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| **SECURITIES  AND EXCHANGE COMMISSION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **Washington,  D.C.  20549**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **FORM  10-Q**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (Mark One)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| [**X]**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                    For  the quarterly period ended**                             September   30, 2009                                             **                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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 has submitted electronically and posted on its  corporate Web site, if any, every Interactive Data File required to be  submitted and posted pursuant to Rule 405 of Regulation S-T during the  preceding 12 months (or for such shorter period that the registrant was  required to submit and post such files).  Yes [   ]     No  [   ]  (Not yet applicable to Registrant)                                                                                                                                                                                                                                                       |
|      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:  1,677,482 shares of common stock, par value $5 per share, November  1, 2009, adjusted for the effect of a two-for-one stock split declared  October 13, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |  |  |

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| **CNB  Corporation**                                                                                                                                                                                                                     |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                               | **Page**   |
| ** **                                                                                                                                                                                                                               |       |
| **Forward-Looking  Statements**                                                                                                                                                                                                          | 1          |
| ** **                                                                                                                                                                                                                               |       |
| **PART  I.    FINANCIAL INFORMATION **                                                                                                                                                                          |       |
| ** **                                                                                                                                                                                                                               |       |
| **Item  1.       Financial Statements:**                                                                                                                                                              | ** ** |
| ** **                                                                                                                                                                                                                               | ** ** |
| **Condensed  Consolidated Balance Sheets as of  September 30, 2009,  December 31, 2008, and September 30, 2008**                                                                                                                    | 2          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Income for the Three and Nine  Months Ended September 30, 2009 and 2008**                                                                                                                        | 3          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Comprehensive Income for the  Three and Nine Months Ended September 30, 2009 and 2008**                                                                                                          | 4          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Changes in Stockholders' Equity  for the Nine Months Ended September 30,  2009 and 2008**                                                                                                   | 5          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Cash Flows for the Nine Months  Ended September 30, 2009 and 2008**                                                                                                                              | 6          |
| ** **                                                                                                                                                                                                                               |       |
| **Notes  to Consolidated Financial Statements**                                                                                                                                                                                          | 7-18       |
| ** **                                                                                                                                                                                                                               |       |
| **Item  2.     Management's Discussion and Analysis of  Financial                   Condition  and Results of Operations** | 19-28      |
| ** **                                                                                                                                                                                                                               |       |
| **Item  3.     Quantitative and Qualitative Disclosures  About Market Risk**                                                                                                                                    | 29         |
| ** **                                                                                                                                                                                                                               |       |
| **Item  4.     Controls and Procedures**                                                                                                                                                                        | 29         |
| ** **                                                                                                                                                                                                                               |       |
| **PART  II.   OTHER INFORMATION**                                                                                                                                                                                         |       |
| ** **                                                                                                                                                                                                                               |       |
| **Item  2.     Unregistered Sales of Equity Securities and  Use of Proceeds**                                                                                                                                   | 30         |
| ** **                                                                                                                                                                                                                               |       |
| **Item  6.    Exhibits**                                                                                                                                                                                             | 30         |
| **SIGNATURE**                                                                                                                                                                                                                            | 30         |

----

**CAUTIONARYNOTICE WITH RESPECT TOFORWARD LOOKING STATEMENTS**

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

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

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

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

Allforward-looking statements are expressly qualified in their entirety by thiscautionary notice.  The Company has no obligation, and does notundertake, to update, revise or correct any of the forward-looking statements afterthe date of this report.  The Company has expressed its expectations,beliefs and projections in good faith and believes they have a reasonablebasis.  However, there is no assurance that these expectations,beliefs or projections will result 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,** |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | **2009** | **2008** | **2008** |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | (Unaudited) |                           | (Unaudited) |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |
| **    Cash  and due from banks**                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $ 48,779  | $ 19,259   | $  18,110      |
| **    Investment  securities held to maturity**                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 9,210  | 9,758   | 8,297      |
|       (Fair  values of  $9,494 at September 30, 2009,        $9,570 at December 31, 2008, and  $8,362  at         September 30, 2008)                                                                                                                                                                                                                                                                            |   |   |   |
| **    Investment  securities available for sale**                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 222,502  | 194,178   | 188,374      |
|       (Amortized  cost of  $220,443 at September 30,         2009, $191,680 at December 31, 2008,  and                                                                                                                                                                                                                                                                                                                                                   |   |   |   |
|        $186,666  at September 30, 2008)                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |
| **    Federal  funds sold and securities purchased**                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |   |
| **      under  agreement to resell**                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 14,000  | 21,000   | 20,000      |
| **    Other  investments**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 3,041  | 3,024   | 2,124      |
| **    Loans:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |
| **       Total  loans**                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 586,947  | 598,281   | 588,371      |
| **       Less  allowance for possible loan losses**                                                                                                                                                                                                                                                                                                                                                                                                                                         |     (8,967) |      (7,091)  |      (6,792)     |
| **         Net  loans**                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 577,980  | 591,190   | 581,579      |
| **    Bank  premises and equipment**                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 23,596  | 23,403   | 23,003      |
| **    Other  assets**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |     13,227  |     12,813   |     12,003      |
| **Total  assets**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | $912,335  | $874,625   | $853,490      |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |
| **LIABILITIES AND STOCKHOLDERS' EQUITY:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   |   |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |
| **    Deposits:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |   |
| **       Non-interest  bearing**                                                                                                                                                                                                                                                                                                                                                                                                                                                            | $107,026  | $100,560   | $111,473       |
| **       Interest-bearing**                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |    579,308  |    578,659   |   574,543       |
| **          Total  deposits**                                                                                                                                                                                                                                                                                                                                                                                                                                                |    686,334  |    679,219   |   686,016       |
| **    Federal funds purchased  and securities sold under**                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |
| **          agreement  to repurchase**                                                                                                                                                                                                                                                                                                                                                                                                                                       | 110,151  | 67,415   | 60,812       |
| **    United  States Treasury demand notes**                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 743  | 2,672   | 2,674       |
| **    Federal  Home Loan Bank advances**                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 20,000  | 30,000   | 10,000       |
| **    Short  term note payable**                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 0  | 1,120   | 1,119       |
| **    Other  liabilities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       6,192  |     10,673   |       6,899       |
| ** Total  liabilities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   823,420  |   791,099   |   767,520       |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |
| **   Stockholders'  equity:**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   |   |
|       **Common  stock***, par value $5 per share; Authorized        3,000,000;  issued 1,679,124 at September 30, 2009,        1,659,036  at December 31, 2008, and  1,664,740 at        September   30, 2008.                                                                                                                                                           | 8,396  | 8,295   | 8,323       |
| **       Capital  in excess of par value of stock**                                                                                                                                                                                                                                                                                                                                                                                                                                         | 51,563  | 50,085   | 50,512       |
| **       Retained  earnings**                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 27,721  | 23,648   | 26,110       |
| **       Accumulated  other comprehensive income**                                                                                                                                                                                                                                                                                                                                                                                                                                          |       1,235  |       1,498   |       1,025       |
| **   Total  stockholders' equity**                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     88,915  |     83,526   |     85,970       |
| **Total  liabilities and stockholders' equity**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | $912,335  | $874,625   | $853,490       |
|         ***Adjusted for the effect of  a two-for-one stock split during 2009.*****                                                          See  Notes to Consolidated Financial Statements*** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |  |  |  |

-2-

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| **CNB Corporation and Subsidiary  Condensed Consolidated Statements of Income  (All Dollar Amounts, Except Per Share Data, in Thousands)  (Unaudited)**            |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                         |
| ** **                                                                                                                                                         | **Three Months Ended** | **Nine Months Ended** |
| ** **                                                                                                                                                         | **September 30,** | **September 30,** |
| **Interest  Income:**                                                                                                                                              | ** 2009** | **          2008** | **     2009** | **    2008** |
|   Interest and fees on  loans                                                                                                                            | $    9,228   | $    9,914   | $   28,017  | $    30,653  |
|   Interest on  investment securities:                                                                                                                    |   |   |   |   |
|     Taxable  investment securities                                                                                                             | 1,247   | 1,758   | 4,257  | 6,158  |
|     Tax-exempt  investment securities                                                                                                          | 316   | 268   | 897  | 815  |
|   Interest on federal  funds sold and securities        purchased under agreement to resell                                |           3   |         110   |        23  |        532  |
|  Other interest income                                                                                                                                        |           27   |              0   |            44  |               0  |
| **      Total  interest income**                                                                                                     |     10,821  |     12,050   |     33,238  |      38,158  |
|                                                                                                                                                                    | ** ** | ** ** | ** ** | ** ** |
| **Interest  Expense:**                                                                                                                                             | ** ** | ** ** | ** ** | ** ** |
|   Interest on deposits                                                                                                                                   | 2,539   | 3,686   | 8,202  | 13,154  |
|   Interest on federal  funds purchased and securities                                                                                                    |   |   |   |   |
|      sold  under agreement to repurchase                                                                                                  | 279   | 321   | 869  | 1,077  |
|   Interest on other  short-term borrowings                                                                                                               |           79   |            43   |          265  |           173  |
| **      Total  interest expense**                                                                                                    |      2,897   |       4,050   |       9,336  |      14,404  |
|                                                                                                                                                                    |  |   |   |   |
| **  Net  interest income**                                                                                                                               |     7,924   |     8,000   |    23,902  |     23,754  |
| **  Provision  for loan losses**                                                                                                                         |      2,221   |          500   |        6,547  |        1,354  |
| **  Net  interest income after provision for loan losses**                                                                                               |      5,703   |       7,500   |      17,355  |      22,400  |
|                                                                                                                                                                    | ** ** | ** ** | ** ** | ** ** |
| **  Noninterest  income:**                                                                                                                               | ** ** | ** ** | ** ** | ** ** |
|     Service  charges on deposit accounts                                                                                                       | 904   | 952   | 2,604  | 2,863  |
|     Gains on  sale of securities                                                                                                               | 0   | 0   | 1,352  | 0  |
|     Other  operating income                                                                                                                    |         998   |       1,095   |        2,322  |        2,757  |
| **        Total  noninterest income**                                                                                      |      1,902   |       2,047   |        6,278  |        5,620  |
| ** **                                                                                                                                                         | ** ** | ** ** | ** ** | ** ** |
| **  Noninterest  expenses:**                                                                                                                             | ** ** | ** ** | ** ** | ** ** |
|     Salaries  and employee benefits                                                                                                            | 3,472   | 3,741   | 10,565  | 11,152  |
|     Occupancy  expense                                                                                                                         | 824   | 820   | 2,426  | 2,354  |
|     Other  operating expenses                                                                                                                  |      1,403   |       1,356   |        4,712  |        3,872  |
| **        Total  noninterest expenses**                                                                                    |      5,699   |       5,917   |      17,703  |      17,378  |
|                                                                                                                                                                    |  |   |   |   |
| **  Income  before income taxes**                                                                                                                        |     1,906   |      3,630   |     5,930  |     10,642  |
| **    Income  tax provision**                                                                                                                  |         614   |        1,245   |        1,859  |        3,580  |
| **  Net  income**                                                                                                                                        | $   1,292   | $     2,385   | $     4,071  | $     7,062  |
| ** **                                                                                                                                                         | ** ** | ** ** | ** ** | ** ** |
| **Per  Share Data***                                                                                                                                               | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                         | ** ** | ** ** | ** ** | ** ** |
| **   Net  income per weighted average shares outstanding**                                                                                          | $        .77   | $       1.43   | $       2.44  | $       4.21  |
| ** **                                                                                                                                                         |   |   |   |   |
| **   Cash  dividend paid per share**                                                                                                                | $           0   | $            0   | $            0  | $           0   |
| ** **                                                                                                                                                         |   |   |   |   |
| **   Book  value per actual number of shares outstanding**                                                                                          | $     52.95  | $     51.64   | $     52.95  | $     51.64  |
| ** **                                                                                                                                                         |   |   |   |   |
| **   Weighted  average number of shares outstanding**                                                                                               | 1,680,612  | 1,665,794   | 1,670,782  | 1,676,690  |
| ** **                                                                                                                                                         |   |   |   |   |
| **   Actual  number of shares outstanding**                                                                                                         | 1,679,124  | 1,664,740   | 1,679,124  | 1,664,740  |
|       ***Adjusted for the effect of  a two-for-one stock split during 2009.**

***See Notes to Consolidated  Financial Statements*** |

-3-

----

|  
**                  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,** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | ** ** | ** ** | ** ** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | **    2009    ** | **   2008   ** | **    2009    ** | **   2008   ** |
| **Net  income**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $   1,292   | $  2,385  | $   4,071   | $  7,062  |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |
| **Other  comprehensive income/(loss), net of tax**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |   |   |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |
|     Unrealized  gains on securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   |   |   |
|     Unrealized  holding gains during period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 1,051  | 1,379  | 602   | -   |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |   |   |
| **    **Reclassification adjustment for  gains included in net income** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | -   | -   | (865) | -   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | **               ** | **             ** | **               ** | **             ** |
| **Net  comprehensive income**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | **$   2,343 ** | **$ 3,925 ** | **$   3,808 ** | **$ 7,062 ** |

 

***See Notes to Consolidated 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,** |
|                                                                                                                                                     | **2009** | **2008** |
| **Common  Stock:**                                                                                                                                       |   |   |
| ($5  par value, 3,000,000 shares authorized*)                                                                                                            |   |   |
| Balance,  January 1                                                                                                                                      | $   8,295  | $  8,521   |
| Issuance  of Common Stock                                                                                                                 | 188  | 3   |
| Repurchase  of Common Stock                                                                                                                              |         (88) |     (201)  |
| Balance  at end of period                                                                                                                                |      8,396  |    8,323   |
|                                                                                                                                                     |   |   |
| **Surplus:**                                                                                                                                             |   |   |
| Balance,  January 1                                                                                                                                      | 50,085  | 53,519   |
| Issuance  of Common Stock                                                                                                                                | 2,786  | 48   |
| Repurchase  of Common Stock                                                                                                                              |     (1,308) |    (3,054)  |
| Balance  at end of period                                                                                                                                |    51,563  |    50,512   |
|                                                                                                                                                     |   |   |
| **Undivided  profits:**                                                                                                                                  |   |   |
| Balance,  January 1                                                                                                                                      | 23,648  | 19,047   |
| Net  Income                                                                                                                                              | 4,071  | 7,062   |
| Cash  dividends declared                                                                                                                                 |            -   |             -    |
| Balance  at end of period                                                                                                                                |    27,721  |    26,110   |
|                                                                                                                                                     |   |   |
| **Net  unrealized holding gains/(losses) on securities:**                                                                                                |   |   |
| Balance,  January 1                                                                                                                                      | 1,498  | 1,025   |
| Change  in net unrealized gains/losses                                                                                                                   |      (263) |            0   |
| Balance  at end of period                                                                                                                                |    1,235  |     1,025   |
|                                                                                                                                                     |   |   |
|                                                                                                                                                     | **              ** | **               ** |
| **Total  stockholders' equity**                                                                                                                          | **$88,915 ** | **$85,970  ** |
| ** **                                                                                                                                               | ** ** | ** ** |
| Note:  Columns  may not add due to rounding.                                                                                                   | ** ** | ** ** |
| ** **                                                                                                                                               | ** ** | ** ** |
| *Adjusted  for the effect of a two-for-one stock split during 2009.                                                                                      | ** ** | ** ** |
| ** **                                                                                                                                               | ** ** | ** ** |
| ** **                                                                                                                                               | ** ** | ** ** |

***See Notes to Consolidated 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,** |
| ** **                                                                                                                                 | **2009** | **2008** |
| **OPERATING  ACTIVITIES**                                                                                                                  | ** ** | ** ** |
|   Net  Income                                                                                                                    | $    4,071   | $    7,062   |
|   Adjustments  to reconcile net income to net cash provided by operating activities                                              | ** ** | ** ** |
|     Depreciation  and amortization                                                                                     | 1,170   | 1,064   |
|     Provision  for loan losses                                                                                         | 6,547   | 1,354   |
|     Provision  for deferred income taxes                                                                               | (610)  | 434   |
|     Net  discount accretion and premium amortization on investment securities                                          |    614   | (715)  |
|     Gain  on sale of investment securities                                                                             | (1,352)  | -    |
|     Net  (gain)/loss on sale of foreclosed assets                                                                      | 9   | (17)  |
|     Write-down  of foreclosed assets                                                                                   | 137   | -    |
|     Decrease  in accrued interest receivable                                                                           | 1,466   | 775   |
|     Increase  in other assets                                                                                          |  (190)  |  (657)  |
|     Decrease  in other liabilities                                                                                     |       (122)  |    (1,550)  |
| ** **                                                                                                                                 | ** ** | ** ** |
|         Net  cash provided by operating activities                                                 |    11,740   |      7,750   |
|                                                                                                                                       |   |   |
| **INVESTING  ACTIVITIES**                                                                                                                  |   |   |
|   Proceeds  from sale of investment securities available for sale                                                                | 46,951   | -   |
|   Proceeds  from maturities/calls of investment securities held to maturity                                                      | 535   | 250   |
|   Proceeds  from maturities/calls of investment securities available for sale                                                    | 119,499   | 110,351   |
|   Purchase  of investment securities available for sale                                                                          | (194,461)  | (91,866)  |
|   Purchase  of investment securities held to maturity                                                                            | -    | (847)  |
|   Proceeds  from sale of foreclosed assets                                                                                       | 1,001   | 119   |
|   Net  decrease in federal funds sold                                                                                            | 7,000   | 6,000   |
|   Net  (increase)/decrease in loans                                                                                              | 4,611   | (15,961)  |
|   Net  proceeds from sales and purchases of equity securities                                                                    | (17)  | 173   |
|   Premises  and equipment expenditures                                                                                           |     (1,363)  |    (1,139)  |
|                                                                                                                                       |   |   |
|         Net  cash provided/(used) for investing activities                                         |   (16,244)  |      7,080   |
|                                                                                                                                       |   |   |
| **FINANCING  ACTIVITIES**                                                                                                                  |   |   |
|   Dividends  paid                                                                                                                | (4,357)  | (4,475)  |
|   Net  increase/(decrease) in deposits                                                                                           | 7,115   | (6,273)  |
|   Net  increase/(decrease) in securities sold under repurchase agreement                                                         | 42,736   | (124)  |
|   Net  increase/(decrease) in United States Treasury demand notes                                                                | (1,929)  | 297   |
|   Net  decrease in Federal Home Loan Bank advances                                                                               | (10,000)  | (5,000)  |
|   Net  increase/(decrease) in other short-term borrowings                                                                        | (1,120)  | 1,119   |
|   Common  shares purchased                                                                                                       | (1,396)  | (3,205)  |
|   Common  shares sold                                                                                                            |      2,975   |            -    |
|                                                                                                                                       |   |   |
|         Net  cash provided/(used) by financing activities                                          |    34,024   |  (17,661)  |
|                                                                                                                                       |   |   |
|         Net  increase/(decrease) in cash and due from banks                                        | 29,520   | (2,831)  |
|                                                                                                                                       |   |   |
| **CASH  AND DUE FROM BANKS, BEGINNING OF YEAR**                                                                                            |    19,259   |   20,941   |
|                                                                                                                                       |   |   |
| **CASH  AND DUE FROM BANKS,  END OF PERIOD**                                                                                          | $ 48,779   | $18,110   |
|                                                                                                                                       |   |   |
| **CASH  PAID FOR:**                                                                                                                        |   |   |
|   Interest                                                                                                                       | $ 10,457   | $16,682   |
|   Income  taxes                                                                                                                  | $   1,396   | $  3,512   |

***See Notes to Consolidated Financial Statements***-6-

----

**CNB CORPORATION 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 1,670,782 sharesfor the nine-month period ended September 30, 2009 and 1,676,690 shares for thenine-month period ended September 30, 2008.

Fair values of financial instruments

Financial**Accounting Standards Board Accounting Standards Codification820 (FASB ASC 820),*"Fair Value of Financial Instruments,*" requiresdisclosure of fair value information for financial instruments, whether or notrecognized in the balance sheet, when it is practicable to estimate the fairvalue.  FASB ASC 820 defines a financial instrument as cash, evidenceof an ownership interest in an entity or contractual obligations which requirethe exchange of cash or other financial instruments.  Certain itemsare specifically excluded from the disclosure requirements, including theCompany's common stock.  In addition, other nonfinancial instrumentssuch as premises and equipment and other assets and liabilities are not subjectto the disclosure requirements.

The following methods and assumptions were used by the Company in estimatingfair values of financial instruments as disclosed herein:

*Cash and due from banks* - The carrying amounts of cashand due from banks (cash on hand, due from banks and interest bearing depositswith other banks) approximate their fair value.

*Federal funds sold* - The carrying amounts of federal funds sold approximatetheir fair value.

*Investment securities available for sale and held to maturity* - Fairvalues for investment securities are based on quoted market prices.

*Other investments -*No ready market exists forFederal Reserve and Federal Home Loan Bank Stock and they have no quoted marketvalue.  However, redemption of this stock has historically been atpar value.  Management has determined it is not practicable toestimate the fair value and has not performed an impairment analysis.**

*Loans* - For variable rate loans that reprice frequently and for loans thatmature within one year, fair values are based on carryingvalues.  Fair values for all other loans are estimated usingdiscounted cash flow analyses, with interest rates currently being offered forloans with similar terms to borrowers of similar creditquality.  Fair values for impaired loans are estimated usingdiscounted cash flow analyses or underlying collateral values, whereapplicable.

*Deposits* - The fair values disclosed for demand deposits are, bydefinition, equal to their carrying amounts. The carrying amounts of variablerate, fixed-term money market accounts and short-term certificates of depositapproximate their fair values at the reporting date.  Fair values forlong-term fixed-rate certificates of deposit are estimated using a discountedcash flow calculation that applies interest rates currently being offered oncertificates to a schedule of aggregated expected monthly maturities.

*Short-term borrowings* - The carrying amounts of borrowings under repurchaseagreements, federal funds purchased, U. S. Treasury demand notes, and FederalHome Loan Bank advances approximate their fair values.

*Off balance sheet instruments* - Fair values of off balance sheet lending commitmentsare based on fees currently charged to enter into similar agreements, takinginto account the remaining terms of the agreements and the counterparties'credit standing.

-7-

----

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.

InJune 2009, the Financial Accounting Standards Board ("FASB") issued Statementof Financial Accounting Standards ("SFAS") No. 168, "The *FASB AccountingStandards Codification*TM and the Hierarchy of GenerallyAccepted Accounting Principles - a replacement of FASB Statement No. 162,"("SFAS 168").  SFAS 168 establishes the *FASB Accounting StandardsCodification*TM ("Codification") as the source of authoritativegenerally accepted accounting principles ("GAAP") for nongovernmentalentities.  The Codification does not change GAAP. Instead, it takes thethousands of individual pronouncements that currently comprise GAAP andreorganizes them into approximately 90 accounting Topics, and displays allTopics using a consistent structure.  Contents in each Topic are furtherorganized first by Subtopic, then Section and finally Paragraph. The Paragraphlevel is the only level that contains substantive content. Citing particularcontent in the Codification involves specifying the unique numeric path to thecontent through the Topic, Subtopic, Section and Paragraph structure. FASBsuggests that all citations begin with "FASB ASC," where ASC stands for *AccountingStandards Codification*. Changes to the ASC subsequent to June 30, 2009 arereferred to as Accounting Standards Updates ("ASU").

In conjunction with the issuance of SFAS168, the FASB also issued its first Accounting Standards Update No. 2009-1,"Topic 105 -Generally Accepted Accounting Principles" ("ASU 2009-1") whichincludes SFAS 168 in its entirety as a transition to the ASC.    ASU 2009-1 iseffective for interim and annual periods ending after September 15, 2009 andwill not have an impact on the Company's financial position or results ofoperations but will change the referencing system for accounting standards. Certain of the following pronouncements were issued prior to the issuance ofthe ASC and adoption of the ASUs. For such pronouncements, citations to theapplicable Codification by Topic, Subtopic and Section are provided whereapplicable in addition to the original standard type and number.  

The FASB issued ASU 2009-05, "Fair Value Measurements and Disclosures (Topic820) - Measuring Liabilities at Fair Value" in August, 2009 to provide guidancewhen estimating the fair value of a liability.  When a quoted price in anactive market for the identical liability is not available, fair value shouldbe measured using (a) the quoted price of an identical liability when traded asan asset; (b) quoted prices for similar liabilities or similar liabilities whentraded as assets; or (c) another valuation technique consistent with theprinciples of Topic 820 such as an income approach or a market approach.  If arestriction exists that prevents the transfer of the liability, a separateadjustment related to the restriction is not required when estimating fairvalue.  The ASU was effective October 1, 2009 for the Company and will have noimpact on financial position or operations.

ASU 2009-12, "Fair Value Measurements and Disclosures (Topic 820) - Investmentsin Certain Entities That Calculate Net Asset Value per Share (or ItsEquivalent)," issued in September, 2009, allows a company to measure the fairvalue of an investment that has no readily determinable fair market value onthe basis of the investee's net asset value per share as provided by the investee.This allowance assumes that the investee has calculated net asset value inaccordance with the GAAP measurement principles of Topic 946 as of thereporting entity's measurement date.   Examples of such investments includeinvestments in hedge funds, private equity funds, real estate funds and venturecapital funds. The update also provides guidance on how the investment shouldbe classified within the fair value hierarchy based on the value for which theinvestment can be redeemed.  The amendment is effective for interim and annualperiods ending after December 15, 2009 with early adoption permitted.  TheCompany does not have investments in such entities and, therefore, there willbe no impact to our financial statements.

ASU 2009-13, "Revenue Recognition (Topic 605): Multiple-Deliverable RevenueArrangements - a consensus of the FASB Emerging Issues Task Force" was issuedin October, 2009 and provides guidance on accounting for products or services(deliverables) separately rather than as a combined unit utilizing a sellingprice hierarchy to determine the selling price of a deliverable.  The sellingprice is based on vendor-specific evidence, third-party evidence or estimatedselling price.  The amendments in the Update are effective prospectively forrevenue arrangements entered into or materially modified in fiscal yearsbeginning on or after June 15, 2010 with early adoption permitted.  The Companydoes not expect the update to have an impact on its financial statements.

Other accountingstandards 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, 2009 and for the yearended December 31, 2008 were approximately $2,132 and $2,638, respectively.

-8-

----

**NOTE 3 - INVESTMENT SECURITIES**

Investment securities with a par value of approximately $201,636 at September30, 2009 and $174,673 at December 31, 2008 were pledged to secure publicdeposits and 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, 2009 and at December 31, 2008.

 

| ** **                                                    | **September 30, 2009**                                         |
|---------------------------------------------------------------|----------------------------------------------------------------|
|                                                          |                                                           |
| ** **                                                    | **Book**                                                       | **Unrealized Holding** | **Fair** | ** ** |
| ** **                                                    | **Value**                                                      | **Gains** | **Losses** | **Value** | **Yield(1)** |
|                                                          |                                                           |   |   |   |   |
| **AVAILABLE  FOR SALE**                                       |                                                           |   |   |   |   |
|                                                          |                                                           |   |   |   |   |
|   Government  Sponsored Enterprises                 |                                                           |   |   |   |   |
|     One  to five years                    | $151,185                                                       | $   1,189 | $         68 | $ 152,306 | 2.37%   |
|     Six  to ten  years               |    33,617                                       |         203 |          162 |     33,658 | 2.75      |
|                                                          |  184,802                                                  |      1,392 |          230 |   185,964 | 2.44      |
|   Mortgage  Backed Securities                       |                                                           |   |   |   |   |
|     Six  to ten years                     | 2,383                                                          | 75 | - | 2,458 | 3.86%   |
|     Over  ten years                       |      7,466                            |         174 |              - |       7,640 | 3.92      |
|                                                          |      9,849                            |         249 |              - |     10,098 | 3.89      |
|   State,  county and municipal                      |                                                           |   |   |   |   |
|     Within  one year                      | 1,381                                                          | 27 | - | 1,408 | 6.74%   |
|     One  to five years                    | 2,543                                                          | 112 | - | 2,655 | 6.27      |
|     Six  to ten years                     | 15,457                                                         | 449 | 66 | 15,840 | 5.32      |
|     Over  ten years                       |      5,637                            |         126 |              - |       5,763 | 5.24      |
|                                                          |    25,018                                       |         714 |           66 |     25,666 | 5.48      |
|                                                          |                                                           |   |   |   |   |
|   Other  Investments                                |                                                           |   |   |   |   |
|      CRA  Qualified Investment Fund  | 763                                                            | - | - | 763 | -      |
|      MasterCard  International Stock |           11 |              - |             - |            11 | -      |
|                                                          |         774            |              - |             - |          774 | -      |
|                                                          |                                                           |   |   |   |   |
|   Total  available for sale                         | $220,443                                                       | $   2,355 | $      296 | $222,502 | 2.85%   |
|                                                          |                                                           |   |   |   |   |
| **HELD  TO MATURITY**                                         |                                                           |   |   |   |   |
|                                                          |                                                           |   |   |   |   |
|   State,  county and municipal                      |                                                           |   |   |   |   |
|     Within  one year                      | $      905                       | $        10 | $          - | $       915 | 6.70%   |
|     One  to five years                    | 829                                                            | 22 | - | 851 | 4.11      |
|     Six  to ten years                     | 6,233                                                          | 197 | 20 | 6,410 | 5.50      |
|     Over  ten years                       |      1,243                            |           75 |             - |       1,318 | 6.14      |
|                                                          |                                                           |   |   |   |   |
|     Total  held to maturity               | $   9,210                                       | $      304 | $        20 | $    9,494 | 5.58%   |
|                                                          |                                                           |   |   |   |   |
| (1) Tax  equivalent adjustment based on a 34% tax rate.  |
|                                                               |                                                                |  |  |  |  |  |  |  |

As of September 30, 2009, 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 $1,235 as of September30, 2009.

-9-

----

**NOTE3 - INVESTMENT SECURITIES (Continued) **

|                        | **December 31, 2008 ** |
|------------------------|----------------------------------|
| ** **             | **Book**                         | **Unrealized  Holding** | **Fair** | ** ** |
| ** **             | **Value**                        | **Gains** | **Losses** | **Value** | **Yield(1)** |
| **AVAILABLE FOR SALE** |                             |   |   |   |   |
|                   |                             |   |   |   |   |  
 Government Sponsored Enterprises

 

 

 

 

 

 
     Within one year

$   3,725

$      41

$        -

$     3,766

4.56%

 
     One to five years

151,174

2,030

-

153,204

3.66%

 
     Six to ten years

    14,522

      583

         -

    15,105

    4.84%

 
 

  169,421

   2,654

         -

  172,075

    3.78%

 
  Mortgage Backed Securities

 

 

 

 

 

 
     Six to ten years

507

18

-

525

4.91%

 
     Over ten years

      3,021

       63

         -

      3,084

    4.65%

 
 

      3,528

       81

         -

      3,609

    4.66%

 
  State, county and municipal

 

 

 

 

 

 
    Within one year

1,370

15

-

1,385

7.11%

 
    One to five years

4,243

133

-

4,376

7.03%

 
    Six to ten years

11,271

16

362

10,925

5.57%

 
    Over ten years

    1,115

          -

       39

      1,076

    5.91%

 
 

    17,999

      164

     401

    17,762

    6.05%

 
  Other Investments

 

 

 

 

 

 
    CRA Qualified Investment  Fund

721

-

-

721

-%

 
    MasterCard International  Stock

          11

          -

          -

           11

         -%

 
 

        732

          -

          -

         732

         -%

 
 

 

 

 

 

 

 
  Total available for sale

$191,680

$ 2,899

$    401

$194,178

   4.01%

 
 

 

 

 

 

 

 
**HELD TO MATURITY**

 

 

 

 

 

 
 

 

 

 

 

 

 
  State, county and municipal

 

 

 

 

 

 
    Within one year

$       795

$        11

$        -

$       806

6.71%

 
    One to five years

1,481

9

8

1,482

5.40%

 
    Six to ten years

4,589

12

70

4,531

5.51%

 
    Over ten years

      2,893

          -

      142

      2,751

   5.75%

 
 

 

 

 

 

 

 
  Total held to maturity

$    9,758

$      32

$    220

$    9,570

  5.66%

 
 

 

 

 

 

 

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

As of December 31, 2008, 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 $1,498 as of December31, 2008.

-10-

**NOTE 3 - INVESTMENT SECURITIES,Continued**

     Thefollowing table shows gross unrealized losses and fair value, aggregated byinvestment category, and length of time that individual securities have been ina continuous unrealized loss position at September 30, 2009 and December 31,2008 (tabular amounts in thousands):

**Available for Sale**

 

**September 30, 2009**

  Government Sponsored Entities  State, county, and municipal       Total

**          Less  than       twelve months      **

**        Twelve  months              or  more           **

**             Total                  **

**Fair value**

**Unrealized       losses  **

**Fair value**

**Unrealized        losses  **

**Fair value**

**Unrealized       losses    **

$  28,907      2,569

$      230            66

$         -            -

$          -                    -

$    28,907         2,569

$          230              66

**$  31,476**

**$      296**

**$         -**

**$           **

**$   31,476**

**$          296**

 

**December 31, 2008**

  State, county, and municipal            Total

**            Less  than       twelve months     **

**         Twelve  months               or  more           **

**             Total                  **

**Fair value**

**Unrealized    losses    **

**Fair value**

**Unrealized    losses    **

**Fair value**

**Unrealized    losses    **

  $    10,926

  $          401

  $             -

  $              -

  $    10,926

  $          401

**$    10,926**

**$          401**

**$             -**

**$              -**

**$    10,926**

**$          401**

     Securities classified as available-for-sale arerecorded at fair market value.  The Company had no unrealized losses consistingof securities in a continuous loss position for twelve months or more at September30, 2009 or December 31, 2008.  The Company had total unrealized losses of $296consisting of 20 securities with a fair value of $31,476 at September 30, 2009and had total unrealized losses of $401 consisting of 22 securities with a fairvalue of $10,926 at December 31, 2008.  Management does not consider theselosses other than temporary, intends to hold these securities to maturity, andbelieves that the Company has the ability to hold these securities to maturity.

     For the nine-month period ended September 30,2009, $45,605 of par value available-for-sale securities were sold for a gainof $1,352.  There were no sales of securities available-for-sale in2008.

     Managementreviews securities for other-than-temporary impairment on at least a quarterlybasis, and more frequently when economic or market concerns warrant suchevaluation.  Consideration is given to (1) the length of time and theextent to which the fair value has been less than cost, (2) the financialcondition and near-term prospects of the issuer, and (3) the Company does notintend to sell these securities and it is more likely than not that the Companywill not be required to sell these securities before recovery of theiramortized cost.
-11-
**NOTE 4 - LOANS ANDALLOWANCE FOR LOAN LOSSES******     The following is a summary of loans at September30, 2009 and December 31, 2008 by major classification:

 

** September 30, **

**December 31,**

 

**2009**

**2008**

 

 

 

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

$ 377,276      

$ 366,948       

                              **- construction**

83,561      

92,010       

**Agricultural  loans**

3,099      

3,119       

**Commercial  and industrial loans**

76,934      

89,348       

**Loans  to individuals for household,**

 

 

**  family  and other consumer expenditures**

45,609      

46,278       

**All  other loans, including overdrafts and**

 

 

**  deferred  loan costs**

          468      

           578       

**     Gross  loans**

$ 586,947      

$  598,281       

**       Less  allowance for loan losses**

     (8,967)     

      (7,091)      

**         Net  loans**

$ 577,980      

$  591,190       

     Changes in the allowance for loan losses for the quarterand nine months ended September 30, 2009 and 2008, and the year ended December31, 2008 are summarized as follows:

** **

**     Quarter Ended**

**Year Ended**

**    Nine-Months  Ended**

 

**   September 30,**

**December 31,**

**     September  30,**

 

**   2009 **** **

**   2008  **

**  2008  **

**   2009  **

**   2008     **

**Balance,  beginning of period**

$ 8,400 

$ 6,736 

$  6,507       

$ 7,091 

$ 6,507   

**Charge-offs:**

** **

** **

** **

** **

** **

   Commercial,  financial, and agricultural

479 

225 

896       

1,608 

625   

   Real  Estate - construction and mortgage

1,360 

137 

750       

3,010 

240   

   Loans  to individuals

      239 

      215 

       836       

      745 

      533   

**       Total  charge-offs**

$ 2,078 

$    577 

$  2,482       

$ 5,363 

$ 1,398   

**Recoveries:**

** **

** **

** **

** **

**   **

   Commercial,  financial, and agricultural

$    115 

$      85 

$     278       

$      256 

$    161   

   Real  Estate - construction and mortgage

7 

1 

44       

13 

4   

   Loans  to individuals

      302 

        47 

       211       

      423 

      164   

       Total  recoveries

$    424 

$    133 

$     533       

$    692 

$    329   

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

$ 1,654 

$    444 

$  1,949       

$ 4,671 

$ 1,069   

**Additions  charged to operations**

$ 2,221 

$    500 

$  2,533       

$ 6,547 

$ 1,354   

**Balance,  end of period**

$ 8,967 

$ 6,792 

$  7,091       

$ 8,967 

$ 6,792   

 

** **

** **

** **

** **

** **

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

    .28%

    .08%

     .33%      

    .78%

    .18%  

**   to  average loans outstanding during the     period**

** **

** **

** **

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

At September 30, 2009, September 30, 2008, and December 31, 2008 loans on whichno interest was being accrued totaled $11,318, $3,230 and $2,990,respectively.  A portion of the loans on which no interest was being accrued aswell as other loans identified by management are classified as impaired. Impaired loans at September 30, 2009, September 30, 2008, and December 31, 2008,were $12,992, $367, and $4,158, respectively.  The Company had $1,544 offoreclosed real estate at September 30, 2009, $239 of foreclosed real estate atSeptember 30, 2008, and $639 of foreclosed real estate at December 31, 2008.  Loans90 days past due and still accruing interest totaled $711, $248, and $608 at September30, 2009, September 30, 2008, and December 31, 2008, respectively.

At September 30,2009, September 30, 2008, and December 31, 2008 classified assets, the majorityconsisting of classified loans, were $47,551, $18,885, and $18,170, respectively. At September 30, 2009,  September 30, 2008, and December 31, 2008 classifiedassets represented 49.20%, 20.25%, and 19.99% of total capital (the sum of Tier1 Capital and the Allowance for Loan Losses), respectively.
-12-
**NOTE5 - PREMISES AND EQUIPMENT******     Property at September 30, 2009 and December 31,2008 is summarized as follows:

 

**September 30,**

**December 31,**

 

**2009**

**2008**

**Land  and buildings**

$ 26,262        

$ 26,262           

**Furniture,  fixtures and equipment**

9,812        

8,811           

**Construction  in progress**

        437        

        119           

** **

$ 36,511        

$ 35,192           

**Less  accumulated depreciation and amortization**

   12,915        

   11,789           

 

$ 23,596        

$ 23,403           

     Depreciation and amortization of bank premisesand equipment charged to operating expense was $1,170 for the nine-month periodended September 30, 2009, and $1,330 for the year ended December 31, 2008.  Theconstruction in progress is primarily related to the renovation of the Company'sSurfside 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 the renovation of theCompany's Aynor branch office located in Aynor, South Carolina.  No remainingconstruction and equipment costs are associated with the Surfside branchoffice, the Carolina Forest ATM, and the Aynor branch office.

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

     At September 30, 2009 and December 31, 2008, certificatesof deposit of $100 or more included in time deposits totaled approximately $204,249and $210,669, respectively.  Interest expense on these deposits wasapproximately $4,124 for the nine-month period ended September 30, 2009 and $8,110for the year ended December 31, 2008. 

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

     At September 30, 2009 and December 31, 2008,securities sold under repurchase agreements totaled $110,151 and $67,415, respectively. Securities with a book value of $122,579 ($123,308 fair value) and $71,752 ($72,845fair value), respectively, were used as collateral for the agreements.  Theweighted-average interest rate of these agreements was 1.00 percent and 2.41 percentat September 30, 2009 and December 31, 2008, respectively.

**NOTE 8 - LINES OF CREDIT**

     At September 30, 2009, the Bank had unusedshort-term lines of credit to purchase Federal Funds from unrelated bankstotaling $30,500.  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 $3,011 at September30, 2009.  The amount outstanding under the note totaled $743 and $2,672at September 30, 2009 and December 31, 2008, respectively.

     The Bank also has a line of credit from theFederal Home Loan Bank of Atlanta for $68,756 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 $20,000 in borrowings underthe agreement at September 30, 2009 and $30,000 at December 31, 2008.

-13-

**NOTE 9 - INCOME TAXES******

     Income tax expense for the quarters ended September30, 2009 and September 30, 2008 on pretax income of $1,906 and $3,630 totaled $614and $1,245, 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 FASB ASC 740 "Income Taxes."**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 30,2009.

     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, 2009**

**           Loan  Commitments                   **

         $ 48,538

**           Standby  letters of credit         **

              2,225

     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 ofliquidity provide the resources necessary for the Bank to fund the loancommitments and to perform under standby letters of credit, if the need arises. Neither the Company nor the Bank are involved in other off-balance sheetcontractual relationships or transactions that could result in liquidity needsor 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, 2009 and the year ended December 31,2008, $92, $286, and $579 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, 2009:

 

**Company**

 

 

 

 

 

 

 

**For**

 

 

**Capital adequacy**

 

**                                   **

**         Purposes          **

 

**            Actual            **

**         Minimum         **

 

**Amount**

**Ratio  **

**Amount**

** Ratio **

 

 

 

 

 

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

$95,160

15.94%

$47,757

8.0%

** **

 

 

 

 

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

87,680

14.69   

23,879

4.0   

** **

 

 

 

 

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

87,680

9.66   

36,298

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)**

$94,018

15.75%

$47,754

8.0%

$59,693

10.0%

** **

 

 

 

 

 

 

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

86,538

14.50   

23,877

4.0   

35,816

6.0   

** **

 

 

 

 

 

 

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

86,538

9.54   

36,296

4.0   

45,370

5.0   

****-15-

**NOTE 13 - FAIR VALUE MEASUREMENTS**

     Theestimated fair values of the Company's financial instruments were as follows atSeptember 30, 2009 and December 31, 2008 (amounts in thousands):

** **

**    September  30, 2009      Carrying         **  **Fair    **

**    December  31, 2008       Carrying     **  **Fair     **

**FINANCIAL ASSETS**    Cash and due from banks      Federal funds sold      Investment securities available for sale      Investment securities held to maturity      Other investments      Loans (net)**FINANCIAL LIABILITIES**    Deposits      Securities sold under repurchase agreements      Federal Home Loan Bank advance      U.S. Treasury demand notes      Other short-term borrowings

** Amount   **  $  48,779    14,000    222,502    9,210    3,041    577,980    686,334    110,151    20,000    743    -  

**   Value   **$  48,779    14,000    222,502    9,494    3,041    590,325    687,085    110,151    20,000    743    -  

** Amount  **  $  19,259    21,000    194,178    9,758    3,024    591,190    679,219    67,415    30,000    2,672    1,120  

**   Value   **$  19,259   21,000   194,178   9,570   3,024   605,602   680,172   67,415   30,000   2,672   1,120 

** **

**Notional  **

**Fair   **

**Notional  **

**Fair   **

** **

**Amount   **

**Value **

**Amount  **

**Value **

**OFF BALANCE SHEET INSTRUMENTS**

** **

** **

** **

** **

Commitments to extend credit

$  48,538  

$         -  

$  53,838  

$          -  

Standby letters of credit

2,225  

-  

2,111  

-  

EffectiveJanuary 1, 2008, the Company adopted FASB ASC 820, "Fair Value ofFinancial Instruments" which provides a framework for measuring anddisclosing fair value under generally accepted accounting principles. FASB ASC820 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). 

FASB ASC 820 defines fair value as the exchange price that would be receivedfor an asset or paid to transfer a liability (an exit price) in the principalor most advantageous market for the asset or liability in an orderlytransaction between market participants on the measurement date. FASB ASC 820 alsoestablishes a fair value hierarchy which requires an entity to maximize the useof observable 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.

-16-

TheCompany has no assets or liabilities whose fair values are measured using Level1 inputs.

TheCompany's available-for-sale investment securities ($222,502 at September 30,2009) 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.  The Company predominantly makes loans forthe purposes of real estate acquisition, construction, agriculture, commercialand industrial needs, and consumer expenditures.  The majority of theCompany's loans are real estate secured.  Loans which are deemed to beimpaired are primarily valued at the fair values of the underlying real estatecollateral.  Such fair values are obtained using independent appraisals, whichthe Company considers to be Level 2 inputs. The aggregate carrying amount ofimpaired loans at September 30, 2009 was $12,992.  The Company also generallyacquires other real estate owned through foreclosure of debts previouslycontracted.  Other real estate owned is valued at fair value.  Fair values forother real estate owned are obtained using independent appraisals, which theCompany considers to be Level 2 inputs.  The aggregate carrying amount of otherreal estate owned at September 30, 2009 was $1,544.

TheCompany's available-for-sale investment securities, impaired loans, and otherreal estate owned are the only assets whose fair values the Company measuresusing level 2 inputs.  The Company has no liabilities whose fair values aremeasured using Level 2 inputs.

TheCompany has no assets or liabilities whose fair values are measured using Level3 inputs. 

TheCompany does not have goodwill, other intangible assets, other assets acquiredthrough foreclosure, or other non-financial assets.

**NOTE 14 - CONDENSED FINANCIAL INFORMATION**

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

**CONDENSED  BALANCE SHEET  (Unaudited)**

** **

**September  30,**

**ASSETS**

**    2009   **

**    2008   **

   Cash

$   1,105 

$       577 

   Investment in subsidiary

87,773 

86,486 

   Other assets

          37 

          37 

 

$ 88,915 

$ 87,100 

 

 

 

 

 

 

**LIABILITIES AND STOCKHOLDERS' EQUITY**

 

 

   Short-term note payable

$          0 

$   1,119 

   Other liabilities

0 

11 

   Stockholders' equity

   88,915 

   85,970 

 

$ 88,915 

$ 87,100 

 

 

 

 

 

 

**CONDENSED  STATEMENT OF INCOME  (Unaudited)**

 

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

 

**    2009   **

**   2008  **

   Equity in net income of subsidiary

$  4,200 

$ 6,881 

   Other income

0 

283 

   Other expenses

     (129)

     (102)

**      NET INCOME**

$  4,071 

$ 7,062 

** **

-17-

**NOTE15 - SUBSEQUENT EVENTS**
The Company has evaluated events subsequent to the balance sheet date throughNovember 9, 2009, which is the date that the financial statements were issued.
Subsequent events may either provide additional evidence about conditions thatexisted at the balance sheet date, including estimates inherent in the processof preparing financial statements (recognized subsequent events), or provideevidence about conditions that did not exist at the balance sheet date butarose after the balance sheet date but before the financial statements wereissued (nonrecognized subsequent events).  The effects of recognized subsequentevents, if any, have been included in the financial statements.  If the effectsof nonrecognized subsequent events, if any, are of a nature that they must bedisclosed to keep the financial statements from being misleading, the Companywould disclose both the nature of the event, an estimate of its financialeffect or would state that an estimate of the financial effect cannot be made. As of September 30, 2009, other than as set forth below, there were nononrecognized subsequent events that required disclosure.

On October 13, 2009, the Company effected a two-for-one common stock split,which resulted in the reduction of the par value of its common stock from $10per share to $5 per share and the issuance of 838,741 additional shares.  Theearnings per common share for the year ended December 31, 2008 have beenretroactively adjusted for this split as if it occurred on January 1, 2008.

****

-18-

**Item2.**

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

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

Management'sDiscussion and Analysis is provided to afford a clearer understanding of themajor elements of the Company's results of operations, financial condition,liquidity, and capital resources. The following discussion should be read inconjunction with the Company's financial statements and notes thereto and otherdetailed information appearing elsewhere in this report.  In addition, theresults of operations for the interim periods shown in this report are notnecessarily indicative of results to be expected for the fiscal year.  Theaccompanying consolidated financial statements include all accounts of theCompany and the Bank.  All significant intercompany accounts and transactions havebeen eliminated in consolidation.  The accompanying unaudited consolidatedfinancial statements at September 30, 2009 and for the three and nine-month periodsending September 30, 2009 and 2008  have been prepared in accordance withgenerally accepted accounting principles ("GAAP") for interimfinancial information and with the instructions to Form 10-Q of the Securitiesand Exchange 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.

**DISTRIBUTION OF ASSETS AND LIABILITIES**

The Company has historically maintained a conservative approach in determiningthe distribution of assets and liabilities.  Loans decreased .2% from $588,371at September 30, 2008 to $586,947 at September 30, 2009, and decreased 1.9%,from $598,281 at December 31, 2008 to $586,947 at September 30, 2009.  Loans decreasedas a percentage of total assets from 68.9% to 64.3% from September 30, 2008 to September30, 2009 and decreased from 68.4% to 64.3% from December 31, 2008 to September30, 2009.  Loan demand in our market area continues at a moderate pace.  Securitiesand federal funds sold increased as a percentage of total assets from 25.6% at September30, 2008 to 27.2% at September 30, 2009, and increased from 26.1% of totalassets at December 31, 2008 to 27.2% at September 30, 2009, a reflection of continuedmoderate loan demand coupled with lower levels of deposits.  The level ofinvestments and excess Federal Reserve deposits provides for a more thanadequate 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 13.1% at September 30, 2008 to 11.7% at September 30, 2009, and increasedfrom 11.5% at December 31, 2008 to 11.7% at September 30, 2009.  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 decreasedfrom 67.3% of total assets at September 30, 2008 to 63.5% at September 30, 2009,and decreased from 66.2% at December 31, 2008 to 63.5% at September 30, 2009. Securities sold under agreement to repurchase increased from 7.1% of totalassets at September 30, 2008 to 12.1% at September 30, 2009, and increased from7.7% of total assets at December 31, 2008 to 12.1% at September 30, 2009.  Othershort-term borrowings decreased from 3.9% of total assets at December 31, 2008to 2.3% at September 30, 2009.  Other short-term borrowings increased from 1.6%at September 30, 2008 to 2.3% at September 30, 2009.

The following table sets forth the percentage relationship to total assets ofsignificant components of the Company's balance sheets as of September 30, 2009and September 30, 2008 and December 31, 2008:

 

**        September  30,   **

**December 31,**

**Assets:**

**   2009 **

**   2008**

**2008**

   Earning  assets:

** **

** **

** **

   Loans

64.3%

68.9%

68.4%       

   Securities  held to maturity

1.0   

1.0   

1.1          

   Securities  available for sale

24.7   

22.3   

22.6          

   Federal  funds sold and securities purchased under agreement to resell

    1.5   

    2.3   

    2.4          

   Other  earning assets

    3.7   

    0.0   

    0.0          

      Total  earning assets

  95.2   

  94.5   

  94.5          

   Other  assets

    4.8   

    5.5   

    5.5          

      Total  assets

100.0%

100.0%

100.0%       

 

** **

** **

 

**Liabilities  and stockholder's equity:**

** **

** **

 

  Interest-bearing  liabilities:

** **

** **

 

    Interest-bearing  deposits

63.5%

67.3%

66.2%       

    Federal  funds purchased and securities sold under agreement to repurchase

12.1   

7.1   

7.7          

    Other  short-term borrowings

    2.3   

   1.6   

    3.9          

        Total  interest-bearing liabilities

  77.9   

 76.0   

  77.8          

    Noninterest-bearing  deposits

11.7   

13.1   

 11.5          

    Other  liabilities

.7   

.8   

1.2          

    Stockholders'  equity

    9.7   

   10.1   

    9.5          

        Total  liabilities and stockholders' equity

100.0%

100.0%

100.0%       

-19-

**RESULTSOF OPERATIONS**

Earnings for the three-month periods ended September 30, 2009 and 2008 were $1,292and $2,385 respectively, resulting in a return on average assets of .57% and 1.11%and a return on average stockholders' equity of 5.87% and 11.42%, respectively.

Earnings for the nine-month periods ended September 30, 2009 and 2008 were $4,071and $7,062, respectively, resulting in a return on average assets of .60% and1.09% and a return on average stockholders equity of 6.23% and 11.29%,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 $58,845 or 6.9% to $912,335 at September 30,2009 from $853,490 at September 30, 2008. The following table sets forth thefinancial highlights for the three and nine-month periods ended at September 30,2009 and September 30, 2008:

**                                              CNB  Corporation and Subsidiary                                                 FINANCIAL HIGHLIGHTS**

** **

****

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

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

** **

** **

** **

** **

** **

** **

**2009**

**2008**

**Percent     Increase  (Decrease)**

**2009**

**2008**

**Percent     Increase  (Decrease)**

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

  $   5,703

  $   7,500

  (24.0)%

  $   17,355

  $   22,400

  (22.5)%

**Income  before income taxes**

1,906

3,630

(47.5)

5,930

10,642

(44.3)

**Net  Income**

1,292

2,385

(45.8)

4,071

7,062

(42.4)

**     Per  Share**

.77

1.43

(46.2)

2.44

4.21

(42.0)

**Cash  dividends declared**

0

0

   -

0

0

   -

**     Per  Share**

0

0

   -

0

0

   -

**Total  assets**

912,335

853,490

6.9%

912,335

853,490

6.9%

**Total  deposits**

686,334

686,016

0.0 

686,334

686,016

0.0   

**Loans**

586,947

588,371

 (.2)

586,947

588,371

(.2)

**Investment securities and securities available  for  sale**

231,712

196,671

17.8 

231,712

196,671

17.8 

**Stockholders' equity**

88,915

85,970

3.4 

88,915

85,970

3.4 

**    Book value per share**

52.95

51.64

2.5 

52.95

51.64

2.5 

**Ratios:**

 

 

 

 

 

 

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

.57%

1.11%

(48.6)%

.60%

1.09%

(45.0)%

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

5.87%

11.42%

(48.6)%

6.23%

11.29%

(44.8)%

 

 

 

 

 

 

 

(1)       For the three-month period ended September30, 2009, average total assets amounted to $907,445 with average stockholders'            equity totaling$88,088 for the same period.            For thenine-month period ended September 30, 2009, average total assets amounted to$898,702 with average stockholders'            equity totaling$87,124for the same period.

-20-

**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 2009 and2008.  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 repriced 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 repriced either up or downwithin a certain time interval.  When a proper balance between RSA and RSL exists,market interest rate fluctuations should not have a significant impact onearnings. The larger the imbalance, the greater the interest rate risk assumedby the Bank and the greater the positive or negative impact of interest ratefluctuations on earnings.  The Bank seeks to manage its assets and liabilitiesin a manner that will limit interest rate risk and thus stabilize long-termearning power. Management believes that a 200 basis point rise or fall in interestrates will have less than a 10 percent effect on before-tax net interest incomeover a one-year period, which is within Bank guidelines.

TheBank maintained net interest margins for the three and nine-month periods endedSeptember 30, 2009 of 3.77% and 3.81%, respectively, and 4.03% and 3.96%,respectively, for the same periods in 2008, as compared to management'slong-term target of 4.20%.  Net interest margins have been compressed for the Bankand industry-wide for several years for a variety of reasons.  Dramaticdecreases in market interest rates by the Federal Reserve during the firstquarter of 2008 and additional decreases in market rates during 2008 placedfurther significant pressure on net interest margins for the industry as awhole.  The resulting more historically typical upward-sloping yield curve wouldgenerally enhance the Bank's net interest margin.  However, interest rates havebeen reduced to historically low levels.  An extremely low interest rateenvironment is not one which enhances net interest margin.  As well, competitionin the Bank's specific market remains significant, as new competitors seekmarket share and other competitors attempt to reduce their dependence onbrokered deposits.  These factors tend to compress margins by driving the costof deposits upward while driving the yields on loans downward.  

Fully-tax-equivalent net interest income for the three-month period ended September30, 2009 was $8,087, a decrease of .6% from the $8,138 attained for the three-monthperiod ended September 30, 2008.  During the same period, totalfully-tax-equivalent interest income decreased by 9.9% to $10,984 from $12,188and total interest expense decreased by 28.5% to $2,897 from $4,050.  Fully-tax-equivalentnet interest income as a percentage of average total earning assets decreased .26%to 3.77% for the three-month period ended September 30, 2009 from 4.03% for thethree-month period ended September 30, 2008.

Fully-tax-equivalent net interest income for the nine-month period ended September30, 2009 was $24,364, an increase of .8% from the $24,174 attained for the nine-monthperiod ended September 30, 2008.  During the same period, totalfully-tax-equivalent interest income decreased by 12.6% to $33,700 from $38,578and total interest expense decreased by 35.2% to $9,336 from $14,404. Fully-tax-equivalent net interest income as a percentage of average totalearning assets decreased .15% to 3.81% for the nine-month period ended September30, 2009 from 3.96% for the nine-month period ended September 30, 2008.

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, 2009 and2008, 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, 2009 and 2008.

-21-

 

**CNB Corporation and Subsidiary  Average Balances, Yields, and Rates**

 

 

 

**Three Months Ended 9/30/09**

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

 

** **

**Interest**

**Avg. Annual**

** **

**Interest**

**Avg. Annual**

 

**Avg.**

**Income/**

**Yield or**

**Avg.**

**Income/**

**Yield or**

 

**Balance**

**Expense**

**Rate**

**Balance**

**Expense**

**Rate**

**Assets:**

** **

** **

** **

** **

** **

** **

   Earning  assets:

** **

** **

** **

** **

** **

** **

      Loans,  net of unearned income (1)

$590,301

$ 9,228

6.25%

$588,912

$  9,914

6.73%

      Securities:

** **

** **

** **

** **

** **

** **

        Taxable

182,993

1,247

2.73   

169,964

1,758

4.14   

        Tax-exempt

32,944

479

(2)       5.82   

26,970

406

(2)      6.02   

      Federal  funds sold and securities purchased under 

** **

** **

** **

** **

** **

** **

        agreement  to resell

7,848

3

.15   

    22,549

       110

1.95   

      Other  earning assets

    43,241

         27

.25   

             0

           0

0.00   

          Total  earning assets

  857,327

  10,984

5.12   

  808,395

  12,188

6.03   

    Other  assets

    50,118

** **

** **

    47,443

** **

** **

          Total  assets

$907,445

** **

** **

$855,838

** **

** **

 

** **

** **

** **

** **

** **

** **

**Liabilities  and stockholder equity**

** **

** **

** **

** **

** **

** **

    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

      Interest-bearing  deposits

$577,762

2,539

1.76   

$581,509

3,686

2.54   

      Federal  funds purchased and securities sold under

** **

** **

** **

** **

** **

** **

        agreement  to repurchase

103,116

279

1.08   

59,469

321

2.16   

      Other  short-term borrowings

    20,925

          79

1.51   

      6,006

          43

2.86   

          Total  interest-bearing liabilities

$701,803

$   2,897

1.65   

$646,984

$   4,050

2.50   

    Noninterest-bearing  deposits

110,376

** **

** **

117,035

** **

** **

    Other  liabilities

7,178

** **

** **

8,311

** **

** **

    Stockholders'  equity

    88,088

** **

** **

    83,508

** **

** **

          Total  liabilities and stockholders' equity

$907,445

** **

** **

$855,838

** **

** **

    Net  interest income as a percent of total

** **

** **

** **

** **

** **

** **

       earning  assets

$857,327

$   8,087

3.77   

$808,395

$   8,138

4.03   

 

** **

** **

** **

** **

** **

** **

 

** **

** **

** **

** **

** **

** **

**Ratios:**

** **

** **

** **

** **

** **

** **

Annualized  return on average total assets

** **

** **

.57   

** **

** **

1.11   

Annualized  return on average stockholders' equity

** **

** **

5.87   

** **

** **

11.42   

Cash  dividends declared as a percent of net income

** **

** **

0   

** **

** **

0   

Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

  Average  total assets

** **

** **

9.71   

** **

** **

9.76   

  Average  total deposits

** **

** **

12.80   

** **

** **

11.95   

  Average  loans

** **

** **

14.92   

** **

** **

14.18   

Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

   average  total assets

** **

** **

94.48   

** **

** **

94.46   

 

** **

** **

 

** **

** **

 

(1)  The  Company had no out-of-period adjustments or foreign activities.  Loan fees of  $115 and $141 are included in the above interest income for September 30, 2009  and 2008, respectively.  Loans on a non-accrual basis for the recognition of  interest income totaling $11,318 and $3,230 for September 30, 2009 and 2008,  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 $163 and $138 for September  30, 2009 and 2008, respectively.

 

** **

** **

 

** **

** **

 

****-22-

 

**CNB Corporation and Subsidiary  Average Balances, Yields, and Rates**

 

 

 

**Nine Months Ended 9/30/09**

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

 

** **

**Interest**

**Avg. Annual**

** **

**Interest**

**Avg. Annual**

 

**Avg.**

**Income/**

**Yield or**

**Avg.**

**Income/**

**Yield or**

 

**Balance**

**Expense**

**Rate**

**Balance**

**Expense**

**Rate**

**Assets:**

** **

** **

** **

** **

** **

** **

 
   Earning  assets:

** **

** **

** **

** **

** **

** **

 
      Loans,  net of unearned income (1)

$596,352

$ 28,017

6.26%

$586,156

$  30,653

6.97%

 
      Securities:

** **

** **

** **

** **

** **

** **

 
        Taxable

183,079

4,257

3.10   

173,502

6,158

4.73   

 
        Tax-exempt

31,239

1,359

(2)       5.80   

27,390

1,235

(2)      6.01   

 
      Federal  funds sold and securities purchased under 

** **

** **

** **

** **

** **

** **

 
        agreement  to resell

12,984

23

.24   

    27,537

       532

2.58   

 
      Other  earning assets

    28,643

         44

.20   

             0

           0

0.00   

 
          Total  earning assets

  852,297

  33,700

5.27   

  814,585

  38,578

6.31   

 
    Other  assets

    46,405

** **

** **

    47,237

** **

** **

 
          Total  assets

$898,702

** **

** **

$861,822

** **

** **

 
 

** **

** **

** **

** **

** **

** **

 
**Liabilities  and stockholder equity**

** **

** **

** **

** **

** **

** **

 
    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

 
      Interest-bearing  deposits

$573,761

8,202

1.91   

$590,773

13,154

2.97   

 
      Federal  funds purchased and securities sold under

** **

** **

** **

** **

** **

** **

 
        agreement  to repurchase

98,424

869

1.18   

56,941

1,077

2.52   

 
      Other  short-term borrowings

    24,873

        265

1.42   

      5,344

        173

4.32   

 
          Total  interest-bearing liabilities

$697,058

$   9,336

1.79   

$653,058

$ 14,404

2.94   

 
    Noninterest-bearing  deposits

107,624

** **

** **

116,799

** **

** **

 
    Other  liabilities

6,896

** **

** **

8,589

** **

** **

 
    Stockholders'  equity

    87,124

** **

** **

    83,376

** **

** **

 
          Total  liabilities and stockholders' equity

$898,702

** **

** **

$861,822

** **

** **

 
    Net  interest income as a percent of total

** **

** **

** **

** **

** **

** **

 
       earning  assets

$852,297

$24,364

3.81   

$814,585

$ 24,174

3.96   

 
 

** **

** **

** **

** **

** **

** **

 
 

** **

** **

** **

** **

** **

** **

 
**Ratios:**

** **

** **

** **

** **

** **

** **

 
Annualized  return on average total assets

** **

** **

.60   

** **

** **

1.09   

 
Annualized  return on average stockholders' equity

** **

** **

6.23   

** **

** **

11.29   

 
Cash  dividends declared as a percent of net income

** **

** **

0   

** **

** **

0   

 
Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

 
  Average  total assets

** **

** **

9.69   

** **

** **

9.67   

 
  Average  total deposits

** **

** **

12.79   

** **

** **

11.78   

 
  Average  loans

** **

** **

14.61   

** **

** **

14.22   

 
Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

 
   average  total assets

** **

** **

94.84   

** **

** **

94.52   

 
 

** **

** **

 

** **

** **

 

 
(1)  The  Company had no out-of-period adjustments or foreign activities.  Loan fees of  $385 and $472 are included in the above interest income for September 30,  2009 and 2008, respectively.  Loans on a non-accrual basis for the  recognition of interest income totaling $11,318 and $3,230 for September 30,  2009 and 2008, respectivel, 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 $462 and $420 for  September 30, 2009 and 2008, respectively.

 
-23-

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, 2009 and 2008**

 

 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

 

**Average**

**Average**

** **

** **

**Interest**

**Interest**

** **

**Change**

**Change**

** **

 

**Volume**

**Volume**

**Yield/Rate**

**Yield/Rate**

**Earned/Paid**

**Earned/Paid**

** **

**Due to**

**Due to**

** **

 

**2009**

**2008**

**2009(3)**

**2008(3)**

**2009**

**2008**

**Variance**

**Rate**

**Volume**

** **

**Earning   Assets:**

 

 

 

 

 

 

 

 

 

 

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

$590,301

$588,912

6.25%

6.73%

$9,228

$9,914

$   (686)

$   (708)

$     22 

 

**  Investment   securities:**

 

 

 

 

 

 

 

 

 

 

**    Taxable**

182,993

169,964

2.73%

4.14%

1,247

1,758

(511)

(600)

89 

 

**    Tax-exempt   (2)**

32,944

26,970

5.82%

6.02%

479

406

73  

(14)

87 

 

**  Federal   funds sold and Securities**

 

 

 

 

 

 

 

 

 

 

**    purchased   under agreement to resell**

7,848

22,549

.15%

1.95%

3

110

(107)

(101)

(6)

 

** Other   Earning Assets**

    43,241

             0

.25%

0.00%

          27

           0

         27 

           0 

       27 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Earning Assets**

$857,327

$808,395

5.12%

6.03%

$10,984

$12,188

$(1,204)

$(1,423)

$   219 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest-bearing   Liabilities:**

 

 

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**  Interest-bearing   deposits**

$577,762

$581,509

1.76%

2.54%

$  2,539

$  3,686

$(1,147)

$(1,131)

$   (16)

 

**  Federal   funds purchased and securities**

 

 

 

 

 

 

 

 

 

 

**    sold   under agreement to repurchase**

103,116

59,469

1.08%

2.16%

279

321

 (42)

(160)

118 

 

**  Other   short-term borrowings**

    20,925

      6,006

1.51%

2.86%

          79

         43

         36 

        (20)

       56 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Interest-bearing Liabilities**

  701,803

  646,984

1.65%

2.50%

    2,897

    4,050

   (1,153)

  (1,311)

     158 

 

**Interest-free    Funds Supporting**

 

 

 

 

 

 

 

 

 

 

**  Earning   Assets**

  155,524

  161,411

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Funds Supporting Earning Assets**

$857,327

$808,395

1.35%

2.00%

$  2,897

$  4,050

$ (1,153)

$(1,311)

$   158 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest   Rate Spread**

 

 

3.47%

3.53%

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

**  on   Net Yield on Earning Assets**

 

 

  .30%

  .50%

             

             

 

 

 

 

**Net   Yield on Earning Assets**

 

 

3.77%

4.03%

$  8,087

$  8,138

 

 

 

 

(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-

**CNB Corporation and Subsidiary   Rate/Volume Variance Analysis   For the Nine Months Ended September 30, 2009 and 2008**

 

 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

 

**Average**

**Average**

** **

** **

**Interest**

**Interest**

** **

**Change**

**Change**

** **

 

**Volume**

**Volume**

**Yield/Rate**

**Yield/Rate**

**Earned/Paid**

**Earned/Paid**

** **

**Due to**

**Due to**

** **

 

**2009**

**2008**

**2009(3)**

**2008(3)**

**2009**

**2008**

**Variance**

**Rate**

**Volume**

** **

**Earning   Assets:**

 

 

 

 

 

 

 

 

 

 

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

$596,352

$586,156

6.26%

6.97%

$28,017

$30,653

$(2,636)

$(3,115)

$   479 

 

**  Investment   securities:**

 

 

 

 

 

 

 

 

 

 

**    Taxable**

183,079

173,502

3.10%

4.73%

4,257

6,158

(1,901)

(2,124)

223 

 

**    Tax-exempt   (2)**

31,239

27,390

5.80%

6.01%

1,359

1,235

124 

(43)

167 

 

**  Federal   funds sold and Securities**

 

 

 

 

 

 

 

 

 

 

**    purchased   under agreement to resell**

12,984

27,537

.24%

2.58%

23

532

(509)

(483)

(26)

 

** Other   Earning Assets**

    28,643

             0

.20%

0.00%

         44

           0

         44 

           0 

       44 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Earning Assets**

$852,297

$814,585

5.27%

6.31%

$33,700

$38,578

$(4,878)

$(5,765)

$   887 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest-bearing   Liabilities:**

 

 

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**  Interest-bearing   deposits**

$573,761

$590,773

1.91%

2.97%

$  8,202

$13,154

$(4,952)

$(4,709)

$ (243)

 

**  Federal   funds purchased and securities**

 

 

 

 

 

 

 

 

 

 

**    sold   under agreement to repurchase**

98,424

56,941

1.18%

2.52%

869

1,077

(208)

(574)

366 

 

**  Other   short-term borrowings**

    24,873

      5,344

1.42%

4.32%

       265

       173

          92 

     (116)

     208 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Interest-bearing Liabilities**

  697,058

  653,058

1.79%

2.94%

    9,336

  14,404

   (5,068)

  (5,399)

     331 

 

**Interest-free    Funds Supporting**

 

 

 

 

 

 

 

 

 

 

**  Earning   Assets**

  155,239

  161,527

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Funds Supporting Earning Assets**

$852,297

$814,585

1.46%

2.36%

$  9,336

$14,404

$ (5,068)

$(5,399)

$   331 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest   Rate Spread**

 

 

3.48%

3.37%

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

**  on   Net Yield on Earning Assets**

 

 

  .33%

  .59%

             

             

 

 

 

 

**Net   Yield on Earning Assets**

 

 

3.81%

3.96%

$24,364

$24,174

 

 

 

 

(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

-25-

**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, the levels ofhigher-risk loans, declines in collateral value, the effects of changes in riskselection or underwriting practices, the experience, ability and depth oflending management and staff, industry conditions, the effect of changes inconcentrations of credit, and loan administration risks.

The level of the allowance for loan losses is determined through theutilization of both quantitative and qualitative measures.  Loans areidentified as impaired as a result of past due status, management'sdetermination of an inability on the part of the borrower to make full andtimely payment of principal and interest, a decline in project performance, orimproper loan structuring which evolves in the course of deterioration.  Quantifiedlosses associated with such loans are segregated as a component in thedetermination of the allowance for loan losses.

The Company employs migration analysis to determine thelevels of risks and associated losses with homogenous pools of loans.  Thisanalysis determines levels of loss associated with pools of loans based on riskgrade and historical loss factors by risk grades.  Risk grading incorporatesvarious loan attributes, including the majority of those associated with higherrisk loans.  These loan attributes are: demonstrated financial capacity andposition, the borrower's demonstrated willingness to pay, proper loanstructure, lien perfection on collateral, proper documentation, adherence toloan agreement covenants, and adherence to loan policy, among others.  Quantifiedlosses associated with pools of loans from migration analysis are segregated asa component in the determination of the allowance for loan losses.

The Company utilizes various qualitative factors toquantify additional risks and potential inherent losses existing in theCompany's loan portfolios.  These include consideration of levels and trends indelinquencies, changes in the loan grading mix, trends in the volume and termsof loans, over-margined real estate loans, national and local economic trendsand conditions, changes in risk selection and underwriting practices, theexperience, ability and depth of lending management and staff, industryconditions, loan concentrations, geographic concentrations, regulatoryconsiderations, and various loan administration risks.  Quantified lossesassociated with these qualitative factors are segregated as a component in thedetermination of the allowance for loan losses.

The provision for loan losses was $2,221 for the three-month period ended September30, 2009 and $500 for the three-month period ended September 30, 2008.  Netloan charge-offs/(recoveries) totaled $1,654 for the three-month period ended September30, 2009 and $444 for the same period in 2008.  The increased provisions andhigher level of net charge-offs during the three-month period ended September30, 2009 reflects the national economic recession and its impact on the localeconomy in which the Company operates.  The Myrtle Beach-Conway-North MyrtleBeach South Carolina Metropolitan Statistical Area, wherein the majority of theCompany's operations are situated, has experienced significant declines invarious sectors of its economy, primarily in the real estate sectors.  Theallowance for loan losses as a percentage of net loans was 1.55% at September30, 2009 and was 1.17% at September 30, 2008.

The provision for loan losses was $6,547 for the nine-month period ended September30, 2009 and $1,354 for the nine-month period ended September 30, 2008.  Netloan charge-offs/(recoveries) totaled $4,671 for the nine-month period ended September30, 2009 and $1,069 for the same period in 2008.  The increased provision andhigher level of net charge-offs during the nine-month period ended September30, 2009 again reflect the decline in local economic activity and real estatevalues as noted in the preceding paragraph.

The levels of loans on which no interest was being accrued, impaired loans,foreclosed real estate, and classified assets at September 30, 2009 and 2008are outlined in the notes to the consolidated unaudited financial statements(See NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES).  All of these measurementsincreased during 2009, some markedly, and remained above levels historicallyexperienced by the Company at September 30, 2009.  Although increased,management considers all such levels manageable, 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 the remainder of 2009 and 2010.

Securities Transactions - At September 30, 2009, December 31, 2008, and September 30, 2008total market value appreciation in the investment portfolio totaled $2,343, $2,310,and $1,773, respectively.  As indicated, the market values of the Company'sinvestment portfolio increased from September 30, 2008 to December 31, 2008, andincreased from December 31, 2008 to September 30, 2009.  During 2008 bondvalues fluctuated due to variances in the slope of the yield curve because ofinstability in new issue coupon rates and intermittent movement of fundsbetween the bond market and the stock market.  However, the yield curvegenerally normalized over the period.  During the first half of 2009 managementsold a portion of its investment portfolio, in

-26-

**NET INCOME (continued)**

part, to take advantage of existing gains in a historically low interest rateenvironment, and, in part, to facilitate the re-establishment of its investmentportfolio maturity strategy previously impacted by numerous investment calls. All investments sold were callable in the near term.  The decline in the totalmarket value appreciation during the periods is also attributable to thereinvestment of investment proceeds at currently lower market interest rates.  Thechanges in market value appreciation/(depreciation) in the investment portfoliodo not generally directly affect operating results since the Company does notacquire investment securities for trading.  However, the changes in the marketvalue appreciation/(depreciation) in the investment portfolio for the three andnine month periods ended September 30, 2009 and September 30, 2008 are acomponent of Comprehensive Income and are set forth in the CondensedConsolidated Statements of Comprehensive Income contained herein.

Noninterest Income - Noninterest income decreased by 7.1% to $1,902 for the three-monthperiod ended September 30, 2009 from $2,047 for the three-month period ended September30, 2008, primarily attributable to declines in credit card merchant discountincome and mortgage negotiation fees.   Noninterest income increased by 11.7%to $6,278 for the nine-month period ended September 30, 2009 from $5,620 forthe nine-month period ended September 30, 2008.  The increase in noninterestincome for the nine-month period ended September 30, 2009, was primarily due torealized gains from the sale of investment securities, $1,352.  These gains were offset by decreased service charges on depositaccounts, down $259 or 9.0% to $2,604 for the nine-month period ended September30, 2009.  These gains were also offset by other operating income, down  $435 or 15.8%to $2,322 for the nine-month period ended September 30, 2009.

Noninterest Expenses - Noninterest expenses increased by 3.7% to $5,699 for thethree-month period ended September 30, 2009 from $5,917 for the three-monthperiod ended September 30, 2008.  The major components of noninterest expensesare salaries and employee benefits, which decreased 7.2% to $3,472 from $3,741;occupancy expense which increased .5% to $824 from $820; and other operatingexpenses which increased by 3.5% to $1,403 from $1,356.  Salaries and benefitsdecreased due to reduced staffing and decreased benefits expenses.  Occupancyexpense generally continues to grow due to the addition of new bankingfacilities.  However, the increase in occupancy expense during 2009 isprimarily attributable to the Company's installation of a new core applicationsystem, the renovation of branch offices, and the replacement of automatedteller machines (ATMs).  Other operating expenses have increased due toincreased FDIC premiums, including a special assessment of $406 accrued as ofJune 30, 2009 and payable September 30, 2009, and increased other miscellaneousexpense.

Noninterest expenses increased by 1.9% to $17,703 for the nine-month periodended September 30, 2009 from $17,378 for the nine-month period ended September30, 2008.  The major components of noninterest expenses are salaries andemployee benefits which decreased 5.3% to $10,565 from $11,152.  Occupancyexpense increased 3.1% to $2,426 for the nine-month period ended September 30,2009 from $2,354 for the same period in 2008.  Other operating expensesincreased 21.7% to $4,712 from $3,872 for the same periods, respectively. Other operating expenses have increased due to increased FDIC premiums,including a special assessment of $406 accrued as of June 30, 2009 and payableSeptember 30, 2009, and increased other miscellaneous expense.

Income Taxes- Provisions for income taxes decreased 50.7% to $614 for the three-monthperiod ended September 30, 2009 from $1,245 for the three-month period ended September30, 2008.  Income before income taxes less interest on tax-exempt investmentsecurities decreased 52.7% to $1,590 for the three-month period ended September30, 2009 from $3,362 for the same period in 2008. 

Provisions for income taxes decreased 48.1% to $1,859 for the nine-monthperiod ended September 30, 2009 from $3,580 for the nine-month period ended September30, 2008.  Income before income taxes less interest on tax-exempt investmentsecurities decreased by 48.8% to $5,033 for the nine-month period ended September30, 2009 from $9,827 for the same period in 2008.

**LIQUIDITY**

The Bank's liquidity position is primarily dependent on short-term demands forfunds caused by customer credit needs and deposit withdrawals and upon theliquidation of bank assets to meet these needs.  The Bank's liquidity sourcesinclude cash and due from banks, federal funds sold, and short-terminvestments. In addition, the Bank has established federal funds lines ofcredit from correspondent banks and has the ability to borrow funds from theFederal Reserve System and the Federal Home Loan Bank of Atlanta. Managementbelieves that short-term and long-term liquidity sources are 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 will 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.

 

-27-

**LIQUIDITY - (continued)**

The table below summarizes future contractual obligations as of September 30,2009 (in thousands).

 

**At September 30, 2009**

 

**Payments Due by Period**

 

**Within One Year**

**Over One to Two Years**

**Over Two to Three Years**

**Over Three to Five Years**

**Over Five Years**

**Total**

**Certificates of Deposit**

$323,148  

$23,918       

$7,078      

$6,210      

$      -        

$360,354     

**Borrowings**

125,894  

  5,000       

        -      

        -      

       -        

130,894     

 

 

 

 

 

 

 

**     Total**

$449,042  

$28,918      

$7,078      

$6,210      

$       -        

$491,248     

**CAPITAL RESOURCES**

Total stockholders' equity was $88,915 and $83,526 at September 30, 2009 and December31, 2008, representing 9.75% and 9.55% of total assets, respectively.  At September30, 2009, the Company and the Bank exceeded quantitative measures establishedby regulation to ensure capital adequacy (see NOTE 12 to the consolidatedunaudited financial statements - REGULATORY MATTERS).  Capital is consideredsufficient by management to meet current and prospective capital requirementsand to support 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, 2008 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 2008Annual 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. 

**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 reprice 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' judgmentsbased on information available to them at the time of their examination.

****-28-

**Item3.  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 in the Company's internal control over financialreporting during the most recent fiscal quarter that has materially affected,or is reasonably likely to materially affect, the Company's internal controlover financial reporting.

-29-

**PART II**

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

**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, 2009

483           

$158.00 

-

-

August 1 - August 31, 2009

1,569           

 163.50

-

-

September 1 - September 30, 2009

     40           

 163.50

-

-

Total

2,092           

$162.23

-

-

(1) During the period covered by this report, the Company purchased 2,092shares of stock from shareholders, at the request of the shareholders, whichare held by the Company as authorized and unissued shares.  These shares werepurchased on a case-by-case basis and not pursuant 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:  November9, 2009

 

-30-

 

**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.

  |