, South Carolina; the renovation of the Company's RedHill branch office located in Conway, South Carolina; land improvements andinstallation of an automated teller machine (ATM) at the Company's CarolinaForest site located in Myrtle Beach, South Carolina; and renovations to theCompany's Myrtle Beach branch office located in Myrtle Beach, South Carolina. There are no remaining costs to be incurred associated with the Main Officerenovation, the Little River branch office construction, or the Red Hill branchoffice renovation.  Remaining construction and equipment costs associated withthe Carolina Forest ATM and the Myrtle Beach branch office renovation areestimated at approximately $212 and $17, respectively.

**NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100,000**

     At September 30, 2008 and December 31, 2007, certificatesof deposit of $100,000 or more included in time deposits totaled approximately$201,255 and $201,855, respectively.  Interest expense on these deposits wasapproximately $6,475 for the nine-month period ended September 30, 2008 and $8,944for the year ended December 31, 2007. 

**NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS**

     At September 30, 2008 and December 31, 2007,securities sold under repurchase agreements totaled $60,812 and $60,936,respectively.  Securities with a book value of $70,465 ($71,296 fair value) and$74,717 ($76,064 fair value), respectively, were used as collateral for theagreements.  The weighted-average interest rate of these agreements was 2.15percent and 4.20 percent at September 30, 2008 and December 31, 2007, respectively.

**NOTE 8 - LINES OF CREDIT**

     At September 30, 2008, the Bank had unusedshort-term lines of credit to purchase Federal Funds from unrelated bankstotaling $38,500.  These lines of credit are available on a one to seven daybasis for general corporate purposes of the Bank.  All of the lenders havereserved the right to withdraw these lines at their option. 

     The Bank has a demand note through the U.S.Treasury, Tax and Loan system with the Federal Reserve Bank of Richmond.  The Bank may borrow up to $7,000 under the arrangement at a variable interestrate.  The note is secured by bonds with a market value of $4,003 at September30, 2008.  The amount outstanding under the note totaled $2,674 and $2,377at September 30, 2008 and December 31, 2007, respectively.

     The Bank also has a line of credit from theFederal Home Loan Bank of Atlanta for $88,332 secured by a lien on the Bank's1-4 family mortgages. Allowable terms range from overnight to twenty years atvarying rates set daily by the FHLB.  There were $10,000 in borrowings underthe agreement at September 30, 2008 and $15,000 at December 31, 2007.

-13-

**NOTE 9 - INCOME TAXES**

     Income tax expense for the quarters ended September30, 2008 and September 30, 2007 on pretax income of $3,630 and $3,734 totaled $1,245and $1,188, respectively.   The provision for federal income taxes iscalculated by applying the 34% statutory federal income tax rate and increasingor reducing this amount due to any tax-exempt interest, state bank tax (net offederal benefit), business credits, surtax exemption, tax preferences,alternative minimum tax calculations, or other factors.  A summary of incometax components and a reconciliation of income taxes to the federal statutoryrate are included in fiscal year-end reports.

     The Company accounts for income taxes inaccordance with Statement of Financial Accounting Standards ("SFAS")No. 109, "Accounting for Income Taxes," and FASB Interpretation No. 48 (FIN48),Accounting for Uncertainty in Income Taxes - an Interpretation of SFAS No.109."

**NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES**

     Fromtime to time the Bank is a party to various litigation matters, both asplaintiff and as defendant, arising from its normal operations.  No materiallosses are anticipated in connection with any of these matters at September 30,2008.

     In the normal course of business, the Bank is a partyto financial instruments with off-balance-sheet risk including commitments toextend credit and standby letters of credit.  Such instruments have elements ofcredit risk in excess of the amount recognized in the balance sheet.  Theexposure to credit loss in the event of nonperformance by the other parties tothe financial instruments for commitments to extend credit and standby lettersof credit is represented by the contractual notional amount of thoseinstruments.  Generally, the same credit policies used for on-balance-sheetinstruments, such as loans, are used in extending loan commitments and standbyletters of credit.

     Following are the off-balance-sheet financialinstruments whose contract amounts represent credit risk:** **

** **

**September  30, 2008**

**           Loan  Commitments                   **

          $ 57,754

**           Standby  letters of credits         **

               2,274

     Loan commitments involve agreements to lend to acustomer as long as there is no violation of any condition established in thecontract.  Commitments generally have fixed expiration dates or othertermination clauses and some involve payment of a fee.  Many of the commitmentsare expected to expire without being fully drawn.  Therefore, the total amountof loan commitments does not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis.  Theamount of collateral obtained, if any, upon extension of credit is based onmanagement's credit evaluation of the borrower.  Collateral held varies but mayinclude certificates of deposit or other negotiable collateral, commercial andresidential real properties, accounts receivable, inventory and equipment.

     Standby letters of credit are conditionalcommitments to guarantee the performance of a customer to a third party.  Thecredit risk involved in issuing standby letters of credit is the same as thatinvolved in making loan commitments to customers. Many letters of credit willexpire without being drawn upon and do not necessarily represent future cashrequirements.

     Management believes that its various sources of liquidityprovide the resources necessary for the bank subsidiary to fund the loancommitments and to perform under standby letters of credit, if the needarises.  Neither the Company nor the Bank are involved in other off-balancesheet contractual relationships or transactions that could result in liquidityneeds or other commitments or significantly impact earnings.

**NOTE 11 - EMPLOYEE BENEFIT PLAN**

     The Bank has a defined contribution pension plancovering all employees who have attained age twenty-one and have a minimum ofone year of service.  Upon ongoing approval of the Board of Directors, the Bankmatches one-hundred percent of employee contributions up to three percent ofemployee salary deferred and fifty percent of employee contributions in excessof three percent and up to five percent of salary deferred.  The Board ofDirectors may also make discretionary contributions to the Plan.  For the three-monthand nine-month periods ended September 30, 2008 and the year ended December 31,2007, $199, $482, and $712, respectively, was charged to operations under theplan.

-14-

**NOTE12 - REGULATORY MATTERS**

     TheBank and the Company are subject to various regulatory capital requirementsadministered by the federal banking agencies.  Failure to meet minimum capitalrequirements can initiate certain mandatory - and possibly additionaldiscretionary - actions by regulators that, if undertaken, could have a directmaterial effect on the financial statements.  The regulations require the Bank andthe Company to meet specific capital adequacy guidelines that involvequantitative measures of assets, liabilities, and certain off-balance-sheetitems as calculated under regulatory accounting practices.  The capitalclassification is also subject to qualitative judgments by the regulators aboutcomponents, risk weightings, and other factors.

     Quantitative measures established by regulationto ensure capital adequacy require the maintenance of minimum amounts andratios (set forth in the tables below) of Tier 1 capital to adjusted totalassets (Leverage Capital ratio) and minimum ratios of Tier 1 and total capitalto risk-weighted assets.  To be considered adequately capitalized under theregulatory framework for prompt corrective action, the Company and the Bankmust maintain minimum Tier 1 leverage, Tier 1 risk-based and total risked-basedratios as set forth in the tables below.  The Company's and the Bank's actualcapital ratios are presented in the tables below as of September 30, 2008:

**Company**

 

 

** **

 

 

** **

 

**For**

** **

 

**Capital adequacy**

** **

**                                   **

**         Purposes          **

** **

**            Actual            **

**         Minimum         **

** **

**Amount**

**Ratio**

**Amount**

** Ratio **

 

 
   
 

 

 

 

 

 

**Total  Capital (to risk weighted assets)**

$91,736

15.32%

$47,890

8.0%

 

 

 
** **

 

 

 

 

 

 

 
**Tier  1 Capital (to risk weighted assets)**

84,944

14.19   

23,945

4.0   

 

 

 
** **

 

 

 

 

 

 

 
**Tier  1 Capital (to average assets)**

84,944

9.78   

34,732

4.0   

 

 

 
 

**Bank**

 

 

**To be**

 

 

**Well capitalized**

 

**For**

**under prompt**

 

**Capital adequacy**

**corrective action**

**                                   **

**         Purposes          **

**         provisions         **

**            Actual            **

**         Minimum         **

**          Minimum         **

**Amount**

**Ratio**

**Amount**

** Ratio **

**Amount**

** Ratio **
   
 

 

 

 

 

 

**Total  Capital (to risk weighted assets)**

$92,252

15.41%

$47,887

8.0%

$59,859

10.0%

 
** **

 

 

 

 

 

 

 
**Tier  1 Capital (to risk weighted assets)**

85,460

14.28   

23,944

4.0   

35,915

6.0   

 
** **

 

 

 

 

 

 

 
**Tier  1 Capital (to average assets)**

85,460

9.84   

34,730

4.0   

43,413

5.0   

 
****-15-

**NOTE 13 - FAIR VALUE MEASUREMENTS**

EffectiveJanuary 1, 2008, the Company adopted SFAS No. 157, "Fair ValueMeasurements" ("SFAS 157") which provides a framework formeasuring and disclosing fair value under generally accepted accounting principles.SFAS 157 requires disclosures about the fair value of assets and liabilitiesrecognized in the balance sheet in periods subsequent to initial recognition,whether the measurements are made on a recurring basis (for example,available-for-sale investment securities) or on a nonrecurring basis (forexample, impaired loans). 

SFAS157 defines fair value as the exchange price that would be received for anasset or paid to transfer a liability (an exit price) in the principal or mostadvantageous market for the asset or liability in an orderly transactionbetween market participants on the measurement date. SFAS 157 also establishesa fair value hierarchy which requires an entity to maximize the use ofobservable inputs and minimize the use of unobservable inputs when measuringfair value. The standard describes three levels of inputs that may be used tomeasure fair value:

**Level 1**

Quoted  prices in active markets for identical assets or liabilities. Level 1 assets  and liabilities include debt and equity securities and derivative contracts  that are traded in an active exchange market, as well as U.S. Treasuries and  money market funds. 

**Level 2**

Observable  inputs other than Level 1 prices such as quoted prices for similar assets or  liabilities; quoted prices in markets that are not active; or other inputs  that are observable or can be corroborated by observable market data for  substantially the full term of the assets or liabilities. Level 2 assets and  liabilities include debt securities with quoted prices that are traded less  frequently than exchange-traded instruments, mortgage backed securities,  municipal bonds, corporate debt securities, and derivative contracts whose  value is determined using a pricing model with inputs that are observable in  the market or can be derived principally from or corroborated by observable  market data. This category generally includes certain derivative contracts  and impaired loans. 

**Level 3**

Unobservable  inputs that are supported by little or no market activity and that are  significant to the fair value of the assets or liabilities. Level 3 assets  and liabilities include financial instruments whose value is determined using  pricing models, discounted cash flow methodologies, or similar techniques, as  well as instruments for which the determination of fair value requires  significant management judgment or estimation. For example, this category  generally includes certain private equity investments, retained residual  interests in securitizations, residential mortgage servicing rights, and  highly-structured or long-term derivative contracts.

TheCompany has no assets or liabilities whose fair values are measured using level1 inputs.

TheCompany's available-for-sale investment securities ($188,374 at September 30,2008) include debt securities of U.S. government sponsored enterprises,municipal bonds, and mortgage backed securities.  The Company considers themarket quoted prices of these instruments to be equivalent to debt securitiesthat are traded less frequently than exchange-traded instruments and thereforeclassifies them as Level 2 inputs.  Also, the Company predominantly makes loansfor the purposes of real estate acquisition, construction, agriculture,commercial and industrial needs, and consumer expenditures.  Themajority of the Company's loans are real estate secured.  Loans which aredeemed to be impaired are primarily valued at the fair values of the underlyingreal estate collateral. Such fair values are obtained using independentappraisals, which the Company considers to be level 2 inputs. The aggregatecarrying amount of impaired loans at September 30, 2008 was $2,591.  TheCompany's available-for-sale investment securities and impaired loans are theonly assets whose fair values the Company measures using level 2 inputs.  TheCompany has no liabilities whose fair values are measured using level 2 inputs.

TheCompany has no assets or liabilities whose fair values are measured using level3 inputs. 

FASBStaff Position No. FAS 157-2 delays the implementation of SFAS 157 until thefirst quarter of 2009 with respect to goodwill, other intangible assets, realestate and other assets acquired through foreclosure and other non-financialassets measured at fair value on a nonrecurring basis.

-16-

**NOTE14 - CONDENSED FINANCIAL INFORMATION**

     Following is condensed financial information ofCNB Corporation (parent company only):

**CONDENSED  BALANCE SHEET  (Unaudited)**

** **

**September  30,     **

**ASSETS**

**    2008   **

**    2007   **

   Cash

$      577 

$   1,776 

   Investment in subsidiary

86,486 

81,769 

   Fixed Assets

0 

1,109 

   Other assets

          37 

          36 

$ 87,100 

$ 84,690 
   
 

 
   
 

 

**LIABILITIES AND STOCKHOLDERS' EQUITY**

 

 

   Short-term note payable

$   1,119 

$          0 

   Other liabilities

11 

0 

   Stockholders' equity

   85,970 

   84,690 

$ 87,100 

$ 84,690 
   
 

 
   
 

 

**CONDENSED  STATEMENT OF INCOME  (Unaudited)**

**For the nine-month   period ended   September 30,**

**    2008   **

**   2007  **

   Equity in net income of subsidiary

$  6,881 

$ 7,602 

   Other income

283 

1 

   Other expenses

     (102)

      (86)

**      NET INCOME**

$  7,062 

$ 7,517 

**Item 2.**

**MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

(All dollar amounts in thousands, except per share data.)

Management's Discussion andAnalysis is provided to afford a clearer understanding of the major elements ofthe Company's results of operations, financial condition, liquidity, andcapital resources. The following discussion should be read in conjunction withthe Company's financial statements and notes thereto and other detailedinformation appearing elsewhere in this report.  In addition, the results ofoperations for the interim periods shown in this report are not necessarilyindicative of results to be expected for the fiscal year.  The accompanyingconsolidated financial statements include all accounts of the Company and theBank.  All significant intercompany accounts and transactions have beeneliminated in consolidation.  The accompanying unaudited consolidated financialstatements at September 30, 2008 and for the three and nine-month periods endingSeptember 30, 2008 and 2007 have been prepared in accordance with generallyaccepted accounting principles ("GAAP") for interim financialinformation and with the instructions to Form 10-Q of the Securities andExchange Commission.  Accordingly, they do not include all information andfootnotes required by GAAP for complete financial statements.  However, in theopinion of management, all adjustments (consisting of normal recurringadjustments) considered necessary for a fair presentation have been included.

****-17-

**DISTRIBUTIONOF ASSETS AND LIABILITIES**

The Company has historically maintained a conservative approach in determiningthe distribution of assets and liabilities.  Loans increased 4.5% from $562,831at September 30, 2007 to $588,371 at September 30, 2008, and increased 2.5%,from $573,751 at December 31, 2007 to $588,371 at September 30, 2008.  Loans increasedas a percentage of total assets from 66.3% to 68.9% from September 30, 2007 to September30, 2008 and increased from 66.3% to 68.9% from December 31, 2007 to September30, 2008.  Loan demand in our market area slowed to a moderate pace during 2007. This trend has continued throughout the first three quarters of 2008 and is expectedto continue through the remainder of 2008.  Securities and federal funds sold decreasedas a percentage of total assets from 28.1% at September 30, 2007 to 25.6% at September30, 2008, and decreased from 28.0% of total assets at December 31, 2007 to 25.6%at September 30, 2008, a reflection of continued moderate loan demand coupledwith a lower level of percentage growth in deposits.  The level of investmentsand federal funds sold provides for a more than adequate supply of liquidity.

Management has sought to build the deposit base with stable, relativelynon-interest-sensitive deposits by offering the small to medium deposit accountholders a wide array of deposit instruments at competitive rates.Non-interest-bearing demand deposits decreased as a percentage of total assetsfrom 14.7% at September 30, 2007 to 13.1% at September 30, 2008, and increased slightlyfrom 13.0.% at December 31, 2007 to 13.1% at September 30, 2008.  As morecustomers, both business and personal, are attracted to interest-bearingdeposit accounts, we expect the percentage of non-interest bearing demanddeposits to decline over the long-term.  Interest-bearing deposits increasedfrom 65.1% of total assets at September 30, 2007 to 67.3% at September 30, 2008,and increased from 67.0% at December 31, 2007 to 67.3% at September 30, 2008. Securities sold under agreement to repurchase decreased from 8.6% at September 30,2007 to 7.1% at September 30, 2008, and increased slightly from 7.0% of totalassets at December 31, 2007 to 7.1% at September 30, 2008.  Other short-termborrowings decreased from 2.0% of total assets at December 31, 2007 to 1.6% at September30, 2008.  Other short-term borrowings increased from .7% at September 30, 2007to 1.6% at September 30, 2008.

The following table sets forth the percentage relationship to total assets ofsignificant components of the Company's balance sheets as of September 30, 2008and September 30, 2007 and December 31, 2007:

 

**September 30,**

**December 31,**

 

**   2008 **

**  2007  **

**2007**

**Assets:**

** **

** **

** **

   Earning  assets:

** **

** **

** **

   Loans

68.9%

66.3%

66.3%

 
   Securities  held to maturity

1.0   

.3   

.9   

 
   Securities  available for sale

22.3   

24.2   

24.1   

 
   Federal  funds sold and securities purchased under agreement to resell

    2.3   

    3.6   

    3.0   

 
      Total  earning assets

  94.5   

  94.4   

  94.3   

 
   Other  assets

    5.5   

    5.6   

    5.7   

 
      Total  assets

100.0%

100.0%

100.0%

    
** **

** **

 

 
**Liabilities  and stockholder's equity:**

** **

** **

 

 
  Interest-bearing  liabilities:

** **

** **

 

 
    Interest-bearing  deposits

67.3%

65.1%

67.0%

 
    Federal  funds purchased and securities sold under agreement to repurchase

7.1   

8.6   

7.0   

 
    Other  short-term borrowings

    1.6   

     .7   

    2.0   

 
        Total  interest-bearing liabilities

  76.0   

 74.4   

  76.0   

 
          Noninterest-bearing  deposits

13.1   

14.7   

 13.0   

 
    Other  liabilities

.8   

.9   

1.5   

 
    Stockholders'  equity

  10.1   

   10.0   

    9.5   

 
        Total  liabilities and stockholders' equity

100.0%

100.0%

100.0%

    
 

 

 

    
 

 

 

    
 

 

 

 
-18-

**RESULTSOF OPERATIONS**

Earnings for the three-month periods ended September 30, 2008 and 2007 were $2,385and $2,546, respectively, resulting in a return on average assets of 1.11% and1.19% and a return on average stockholders' equity of 11.42% and 12.34%,respectively. 

Earnings for the nine-month periods ended September 30, 2008 and 2007 were $7,062and $7,517, respectively, resulting in a return on average assets of 1.09% and1.19% and a return on average stockholders' equity of 11.29% and 12.47%,respectively.

The earnings were primarily attributable to net interest income in each period(see Net Income-Net Interest Income). Other factors include management's ongoingeffort to maintain noninterest income at adequate levels (see Net Income -Noninterest Income) and to control noninterest expenses (see Net Income -Noninterest Expenses). This level of earnings, coupled with a moderate dividendpolicy, has supplied the necessary capital funds to support growth in totalassets. Total assets increased $4,424 or .5% to $853,490 at September 30, 2008 from$849,066 at September 30, 2007. The following table sets forth the financialhighlights for the three and nine-month periods ending at September 30, 2008and September 30, 2007:

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

 
** **

 
****

**    Three-Month Period Ended  September 30,         **

**Nine-Month  Period Ended  September 30,**

 
** **

** **

** **

** **

** **

 
** **

**2008**

**2007**

**Percent     Increase  (Decrease)**

**2008 **

**2007**

**Percent  Increase(Decrease)**

 
**Net  interest income after provision for         loan losses**

  $   7,500

  $   7,684

          (2.4)%

  $ 22,400

  $  22,540

            (.6)%

 
**Income  before income taxes**

3,630

3,734

    (2.8)

10,642

11,391

      (6.6) 

 
**Net  Income**

2,385

2,546

    (6.3)

7,062

7,517

      (6.1) 

 
**Per  Share**

2.86

2.96

    (3.4)

8.42

8.72

      (3.4) 

 
**Cash  dividends declared**

0

0

   -

0

0

        -   

 
**     Per  Share**

0

0

   -

0

0

        -   

 
**Total  assets**

853,490

849,066

           .5% 

853,490

849,066

          .5%

 
**Total  deposits**

686,016

677,800

        1.2   

686,016

677,800

       1.2   

 
**Loans**

588,371

562,831

       4.5  

588,371

562,831

      4.5  

 
**Investment securities and securities available for sale**

196,671

206,967

        (5.0)

196,671

206,967

          (5.0)  

 
**Stockholders' equity**

85,970

84,690

    1.5

85,970

84,690

    1.5

 
**    Book value per share**

103.28

98.52

    4.8

103.28

98.52

    4.8

 
**Ratios:**

 

 

 

 

 

 

 
**Annualized return on average total assets(1)**

1.11%

1.19%

      (6.7)%

1.09%

1.19%

       (8.4)%

 
**Annualized return on average stockholders' equity(1)**

11.42%

12.34%

      (7.5)%

11.29%

12.47%

       (9.5)%

 
 

 

 

 

 

 

(1)       For the three-month period ended September30, 2008, average total assets amounted to $855,838 with average stockholders            equity totaling$83,508 for the same period.           For the nine-monthperiod ended September 30, 2008, average total assets amounted to $861,822 withaverage stockholders'           equity totaling $83,376for the same period.

-19-

**NET INCOME**

Net Interest Income - Earnings are dependent to a large degree on netinterest income, defined as the difference between gross interest and feesearned on earning assets, primarily loans and securities, and interest paid ondeposits and borrowed funds.  Net interest income is affected by the interestrates earned or paid and by volume changes in loans, securities, deposits, andborrowed funds.

Interestrates paid on deposits and borrowed funds and earned on loans and investmentshave generally followed the fluctuations in market interest rates in 2008 and2007.  However, fluctuations in market interest rates do not necessarily have asignificant impact on net interest income, depending on the bank's ratesensitivity position.  A rate sensitive asset (RSA) is any loan or investmenton which the interest rate can be re-priced either up or down within a certaintime interval. A rate sensitive liability (RSL) is an interest paying depositor other liability on which the interest rate can be re-priced either up ordown within a certain time interval.  When a proper balance between RSA and RSLexists, market interest rate fluctuations should not have a significant impacton earnings. The larger the imbalance, the greater the interest rate riskassumed by the Bank and the greater the positive or negative impact of interestrate fluctuations on earnings.  The Bank seeks to manage its assets andliabilities in a manner that will limit interest rate risk and thus stabilizelong-term earning power. Management believes that a 200 basis point rise orfall in interest rates will have less than a 10 percent effect on before-tax netinterest income over a one-year period, which is within Bank guidelines.

TheBank has maintained net interest margins for the three-month and nine-month periodsended September 30, 2008, of 4.03% and 3.96%, respectively, and 4.00% and 3.98%,respectively, for the same periods in 2007, as compared to management'slong-term target of 4.20%.  Net interest margins have been compressed for the Bankand industry-wide as we experienced a flat to slightly inverted treasury yieldcurve during 2007.  Interest rate reductions by the Federal Reserve during thesecond half of 2007, improved this situation.  However, dramatic decreases inmarket interest rates during the first quarter of 2008 and an additionaldecrease in the second quarter of 2008 placed further significant pressure onnet interest margins for the industry as a whole.  The resulting morehistorically typical upward-sloping yield curve should enhance the Bank's netinterest margin in future periods.  Still, competition in the Bank's specificmarket remains significant, as new competitors seek market share and othercompetitors attempt to reduce their dependence on brokered deposits.  Thesefactors tend to compress margins by driving the cost of deposits upward whiledriving the yields on loans downward.  

Fully-tax-equivalent net interest income for the three-month period ended September30, 2008 was $8,138, an increase of 1.5% from the $8,019 attained for the three-monthperiod ended September 30, 2007.  During the same period, totalfully-tax-equivalent interest income decreased by 11.6% to $12,188 from $13,786and total interest expense decreased by 29.8% to $4,050 from $5,767.  Fully-tax-equivalentnet interest income as a percentage of average total earning assets increased .03%to 4.03% for the three-month period ended September 30, 2008 from 4.00% for thethree-month period ended September 30, 2007.

Fully-tax-equivalent net interest income showed a 3.0% increase at $24,174 forthe nine-month period ended September 30, 2008 as compared to $23,462 for the nine-monthperiod ended September 30, 2007.  During the same period, totalfully-tax-equivalent interest income decreased by 4.5% to $38,578 from $40,377,and total interest expense decreased by 14.8% to $14,404 from $16,915. Fully-tax-equivalent net interest income as a percentage of total earningassets decreased .02% to 3.96.% for the nine-month period ended September 30,2008 from 3.98% for the nine-month period ended September 30, 2007.

The tables on the following four pages present an analysis of average balances,yields and rates for the interest sensitive segments of the Company's balancesheets for the three-month and nine-month periods ended September 30, 2008 and2007, and a summary of changes in net interest income resulting from changes involume and changes in rate between the three-month and nine-month periods endedSeptember 30, 2008 and 2007.

-20-

 

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

 

 

**Three Months Ended 9/30/08**

**Three Months Ended 9/30/07**

** **

**Interest**

**Avg. Ann.**

** **

**Interest**

**Avg. Ann.**

**Avg.**

**Income/**

**Yield or**

**Avg.**

**Income/**

**Yield or**

**Balance**

**Expense**

**Rate**

**Balance**

**Expense**

**Rate**

**Assets:**

** **

** **

** **

** **

** **

** **

 
   Earning  assets:

** **

** **

** **

** **

** **

** **

 
      Loans,  net of unearned income (1)

$588,912

$ 9,914

6.73%

$558,715

$  10,980

7.86%

 
      Securities:

** **

** **

** **

** **

** **

** **

 
        Taxable

169,964

1,758

4.14   

186,552

2,022

4.34   

 
        Tax-exempt

26,970

406

(2)            6.02   

21,679

339

(2)            6.25   

 
      Federal  funds sold and securities purchased under 

** **

** **

** **

** **

** **

** **

 
        agreement  to resell

    22,549

       110

1.95   

    35,591

       445

5.00   

 
          Total  earning assets

  808,395

  12,188

6.03   

  802,537

  13,786

6.87   

 
    Other  assets

    47,443

** **

** **

    52,453

** **

** **

 
          Total  assets

$855,838

** **

** **

$854,990

** **

** **

    
** **

** **

** **

** **

** **

** **

 
**Liabilities  and stockholder equity**

** **

** **

** **

** **

** **

** **

 
    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

 
      Interest-bearing  deposits

$581,509

3,686

2.54   

$549,020

5,005

3.65   

 
      Federal  funds purchased and securities sold under

** **

** **

** **

** **

** **

** **

 
        agreement  to repurchase

59,469

321

2.16   

72,074

749

4.16   

 
      Other  short-term borrowings

      6,006

          43

2.86   

      2,019

         13

2.58   

 
          Total  interest-bearing liabilities

$646,984

$   4,050

2.50   

$623,113

$   5,767

3.70   

 
    Noninterest-bearing  deposits

117,035

** **

** **

134,186

** **

** **

 
    Other  liabilities

8,311

** **

** **

15,155

** **

** **

 
    Stockholders'  equity

    83,508

** **

** **

    82,536

** **

** **

 
          Total  liabilities and stockholders' equity

$855,838

** **

** **

$854,990

** **

** **

 
    Net  interest income as a percent of total

** **

** **

** **

** **

** **

** **

 
       earning  assets

$808,395

$   8,138

4.03   

$802,537

$   8,019

4.00   

    
** **

** **

** **

** **

** **

** **

    
** **

** **

** **

** **

** **

** **

 
**Ratios:**

** **

** **

** **

** **

** **

** **

 
Annualized  return on average total assets

** **

** **

1.11   

** **

** **

1.19   

 
Annualized  return on average stockholders' equity

** **

** **

11.42   

** **

** **

12.34   

 
Cash  dividends declared as a percent of net income

** **

** **

0   

** **

** **

0   

 
Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

 
  Average  total assets

** **

** **

9.76   

** **

** **

9.65   

 
  Average  total deposits

** **

** **

11.95   

** **

** **

12.08   

 
  Average  loans

** **

** **

14.18   

** **

** **

14.77   

 
Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

 
   average  total assets

** **

** **

94.46   

** **

** **

93.87   

    
** **

** **

 

** **

** **

 

 
(1)  The  Company had no out-of-period adjustments or foreign activities.  Loan fees of  $141 and $140 are included in the above interest income for September 30,  2008 and 2007, respectively.  Loans on a non-accrual basis for the  recognition of interest income totaling $3,230 and $827 for September 30,  2008 and 2007, respectively, are included in loans for the purpose of this  analysis.

    
** **

** **

 

** **

** **

 

 
(2)  Tax-exempt  income is presented on a tax-equivalent basis using a 34% tax rate.  The  amounts shown include tax-equivalent adjustments of $138 and $115 for September  30, 2008 and 2007, respectively.

 
** **

** **

 

** **

** **

 

 
****-21-
 
**CNB Corporation and Subsidiary  Average Balances, Yields, and Rates  (Dollars in Thousands)**

 

 

**Nine Months Ended 9/30/08**

**Nine Months Ended 9/30/07**

** **

**Interest**

**Avg. Ann.**

** **

**Interest**

**Avg. Ann.**

**Avg.**

**Income/**

**Yield or**

**Avg.**

**Income/**

**Yield or**

**Balance**

**Expense**

**Rate**

**Balance**

**Expense**

**Rate**

**Assets:**

** **

** **

** **

** **

** **

** **

 
   Earning  assets:

** **

** **

** **

** **

** **

** **

 
      Loans,  net of unearned income (1)

$586,156

$ 30,653

6.97%

$562,701

$  32,872

7.79%

 
      Securities:

** **

** **

** **

** **

** **

** **

 
        Taxable

173,502

6,158

4.73   

171,521

5,315

4.13   

 
        Tax-exempt

27,390

1,235

(2)       6.01   

21,423

1,002

(2)      6.24   

 
      Federal  funds sold and securities purchased under 

** **

** **

** **

** **

** **

** **

 
        agreement  to resell

    27,537

       532

2.58   

    30,673

    1,188

5.16   

 
          Total  earning assets

  814,585

  38,578

6.31   

  786,318

  40,377

6.85   

 
    Other  assets

    47,237

** **

** **

    58,460

** **

** **

 
          Total  assets

$861,822

** **

** **

$844,778

** **

** **

    
** **

** **

** **

** **

** **

** **

 
**Liabilities  and stockholder equity**

** **

** **

** **

** **

** **

** **

 
    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

 
      Interest-bearing  deposits

$590,773

13,154

2.97   

$545,710

14,790

3.61   

 
      Federal  funds purchased and securities sold under

** **

** **

** **

** **

** **

** **

 
        agreement  to repurchase

56,941

1,077

2.52   

67,919

2,076

4.08   

 
      Other  short-term borrowings

      5,344

        173

4.32   

      1,647

         49

3.97   

 
          Total  interest-bearing liabilities

$653,058

$ 14,404

2.94   

$615,276

$ 16,915

3.67   

 
    Noninterest-bearing  deposits

116,799

** **

** **

135,376

** **

** **

 
    Other  liabilities

8,589

** **

** **

13,720

** **

** **

 
    Stockholders'  equity

    83,376

** **

** **

    80,406

** **

** **

 
          Total  liabilities and stockholders' equity

$861,822

** **

** **

$844,778

** **

** **

 
    Net  interest income as a percent of total

** **

** **

** **

** **

** **

** **

 
       earning  assets

$814,585

$ 24,174

3.96   

$786,318

$ 23,462

3.98   

    
** **

** **

** **

** **

** **

** **

    
** **

** **

** **

** **

** **

** **

 
**Ratios:**

** **

** **

** **

** **

** **

** **

 
Annualized  return on average total assets

** **

** **

1.09   

** **

** **

1.19   

 
Annualized  return on average stockholders' equity

** **

** **

11.29   

** **

** **

12.47   

 
Cash  dividends declared as a percent of net income

** **

** **

0   

** **

** **

0   

 
Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

 
  Average  total assets

** **

** **

9.67   

** **

** **

9.52   

 
  Average  total deposits

** **

** **

11.78   

** **

** **

11.81   

 
  Average  loans

** **

** **

14.22   

** **

** **

14.29   

 
Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

 
   average  total assets

** **

** **

94.52   

** **

** **

93.08   

    
** **

** **

 

** **

** **

 

 
(1)  The  Company had no out-of-period adjustments or foreign activities.  Loan fees of  $472 and $451 are included in the above interest income for September 30,  2008 and 2007, respectively.  Loans on a non-accrual basis for the  recognition of interest income totaling $3,230 and $827 for September 30,  2008 and 2007, respectively, are included in loans for the purpose of this  analysis.

    
** **

** **

 

** **

** **

 

 
(2)  Tax-exempt  income is presented on a tax-equivalent basis using a 34% tax rate.  The  amounts shown include tax-equivalent adjustments of $420 and $341 for September  30, 2008 and 2007, respectively.

 
** **

** **

 

** **

** **

 

 
****-22-** **
 
The   table "Rate/Volume Variance Analysis" provides a summary of changes in net   interest income resulting from changes in rate and changes in volume.  The   changes due to rate are calculated as the difference between the current and   prior year's rates multiplied by the prior year's volume.  The changes due   to volume are calculated as the difference between the current and prior   year's volume multiplied by the current rates earned or paid (this   calculation effectively allocates all rate/volume variances to volume   variances).

**CNB Corporation and Subsidiary   Rate/Volume Variance Analysis   For the Three Months Ended September 30, 2008 and 2007   (Dollars in Thousands)**

 

 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

 

**Average**

**Average**

** **

** **

**Interest**

**Interest**

** **

**Change**

**Change**

** **

 

**Volume**

**Volume**

**Yield/Rate**

**Yield/Rate**

**Earned/Paid**

**Earned/Paid**

** **

**Due to**

**Due to**

** **

 

**2008**

**2007**

**2008(3)**

**2007(3)**

**2008**

**2007**

**Variance**

**Rate**

**Volume**

** **

**Earning   Assets:**

 

 

 

 

 

 

 

 

 

 

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

$588,912

$558,715

6.73%

7.86%

$9,914

$10,980

$(1,066)

$(1,574)

$   508 

 

**  Investment   securities:**

 

 

 

 

 

 

 

 

 

 

**    Taxable**

169,964

186,552

4.14%

4.34%

1,758

2,022

(264)

(92)

(172)

 

**    Tax-exempt   (2)**

26,970

21,679

6.02%

6.25%

406

339

67 

(13)

80 

 

**  Federal   funds sold and Securities**

 

 

 

 

 

 

 

 

 

 

**    purchased   under agreement to resell**

    22,549

    35,591

1.95%

5.00%

      110

       445

     (335)

    (271)

      (64)

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Earning Assets**

$808,395

$802,537

6.03%

6.87%

$12,188

$13,786

$(1,598)

$(1,950)

$   352 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest-bearing   Liabilities:**

 

 

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**  Interest-bearing   deposits**

$581,509

$549,020

2.54%

3.65%

$  3,686

$  5,005

$(1,319)

$(1,525)

$   206 

 

**  Federal   funds purchased and securities**

 

 

 

 

 

 

 

 

 

 

**    sold   under agreement to repurchase**

59,469

72,074

2.16%

4.16%

321

749

(428)

(360)

(68)

 

**  Other   short-term borrowings**

      6,006

      2,019

2.86%

2.58%

       43

         13

         30 

          1 

       29 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Interest-bearing Liabilities**

  646,984

  623,113

2.50%

3.70%

  4,050

    5,767

   (1,717)

  (1,884)

     167 

 

**Interest-free    Funds Supporting**

 

 

 

 

 

 

 

 

 

 

**  Earning   Assets**

  161,411

  179,424

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Funds Supporting Earning Assets**

$808,395

$802,537

2.00%

2.87%

$  4,050

$  5,767

$ (1,717)

$(1,884)

$   167 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest   Rate Spread**

 

 

3.53%

3.17%

 

 

 

 

 

 

**Impact   of Non-interest-bearing Funds**

 

 

 

 

 

 

 

 

 

 

**  on   Net Yield on Earning Assets**

 

 

  .50%

  .83%

             

             

 

 

 

 

**Net   Yield on Earning Assets**

 

 

4.03%

4.00%

$  8,138

$  8,019

 

 

 

 

(1)  Includes non-accruing loans which does not have a materialeffect on the Net Yield on Earning Assets.(2)  Tax-equivalent adjustment based on a 34% tax rate.(3)  Annualized

-23-

**CNB Corporation and Subsidiary   Rate/Volume Variance Analysis   For the Nine Months Ended September 30, 2008 and 2007   (Dollars in Thousands)**

 

 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

 

**Average**

**Average**

** **

** **

**Interest**

**Interest**

** **

**Change**

**Change**

** **

 

**Volume**

**Volume**

**Yield/Rate**

**Yield/Rate**

**Earned/Paid**

**Earned/Paid**

** **

**Due to**

**Due to**

** **

 

**2008**

**2007**

**2008(3)**

**2007(3)**

**2008**

**2007**

**Variance**

**Rate**

**Volume**

** **

**Earning   Assets:**

 

 

 

 

 

 

 

 

 

 

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

$586,156

$562,701

6.97%

7.79%

$30,653

$32,872

$(2,219) 

 $(3,446)

$ 1,227 

 

**  Investment   securities:**

 

 

 

 

 

 

 

 

 

 

**    Taxable**

173,502

171,521

4.73%

4.13%

6,158

5,315

843  

773 

70 

 

**    Tax-exempt   (2)**

27,390

21,423

6.01%

6.24%

1,235

1,002

233  

(36)

269 

 

**  Federal   funds sold and Securities**

 

 

 

 

 

 

 

 

 

 

**    purchased   under agreement to resell**

    27,537

    30,673

2.58%

5.16%

       532

    1,188

     (656) 

     (595)

      (61)

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Earning Assets**

$814,585

$786,318

6.31%

6.85%

$38,578

$40,377

$(1,799) 

$(3,304)

$ 1,505 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest-bearing   Liabilities:**

 

 

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**  Interest-bearing   deposits**

$590,773

$545,710

2.97%

3.61%

$13,154

$14,790

$(1,636) 

$(2,639)

$ 1,003 

 

**  Federal   funds purchased and securities**

 

 

 

 

 

 

 

 

 

 

**    sold   under agreement to repurchase**

56,941

67,919

2.52%

4.08%

1,077

2,076

(999) 

(791)

(208)

 

**  Other   short-term borrowings**

      5,344

      1,647

4.32%

3.97%

       173

         49

      124   

          4 

     120 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Interest-bearing Liabilities**

  653,058

  615,276

2.94%

3.67%

  14,404

  16,915

  (2,511) 

  (3,426)

     915 

 

**Interest-free    Funds Supporting**

 

 

 

 

 

 

 

 

 

 

**  Earning   Assets**

  161,527

  171,042

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Funds Supporting Earning Assets**

$814,585

$786,318

2.35%

2.87%

$14,404

$16,915

$(2,511) 

$(3,426)

$   915 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest   Rate Spread**

 

 

3.37%

3.18%

 

 

 

 

 

 

**Impact   of Non-interest-bearing Funds**

 

 

 

 

 

 

 

 

 

 

**  on   Net Yield on Earning Assets**

 

 

  .59%

  .80%

             

             

 

 

 

 

**Net   Yield on Earning Assets**

 

 

3.96%

3.98%

$24,174

$23,462

 

 

 

 

(1)  Includes non-accruing loans which does not have a materialeffect on the Net Yield on Earning Assets.(2)  Tax-equivalent adjustment based on a 34% tax rate.(3)  Annualized

-24-

**NET INCOME (continued)**

Provision for Loan Losses - The allowance for loan losses is maintained atan amount based on considerations of classified and internally-identifiedproblem loans, the current trend in delinquencies, the volume of past-dueloans, historical loss experience, current economic conditions, over-marginedreal estate loans, if any, the effects of changes in risk selection orunderwriting practices, the experience, ability and depth of lending managementand staff, industry conditions, the effect of changes in concentrations ofcredit, and loan administration risks.

The provision for loan losses was $500 for the three-month period ended September30, 2008 and $220 for the three-month period ended September 30, 2007.  Netloan charge-offs/(recoveries) totaled $444 for the three-month period ended September30, 2008 and $195 for the same period in 2007.

The provision for loan losses was $1,354 for the nine-month period ended September30, 2008 and $581 for the nine-month period ended September 30, 2007.  Net loancharge-offs/(recoveries) totaled $1,069 for the nine-month period ended September30, 2008 and $668 for the same period in 2007.  The increased provisions duringthe nine-month period ended September 30, 2008 reflects moderate growth in theloan portfolio and a higher level of net charge-offs during the period. Theallowance for loan losses as a percentage of net loans was 1.17% at September30, 2008 and was 1.15% at September 30, 2007.

The levels of loans on which no interest was being accrued, impaired loans,foreclosed real estate, and classified assets at September 30, 2008 and 2007are outlined in the notes to the consolidated unaudited financial statements(See NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES).  All of these measurementsincreased during 2008, some markedly, and remained above levels historicallyexperienced by the Company at September 30, 2008.  Although increased,management considers all such levels well manageable, within guidelinespreviously established by the Company, and well below current industryaverages.  However, management recognizes the potential for furtherdeterioration of economic conditions in the Company's market areas in theshort-term, especially with respect to real estate related activities and realproperty values.  Consequently, management anticipates the Company willcontinue to incur above average provisions for loan losses in the fourthquarter of 2008, through the first half of 2009, and possibly further into thefuture.

SecuritiesTransactions - At September 30, 2008, December 31, 2007, and September 30, 2007total market value appreciation in the investment portfolio totaled $1,773, $1,728,and $174, respectively.  As indicated, market values increased from September30, 2007 to December 31, 2007, and from December 31, 2007 to September 30,2008, due to a decline in market rates commencing in the third quarter of 2007and leveling by the end of the second quarter.  However, bond values havefluctuated during 2008 due to variances in the slope of the yield curve as aresult of instability in new issue coupon rates and intermittent movement offunds between the bond market and the stock market.  The changes in marketvalue appreciation/(depreciation) in the investment portfolio do not directlyaffect operating results since the Company does not acquire investmentsecurities for trading.  However, the changes in the market valueappreciation/(depreciation) in the investment portfolio for the three and nine-monthperiods ended September 30, 2008 and September 30, 2007 are a component ofComprehensive Income and are set forth in the Condensed Consolidated Statementsof Comprehensive Income contained herein.

Noninterest Income - Noninterest income, net of any gains/losses on securitytransactions, increased by 16.8% to $2,047 for the three-month period ended September30, 2008 from $1,753 for the three-month period ended September 30, 2007.   Noninterestincome, net of any gains/losses on security transactions, increased by 8.9% to$5,620 for the nine-month period ended September 30, 2008 from $5,160 for the nine-monthperiod ended September 30, 2007.  The increase in noninterest income for thethree-month period ended September 30, 2008, was primarily due to higher otheroperating income, which was up 28.5%.  The increase in noninterest income forthe nine-month period ended September 30, 2008, was due to higher servicecharge income on deposit accounts, up 6.4% and higher other operating income, whichwas up 12.0%.

Noninterest Expenses - Noninterest expenses increased by 3.8% to $5,917 for thethree-month period ended September 30, 2008 from $5,703 for the three-monthperiod ended September 30, 2007.  The major components of noninterest expensesare salaries and employee benefits, which decreased slightly .3% to $3,741 from$3,751; occupancy expense which increased 3.4% to $820 from $793; and otheroperating expenses which increased by 17.0% to $1,356 from $1,159.  Occupancyexpense generally continues to grow due to the addition of new bankingfacilities.  The increase in other operating expense is primarily due to areclassification of expenses, further discussed in the following paragraph.

-25-

**NET INCOME(continued)**

Noninterest expenses increased by 6.6% to $17,378 for the nine-month periodended September 30, 2008 from $16,309 for the nine-month period ended September30, 2007.  The major components of noninterest expenses are salaries andemployee benefits which increased 7.1% to $11,152 from $10,412.  A portion ofthe increase in salaries expense is attributable to the implementation ofamended FAS 91 accounting procedures in the first quarter of 2007, whicheffectively lowered salaries expense for that period.  Occupancy expensedecreased 2.2% to $2,354 for the nine-month period ended September 30, 2008from $2,406 for the same period in 2007.  Other operating expenses increased10.9% to $3,872 from $3,491 for the same periods, respectively.  The decline inoccupancy expense is attributable to a reclassification of a portion ofutilities expense, telecommunications, to other operating expense, whichincreased during the period for the same reason.

Income Taxes - Provisions for income taxes increased 4.8% to $1,245 for the three-monthperiod ended September 30, 2008 from $1,188 for the three-month period ended September30, 2007.  Income before income taxes less interest on tax-exempt investmentsecurities decreased 4.2% to $3,362 for the three-month period ended September30, 2008 from $3,510 for the same period in 2007. 

Provisions for income taxes decreased 7.6% to $3,580 for the nine-month periodended September 30, 2008 from $3,874 for the nine-month period ended September30, 2007.  Income before income taxes less interest on tax-exempt investmentsecurities decreased by 8.4% to $9,827 for the nine-month period ended September30, 2008 from $10,730 for the same period in 2007.

**LIQUIDITY**

The Bank's liquidity position is primarily dependent on short-term demands forfunds caused by customer credit needs and deposit withdrawals and upon the liquidationof bank assets to meet these needs.  The Bank's liquidity sources include cashand due from banks, federal funds sold, and short-term investments. Inaddition, the Bank has established federal funds lines of credit fromcorrespondent banks and has the ability to borrow funds from the FederalReserve System and the Federal Home Loan Bank of Atlanta. Management feels thatshort-term and long-term liquidity sources are more than adequate to meetfunding needs, including the funding of off-balance sheet loan commitments andstandby letters of credit, if the need arises.  Although the Bank has notexperienced heavy liquidity pressures, there can be no assurance that suchpressures could not be felt in the future.  Neither the Company nor the Bank isinvolved in other off-balance sheet contractual relationships or transactionsthat could result in liquidity needs or other commitments or significantlyimpact earnings.

**CAPITAL RESOURCES**

Total stockholders' equity was $85,970 and $82,112 at September 30, 2008 and December31, 2007, representing 10.07% and 9.49% of total assets, respectively.  At September30, 2008, the Company and the Bank exceeded quantitative measures establishedby regulation to ensure capital adequacy (see NOTE 12 to the consolidated unauditedfinancial statements - REGULATORY MATTERS).  Capital is considered sufficientby management to meet current and prospective capital requirements and tosupport anticipated growth in Bank operations.

**CRITICAL ACCOUNTING POLICIES**

We have adopted various accounting policies which govern the application ofaccounting principles generally accepted in the United States of America in thepreparation of our financial statements.  Our significant accounting policiesare described in the notes to the consolidated financial statements at December31, 2007 as filed in our Annual Report on Form 10-K.  Certain accountingpolicies involve significant judgments and assumptions by us which have amaterial impact on the carrying value of certain assets and liabilities.  Weconsider these accounting policies to be critical accounting policies.  Thejudgments and assumptions we use are based on historical experience and otherfactors, which we believe to be reasonable under the circumstances.  Because ofthe nature of the judgments and assumptions we make, actual results coulddiffer from these judgments and estimates that could have a major impact on ourcarrying values of assets and liabilities and our results of operations.

We believe the allowance for loan losses is a critical accounting policy thatrequires the most significant judgments and estimates used in preparation ofour consolidated financial statements.  Refer to the portions of our 2007Annual Report on Form 10-K and this Form 10-Q that address our allowance forloan losses for description of our processes and methodology for determiningour allowance for loan losses. 

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**RISKS AND UNCERTAINTIES**

In the normal course of its business the Company encounters two significanttypes of risks: economic and regulatory.  There are three main components ofeconomic risk: interest rate risk, credit risk and market risk.  The Company issubject to interest rate risk to the degree that its interest-bearingliabilities mature or re-price at different speeds, or on different basis, thanits interest-earning assets.  Credit risk is the risk of default on theCompany's loan portfolio that results from borrower's inability orunwillingness to make contractually required payments. Market risk, as itrelates to lending and real estate held for operating locations, results frompotential changes in the value of collateral underlying loans receivable andthe market value of real estate held by the Company.

The Company is subject to the regulations of various governmental agencies. These regulations 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 from the regulators'judgments based on information available to them at the time of theirexamination.

**Item 3.  QUANTITATIVE 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 its interestrate risk exposure.  In addition to other risks which the Company manages inthe normal course of business, such as credit quality and liquidity risk,management considers interest rate risk to be a significant market risk thatcould potentially have a material effect on the Company's financial conditionand results of operations (See MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS - Net Income - Net InterestIncome).  Other types of market risks, such as foreign currency risk andcommodity price risk, do not arise in the normal course of the Company'sbusiness activities.

**Item 4.  CONTROLS AND PROCEDURES**

Based on the evaluation required by 17 C.F.R. Section 240.13a-15(b) or240.15d-15(b) of the Company's disclosure controls and procedures (as definedin 17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e), the Company's chiefexecutive officer and chief financial officer concluded that such controls andprocedures, as of the end of the period covered by this quarterly report, wereeffective.

There has been no change inthe Company's internal control over financial reporting during the most recentfiscal quarter that has materially affected, or is reasonably likely tomaterially affect, the Company's internal control over financial reporting.

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**PART II**

** **

**Item1A.  Risk Factors**

The following are additional risk factors for the Company, to be read inconjunction with Item 1A, "Risk Factors - Risks Related to Our Industry"in the Company's Form 10-K for the year ended December 31, 2007. 

**1.  Therecan be no assurance that recent government actions will help stabilize the U.S.financial system.**

Inresponse 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 actualimpact that such laws, regulations, and programs will have on the financialmarkets, including the extreme levels of volatility, liquidity and confidenceissues, and limited credit availability currently being experienced. Thefailure of such laws, regulations, and programs to help 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.

**2.  Current levels of market volatility are unprecedented.**

Althoughmany markets have been experiencing volatility and disruption for months, inthe past few weeks, the volatility and disruption of financial and creditmarkets has reached unprecedented levels for recent times. In some cases, themarkets have produced downward pressure on stock prices and credit availabilityfor certain issuers without regard to those issuers' underlying financialstrength. If current levels of market disruption and volatility continue orworsen, there can be no assurance that we will not experience an adverseeffect, which may be material, on our ability to access capital and on ourbusiness, financial condition, and results of operations.

**3.  Thesoundness of other financial institutions could adversely affect us.**

Financialservices institutions 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 sponsored enterprises. Manyof these transactions expose us to credit risk in the event of default of ourcounterparty. In addition, our credit risk may be exacerbated when thecollateral held by us cannot be realized or is liquidated at prices notsufficient to recover the full amount of the loan or other obligation due us.There is no assurance that any such losses would not materially and adverselyaffect our results of operations or earnings. 

**4.  Currentmarket developments may adversely affect our industry, business, and results ofoperations.**

Dramaticdeclines in the housing market during the prior year, with falling home pricesand increasing foreclosures and unemployment, have resulted in significantwrite-downs of asset values by financial institutions, includinggovernment-sponsored entities and major commercial and investment banks. Thesewrite-downs, initially of mortgage-backed securities but spreading to creditdefault swaps and other derivative securities, have caused many financialinstitutions to seek additional capital, to merge with larger and strongerinstitutions and, in some cases, to fail. Reflecting concern about thestability 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 of confidence in thefinancial sector, increased volatility in the financial markets, and reducedbusiness activity could materially and adversely, directly or indirectly,affect our business, financial condition and results of operations.

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**Item2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

**ISSUER SALES OF EQUITY SECURITIES**

On  September 30, 2008 the Company issued 318 shares of its common stock to the  Company sponsored profit sharing and savings plan, The Conway National Bank  Profit Sharing and Savings Plan, for an aggregate purchase price of $50,721.   Issuance of the securities was exempt from registration pursuant to Section  4(2) of the Securities Act of 1933 because the transaction did not involve a  public offering.  There were no underwriting commissions or discounts.

**ISSUER PURCHASES OF EQUITY SECURITIES**

**Period**

**(a) Total Number  of Shares  Purchased (1)**

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

**(c) Total Number  of Shares   Purchased as  Part of Publicly  Announced  Program**

**(d) Maximum  Number of  Shares that May  Yet Be Purchased  Under the  Program**

July 1 - July 31, 2008

608           

$161.02

-

-

August 1 - August 31, 2008

96           

 159.50

-

-

September 1 - September 30, 2008

       810           

  159.50 

-

-

Total

1,514           

$160.11

-

-

(1) During the periodcovered by this report, the Company purchased 1,514 shares of stock fromshareholders, at the request of the shareholders, which are held by the Companyas Treasury Stock.  These shares were purchased on a case-by-case basis and notpursuant to any formal program.

**Item 6.  EXHIBITS**

 

All  exhibits, the filing of which are required with this Form, are listed below

 

31.1

Certification  of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)  of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.

** **

** **

31.2

Certification  of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)  of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.

** **

** **

32.1

Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

32.2

Certification of Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.

**SIGNATURE**Pursuant to the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

**CNB Corporation**

 

(Registrant)

 

 

 

/s/L. Ford Sanders,  II                          

 

L. Ford Sanders, II

 

Executive Vice President, 

 

Treasurer and Chief Financial  Officer

Date:  November7, 2008

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**EXHIBIT INDEX**

 

31.1

Certification  of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)  of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.

** **

** **

31.2

Certification  of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)  of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.

** **

** **

32.1

Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

32.2

Certification of Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |