|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
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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**                             March  31, 2009                                             **                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| OR                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| [  ]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|                    For  the transition period from                                                    to                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Commission file number:  ** 000-24523 **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ***                                     CNB  Corporation                            ***                                                                                                                                                                                                                                                                                                                                                                      |
| (Exact name of registrant as specified in its charter)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **                              South Carolina                                   **                                                                                                                                                                                                                                                                                                                                                                          | **                       57-0792402                  ** |
| (State or  other jurisdiction of incorporation or organization)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | (I.R.S.  Employer Identification No.) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| **                 1400 Third Avenue, 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:  834,757 shares of common stock, par value $10 per share, May  1, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |  |  |

----

| **CNB  Corporation**                                                                                                                                                                                                                     |            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                                                                                                                               | **Page**   |
| ** **                                                                                                                                                                                                                               |       |
| **Forward-Looking  Statements**                                                                                                                                                                                                          | 1          |
| ** **                                                                                                                                                                                                                               |            |
| **PART  I.    FINANCIAL INFORMATION **                                                                                                                                                                          |            |
| ** **                                                                                                                                                                                                                               |            |
| **Item  1.       Financial Statements:**                                                                                                                                                              | ** ** |
| ** **                                                                                                                                                                                                                               | ** ** |
| **Condensed  Consolidated Balance Sheets as of  March 31, 2009,  December 31, 2008, and March 31, 2008**                                                                                                                            | 2          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Income for the Three  Months Ended March 31, 2009 and 2008**                                                                                                                                     | 3          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Comprehensive Income for the  Three Months Ended March 31, 2009 and 2008**                                                                                                                       | 4          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Changes in Stockholders' Equity  for the Three Months Ended March 31,  2009 and 2008**                                                                                                      | 5          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Cash Flows for the Three Months  Ended March 31, 2009 and 2008**                                                                                                                                 | 6          |
| ** **                                                                                                                                                                                                                               |       |
| **Notes  to Consolidated Financial Statements**                                                                                                                                                                                          | 7-16       |
| ** **                                                                                                                                                                                                                               |       |
| **Item  2.     Management's Discussion and Analysis of  Financial                   Condition  and Results of Operations** | 16-24      |
| ** **                                                                                                                                                                                                                               |       |
| **Item  3.     Quantitative and Qualitative Disclosures  About Market Risk**                                                                                                                                    | 24         |
| ** **                                                                                                                                                                                                                               |       |
| **Item  4.     Controls and Procedures**                                                                                                                                                                        | 24         |
| ** **                                                                                                                                                                                                                               |       |
| ** **                                                                                                                                                                                                                               |       |
| **PART  II.   OTHER INFORMATION**                                                                                                                                                                                         |       |
| ** **                                                                                                                                                                                                                               |       |
| **Item  2.     Unregistered Sales of Equity Securities and  Use of Proceeds**                                                                                                                                   | 25         |
| ** **                                                                                                                                                                                                                               |       |
| **Item  6.    Exhibits**                                                                                                                                                                                             | 25         |
| **SIGNATURE**                                                                                                                                                                                                                            | 25         |

----

**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 statementsafter the date of this report.  The Company has expressed itsexpectations, beliefs and projections in good faith and believes they have areasonable basis.  However, there is no assurance that theseexpectations, beliefs or projections will result or be achieved oraccomplished.

****-1-

----

| **PART  I.**                                                                                                                                                                                                                                |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                  |
| **Item  1. Financial Statements**                                                                                                                                                                                                           |
| **CNB Corporation and Subsidiary  Condensed Consolidated Balance Sheets  (All Dollar Amounts, Except Per Share Data, in Thousands)   **                                                                                                |
| **ASSETS:**                                                                                                                                                                                                                                 | **March 31,** | **  December 31,** | **    March 31,** |
| ** **                                                                                                                                                                                                                                  | **2009** | ** 2008** | **2008** |
| ** **                                                                                                                                                                                                                                  | (Unaudited) |                             | (Unaudited) |
| **  **                                                                                                                                                                                                                            |   |   |   |
| **    Cash  and due from banks**                                                                                                                                                                                        | $ 36,548  | $ 19,259   | $ 19,068      |
| **    Investment  securities held to maturity**                                                                                                                                                                         | 9,218  | 9,758   | 8,305      |
|       (Fair  values of  $9,147 at March 31, 2009,        $9,570 at December 31, 2008, and  $8,411  at         March 31, 2008) |   |   |   |
| **    Investment  securities available for sale**                                                                                                                                                                       | 199,884  | 194,178   | 196,320      |
|       (Amortized  cost of  $198,233 at March 31,         2009, $191,680 at December 31, 2008,  and                                                                    |   |   |   |
|        $192,843  at March 31, 2008                                                                                                                                                                       |   |   |   |
| **    Federal  funds sold and securities purchased**                                                                                                                                                                    |   |   |   |
| **      under  agreement to resell**                                                                                                                                                                          | 18,000  | 21,000   | 17,500       |
| **    Other  investments**                                                                                                                                                                                              | 3,041  | 3,024   | 1,675       |
| **    Loans:**                                                                                                                                                                                                          |   |   |   |
| **       Total  loans**                                                                                                                                                                                  | 597,763  | 598,281   | 583,759      |
| **       Less  allowance for possible loan losses**                                                                                                                                                      |     (6,965) |      (7,091)  |      (6,639)     |
| **         Net  loans**                                                                                                                                                                        | 590,798  | 591,190   | 577,120      |
| **    Bank  premises and equipment**                                                                                                                                                                                    | 23,852  | 23,403   | 23,078      |
| **    Other  assets**                                                                                                                                                                                                   |     13,204  |     12,813   |    11,168      |
| **Total  assets**                                                                                                                                                                                                                           | $894,545  | $874,625   | $854,234      |
| ** **                                                                                                                                                                                                                                  |   |   |   |
| **LIABILITIES AND STOCKHOLDERS' EQUITY:**                                                                                                                                                                                                   |   |   |   |
| ** **                                                                                                                                                                                                                                  |   |   |   |
| **    Deposits:**                                                                                                                                                                                                       |   |   |   |
| **       Non-interest  bearing**                                                                                                                                                                         | $107,497  | $100,560   | $113,733       |
| **       Interest-bearing**                                                                                                                                                                              |    566,434  |    578,659   |   596,365       |
| **          Total  deposits**                                                                                                                                                             |    673,931  |    679,219   |   710,098       |
| **    Federal funds purchased  and securities sold under**                                                                                                                                                              |   |   |   |
| **          agreement  to repurchase**                                                                                                                                                    | 96,688  | 67,415   | 49,508       |
| **    United  States Treasury demand notes**                                                                                                                                                                            | 1,497  | 2,672   | 1,430       |
| **    Federal  Home Loan Bank advances**                                                                                                                                                                                | 30,000  | 30,000   | 0       |
| **    Short  term note payable**                                                                                                                                                                                        | 1,120  | 1,120   | 0       |
| **    Other  liabilities**                                                                                                                                                                                              |       6,449  |     10,673   |       9,345       |
| ** Total  liabilities**                                                                                                                                                                                                                |   809,685  |   791,099   |   770,381       |
| ** **                                                                                                                                                                                                                                  |   |   |   |
| **   Stockholders'  equity:**                                                                                                                                                                                                |   |   |   |
|       **Common  stock**, par value $10 per share:                                                                                                                                                             | 8,289  | 8,295   | 8,407       |
|        Authorized  1,500,000 in 2009 and 2008; issued                                                                                                                                                    |   |   |   |
|        828,892  at March 31, 2009, 829,518 at December         31, 2008,  and 840,661 at March 31, 2008.                                                         |   |   |   |
| **       Capital  in excess of par value of stock**                                                                                                                                                      | 49,992  | 50,085   | 51,773       |
| **       Retained  earnings**                                                                                                                                                                            | 25,588  | 23,648   | 21,587       |
| **       Accumulated  other comprehensive income**                                                                                                                                                       |          991  |       1,498   |       2,086       |
| **   Total  stockholders' equity**                                                                                                                                                                                           |     84,860  |     83,526   |     83,853       |
| **Total  liabilities and stockholders' equity**                                                                                                                                                                                             | $894,545  | $874,625   | $854,234       |
| ** **                                                                                                                                                                                                                                  |   |   |   |
| ***See Notes to Consolidated  Financial Statements***                                                                                                                                                                                       |
|                                                                                                                                                                                                                                             |  |  |  |  |  |

-2-

----

| **CNB Corporation and Subsidiary  Condensed Consolidated Statement of Income  (All Dollar Amounts, Except Per Share Data, in Thousands)  (Unaudited)** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                             |
| ** **                                                                                                                                             | **      Three Months Ended** |  
** **

**         March 31,**

 
** **

**    2009**

**        2008**

 
**Interest  Income:**

** **

  Interest and fees on  loans

$9,378        

 

$10,587 

 
  Interest on  investment securities:

 

 

 

 
    Taxable  investment securities

1,569  

 

2,500 

 
    Tax-exempt  investment securities

285  

 

273 

 
  Interest on federal  funds sold and securities        purchased under agreement to resell

    16  

 

320 

 
 Other Interest Income

            6  

 

            0 

 
**      Total  interest income**

  11,254  

 

  13,680 

 
** **

** **

** **

 
**Interest  Expense:**

** **

** **

** **

 
  Interest on deposits

2,990  

 

5,103 

 
  Interest on federal  funds purchased and securities

 

 

 

 
     sold  under agreement to repurchase

288  

 

479 

 
  Interest on other  short-term borrowings

       108  

 

       112 

 
**      Total  interest expense**

    3,386  

 

    5,694 

 
 

 
**  Net  interest income**

    7,868  

 

    7,986 

 
**  Provision  for loan losses**

    1,231  

 

       359 

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

    6,637  

 

    7,627 

 
** **

** **

** **

 
**  Noninterest  income:**

** **

** **

** **

 
    Service  charges on deposit accounts

819  

 

940 

 
    Gains on  sale of securities

477  

 

0 

 
    Other  operating income

       596  

 

       905 

 
**        Total  noninterest income**

    1,892  

 

    1,845 

 
** **

** **

** **

** **

 
**  Noninterest  expenses:**

** **

** **

** **

 
    Salaries  and employee benefits

3,568  

 

3,721 

 
    Occupancy  expense

790  

 

839 

 
    Other  operating expenses

    1,313  

 

    1,077 

 
**        Total  noninterest expenses**

    5,671  

 

    5,637 

 
 

 
**  Income  before income taxes**

     2,858 

 

    3,835 

 
**    Income  tax provision**

       920  

 

    1,295 

 
**  Net  income**

    1,938  

 

    2,540 

 
** **

** **

** **

** **

 
**Per  Share Data**

** **

** **

** **

 
** **

** **

** **

** **

 
**   Net  income per weighted average shares outstanding**

$    2.34  

 

$    3.00 

 
** **

 

 

 

 
**   Cash  dividend paid per share**

$          0  

 

$          0 

 
** **

 

 

 

 
**   Book  value per actual number of shares outstanding**

$102.38  

 

$  99.75 

 
** **

 

 

 

 
**   Weighted  average number of shares outstanding**

829,187  

 

847,936 

 
** **

 

 

 

 
**   Actual  number of shares outstanding**

828,892  

 

840,661

 
***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 EndedMarch 31,**

 

** **

** **

 

**    2009    **

**   2008   **

**Net  Income**

$   1,938  

$  2,540 

** **

 

 

**Other  comprehensive income, net of tax**

 

 

** **

 

 

    Unrealized  gains on securities:

 

 

 

 

    Unrealized  holding gains/(losses) during period

(207)

1,061 

** **

 

 

**    **Reclassification adjustment for  gains included in net  income** **

(300)

-  

**               **

**             **

**Net  Comprehensive Income**

**$   1,431 **

**$ 3,601 **

 

***See Notes toConsolidated Financial Statements***

-4-

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

 

**Three   Months Ended             March  31,         **

 

**2009**

**   2008**

**Common  Stock:**

 

 

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

 

 

 
Balance,  January 1

$   8,295  

$    8,521 

 
Issuance  of Common Stock   

4  

None  

 
Repurchase  of Common Stock

          (10)

     (114)  

 
Balance  at end of period

     8,289  

    8,407  

    
 

 

 
**Surplus:**

 

 

 
Balance,  January 1

50,085  

53,519  

 
Issuance  of Common Stock

59  

None  

 
Repurchase  of Common Stock

      (152) 

   (1,746) 

 
Balance  at end of period

   49,992  

   51,773  

    
 

 

 
**Undivided  profits:**

 

 

 
Balance,  January 1

23,650  

19,047  

 
Net  Income

1,938  

2,540  

 
Cash  dividends declared

     None  

     None  

 
Balance  at end of period

   25,588  

   21,587  

    
 

 

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

 

 

 
Balance,  January 1

1,498  

1,025  

 
Change  in net unrealized gains/losses

       (507)

     1,061  

 
Balance  at end of period

        991 

     2,086  

    
 

 

    
**               **

**               **

 
**Total  stockholders' equity**

**$84,860  **

**$83,853  **

 
** **

** **

** **

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

** **

** **

 
** **

** **

** **

 
** **

** **

** **

 
** **

** **

** **

 
** **

** **

** **

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

** **

**For the Three months ended                   March  31,                **

** **

**    2009    **

**     2008   **

 
**OPERATING  ACTIVITIES**

** **

** **

 
  Net  Income

$    1,938  

$    2,540  

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

** **

** **

 
    Depreciation  and amortization

330  

356  

 
    Provision  for loan losses

1,231  

359  

 
    Provision  for deferred income taxes

261  

36  

 
    Discount  accretion and premium amortization on investment securities

   121  

(615) 

 
    Gain  on sale of investment securities

(477) 

-   

 
    Decrease  in accrued interest receivable

694  

348  

 
    Increase  in other assets

  23  

 746  

 
    Decrease  in other liabilities

        135  

        896  

 
** **

** **

** **

 
        Net  cash provided by operating activities

     4,256  

     4,666  

 
 

 

 

 
**INVESTING  ACTIVITIES**

 

 

 
  Proceeds  from sale of investment securities available for sale

9,281  

-  

 
  Proceeds  from maturities/calls of investment securities held to maturity

535  

250  

 
  Proceeds  from maturities/calls of investment securities available for sale

40,781  

72,655  

 
  Purchase  of investment securities available for sale

(56,252) 

(60,455) 

 
  Purchase  of investment securities held to maturity

-   

(847) 

 
  Proceeds  from sale of foreclosed assets

36  

-  

 
  Net  decrease in federal funds sold

3,000  

8,500  

 
  Net  increase in loans

(1,906) 

(10,235) 

 
  Net  proceeds from sales and purchases of equity securities

(17) 

-   

 
  Premises  and equipment expenditures

       (779) 

      (506) 

    
 

 

 
        Net  cash provided/(used) for investing activities

     (5,321) 

      9,362 

    
 

 

 
**FINANCING  ACTIVITIES**

 

 

 
  Dividends  paid

(4,357) 

(4,475) 

 
  Net  increase/(decrease) in deposits

(5,288) 

17,809  

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

29,273  

(11,428) 

 
  Net  decrease in other short-term borrowings

(1,175) 

(15,947) 

 
  Common  Shares Purchased

(162) 

(1,860) 

 
  Common  Shares Sold

          63 

           -   

    
 

 

 
        Net  cash provided/(used) by financing activities

 18,354  

 (15,901) 

    
 

 

 
        Net  increase/(decrease) in cash and due from banks

17,289  

(1,873) 

    
 

 

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

  19,259  

  20,941  

    
 

 

 
**CASH  AND DUE FROM BANKS,  END OF PERIOD**

$36,548  

$19,068  

    
 

 

 
**CASH  PAID FOR:**

 

 

 
  Interest

$ 4,192  

$  5,991  

 
  Income  taxes

$    345  

$     125  

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

Net income per share - Net income per share is computed on the basis of the weightedaverage number of common shares outstanding resulting in 829,187 shares for thethree-month period ended March 31, 2009 and 847,936 shares for the three-monthperiod ended March 31, 2008.

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.

FSPEITF 99-20-1, "Amendments to the Impairment Guidance of EITF Issue No. 99-20,"("FSP EITF 99-20-1") was issued in January 2009.  Prior to the FSP,other-than-temporary impairment was determined by using either Emerging IssuesTask Force ("EITF") Issue No. 99-20, "Recognition of Interest Income andImpairment on Purchased Beneficial Interests and Beneficial Interests thatContinue to be Held by a Transferor in Securitized Financial Assets," ("EITF99-20") or SFAS No. 115, "Accounting for Certain Investments in Debt and EquitySecurities," ("SFAS 115") depending on the type of security.  EITF 99-20 requiredthe use of market participant assumptions regarding future cash flows regardingthe probability of collecting all cash flows previously projected.  SFAS 115determined impairment to be other than temporary if it was probable that theholder would be unable to collect all amounts due according to the contractualterms. To achieve a more consistent determination of other-than-temporaryimpairment, the FSP amends EITF 99-20 to determine any other-than-temporaryimpairment based on the guidance in SFAS 115, allowing management to use morejudgment in determining any other-than-temporary impairment.  The FSP waseffective for reporting periods ending after December 15, 2008.  Management hasreviewed the Company's security portfolio and evaluated the portfolio for anyother-than-temporary impairments.

On April 9, 2009, the FASB issued three staff positions related to fair valuewhich are discussed below.  

FSP SFAS 115-2 and SFAS 124-2, "Recognition and Presentation ofOther-Than-Temporary Impairments," ("FSP SFAS 115-2 and SFAS 124-2")categorizes losses on debt securities available-for-sale or held-to-maturitydetermined by management to be other-than-temporarily impaired into losses dueto credit issues and losses related to all other factors.  Other-than-temporaryimpairment (OTTI) exists when it is more likely than not that the security willmature or be sold before its amortized cost basis can be recovered.  An OTTIrelated to credit losses should be recognized through earnings.  An OTTIrelated to other factors should be recognized in other comprehensive income. The FSP does not amend existing recognition and measurement guidance related toother-than-temporary impairments of equity securities.  Annual disclosuresrequired in SFAS 115 and FSP SFAS 115-1 and SFAS 124-1 are also required forinterim periods (including the aging of securities with unrealized losses). 

FSP SFAS 157-4, "Determining Fair Value When the Volume and Level of Activityfor the Asset or Liability Have Significantly Decreased and IdentifyingTransactions That are Not Orderly" recognizes that quoted prices may not bedeterminative of fair value when the volume and level of trading activity hassignificantly decreased.  The evaluation of certain factors may necessitatethat fair value be determined using a different valuation technique.  Fairvalue should be the price that would be received to sell an asset or paid totransfer a liability in an orderly transaction, not a forced liquidation ordistressed sale.  If a transaction is considered to not be orderly, little, ifany, weight should be placed on the transaction price.  If there is notsufficient information to conclude as to whether or not the transaction isorderly, the transaction price should be considered when estimating fair value. An entity's intention to hold an asset or liability is not relevant indetermining fair value.  Quoted prices provided by pricing services may stillbe used when estimating fair value in accordance with SFAS 157; however, theentity should evaluate whether the quoted prices are based on currentinformation and orderly transactions.  Inputs and valuation techniques arerequired to be disclosed in addition to any changes in valuation techniques.

-7-

RecentlyIssued Accounting Pronouncements - Continued

FSP SFAS 107-1 and APB 28-1, "Interim Disclosures about Fair Value of FinancialInstruments" requires disclosures about the fair value of financial instrumentsfor interim reporting periods of publicly traded companies as well as in annualfinancial statements and also requires those disclosures in summarizedfinancial information at interim reporting periods  Apublicly traded company includes any company whose securities trade in a publicmarket on either a stock exchange or in the over-the-counter market, or anycompany that is a conduit bond obligor.  Additionally, when a company makes afiling with a regulatory agency in preparation for sale of its securities in apublic market it is considered a publicly traded company for this purpose.

The three staff positions are effective for periods ending after June 15, 2009,with early adoption permitted for periods ending after March 15, 2009, in whichcase all three must be adopted.  The Company will adopt the staff positions forits second quarter 10-Q but does not expect the staff positions to have amaterial impact on the consolidated financial statements.

The Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin("SAB") No. 111 on April 9, 2009 to amend Topic 5.M., "Other Than TemporaryImpairment of Certain Investments in Debt and Equity Securities" and tosupplement FSP SFAS 115-2 and SFAS 124-2.  SAB 111 maintains the staff'sprevious views related to equity securities; however debt securities areexcluded from its scope.  The SAB provides that "other-than-temporary"impairment is not necessarily the same as "permanent" impairment and unlessevidence exists to support a value equal to or greater than the carrying valueof the equity security investment, a write-down to fair value should berecorded and accounted for as a realized loss.  The SAB was effective uponissuance and had no impact on the Company's financial position.

Other accounting standards that have been issued or proposed by the FASB orother standards-setting bodies are not expected to have a material impact onthe Company'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 three-month period ended March 31, 2009 and for the year endedDecember 31, 2008 were approximately $1,406 and $2,638, respectively.

-8-

**NOTE3 - INVESTMENT SECURITIES**

Investment securities with a par value of approximately $198,003 at March 31,2009 and $174,673 at December 31, 2008 were pledged to secure public depositsand for other purposes required by law.

The following summaries reflect the book value, unrealized gains and losses,approximate market value, and tax-equivalent yields of investment securities listedby type of issuer and maturity at March 31, 2009 and at December 31, 2008.

** **

**                           March  31, 2009                         **

** **

**(Dollars in Thousands)**

** **

**Book**

**Unrealized Holding**

**Fair**

** **

** **

**Value**

**Gains**

**Losses**

**Value**

**Yield(1)**

 

 

 

 

 

 

**AVAILABLE  FOR SALE**

 

 

 

 

 
   
 

 

 

 

 

  Government  Sponsored Enterprises

 

 

 

 

 

    Within  one year

1,725

11

-

1,736

4.00%  

    One  to five years

154,617

1,483

138

155,962

3.26     

    Six  to ten  years

   12,145

        205

             9

    12,341

3.98     
   
 168,487

     1,699

         147

  170,039

3.32     

  Mortgage  Backed Securities

 

 

 

 

 

    Six  to ten years

1,710

18

4

1,724

2.43%  

    Over  ten years

     6,958

        106

             -

      7,064

3.98     
   
     8,668

        124

            4

      8,788

3.68     

  State,  county and municipal

 

 

 

 

 

    Within  one year

1,350

31

-

1,381

7.34%  

    One  to five years

3,203

136

-

3,339

6.60     

    Six  to ten years

13,496

70

249

13,317

5.37     

    Over  ten years

     2,286

          10

          19

      2,277

5.45     
   
   20,335

        247

        268

    20,314

5.71     
   
 

 

 

 

 

  Other  Investments

 

 

 

 

 

     CRA  Qualified Investment Fund

733

-

-

733

-     

     Mastercard  International Stock

          10

             -

            -

           10

-     
   
        743

             -

            -

         743

-     
   
 

 

 

 

 

  Total  available for sale

$198,233

$   2,070

$      419

$199,884

3.58%  
   
 

 

 

 

 

**HELD  TO MATURITY**

 

 

 

 

 
   
 

 

 

 

 

  State,  county and municipal

 

 

 

 

 

    Within  one year

$      744

$        18

$          -

$       762

7.37%  

    One  to five years

994

6

-

1,000

4.44     

    Six  to ten years

4,914

34

67

4,881

5.51     

    Over  ten years

     2,566

          11

          73

      2,504

5.78     
   
 

 

 

 

 

    Total  held to maturity

$   9,218

$        69

$      140

$    9,147

5.62%  
   
 

 

 

 

 

(1) Tax  equivalent adjustment based on a 34% tax rate.
 
As of March 31, 2009, 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 $991 as of March 31,2009.

-9-

**NOTE3 - INVESTMENT SECURITIES (Continued)**

**                        December  31, 2008                         **

 
**(Dollars in  Thousands)**

 
** **

**Book**

**Unrealized  Holding**

**Fair**

** **

 
** **

**Value**

**Gains**

**Losses**

**Value**

**Yield(1)**

 
**AVAILABLE FOR SALE**

 

 

 

 

 

    
 

 

 

 

 

 
 Government Sponsored Enterprises

 

 

 

 

 

 
     Within one year

3,725

41

-

3,766

4.56%

 
     One to five years

151,174

2,030

-

153,204

3.66%

 
     Six to ten years

    14,522

      583

         -

    15,105

    4.84%

    
  169,421

   2,654

         -

  172,075

    3.78%

 
  Mortgage Backed Securities

 

 

 

 

 

 
     Six to ten years

507

18

-

525

4.91%

 
     Over ten years

      3,021

       63

         -

      3,084

    4.65%

    
      3,528

       81

         -

      3,609

    4.66%

 
  State, county and municipal

 

 

 

 

 

 
    Within one year

1,370

15

-

1,385

7.11%

 
    One to five years

4,243

133

-

4,376

7.03%

 
    Six to ten years

11,271

16

362

10,925

5.57%

 
    Over ten years

    1,115

          -

       39

      1,076

    5.91%

    
    17,999

      164

     401

    17,762

    6.05%

 
  Other Investments

 

 

 

 

 

 
    CRA Qualified Investment  Fund

721

-

-

721

-%

 
    Mastercard International  Stock

          11

          -

          -

           11

         -%

    
        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 4 - LOANS AND ALLOWANCE FORLOAN LOSSES**     The following is a summary of loans at March 31,2009 and December 31, 2008 by major classification:

 

**    March  31, **

**December 31,**

 

**           2009     **

**        2008       **

 

 

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

$ 369,453 

$ 366,948 

 
                             **- construction**

92,161 

92,010 

 
**Agricultural  loans**

3,168 

3,119 

 
**Commercial  and industrial loans**

87,915 

89,348 

 
**Loans  to individuals for household,**

 

 

 
**  family  and other consumer expenditures**

44,622 

46,278 

 
**All  other loans, including overdrafts and**

 

 

 
**  deferred  loan costs**

          444 

           578 

 
**     Gross  loans**

$ 597,763 

$  598,281 

 
**       Less  allowance for loan losses**

     (6,965)

      (7,091)

 
**         Net  loans**

$ 590,798 

$  591,190 

 
 

       Changesin the allowance for loan losses for the quarters ended March 31, 2009 and 2008,and the year ended December 31, 2008 are summarized as follows:

** **

**Quarter  Ended**

**  Year Ended**

    
**   March 31,**

**   December 31,**

 

**  2009  **

**  2008   **

** **

**2008**

 
 

** **

** **

** **

** **

 
**Balance,  beginning of period**

$ 7,091 

$ 6,507 

 

$  6,507      

 
**Charge-offs:**

** **

** **

** **

** **

 
   Commercial,  financial, and agricultural

359 

85 

 

896      

 
   Real  Estate - construction and mortgage

921 

103 

 

750      

 
   Loans  to individuals

      249 

      157 

** **

       836      

 
**       Total  charge-offs**

$ 1,529 

$    345 

 

$  2,482      

 
**Recoveries:**

** **

** **

** **

** **

 
   Commercial,  financial, and agricultural

$      96 

$      39 

** **

$     278      

 
   Real  Estate - construction and mortgage

0 

0 

 

44      

 
   Loans  to individuals

        76 

        79 

** **

       211      

 
       Total  recoveries

$    172 

$    118 

** **

$     533      

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

$ 1,357 

$    227 

 

$  1,949      

 
**Additions  charged to operations**

$ 1,231 

$    359 

 

$  2,533      

 
**Balance,  end of period**

$ 6,965 

$ 6,639 

 

$  7,091      

 
 

** **

** **

** **

** **

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

    .23%

    .04%

 

     .33%     

 
**   to  average loans outstanding during the     period**

** **

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

At March 31, 2009, March 31,2008, and December 31, 2008 loans on which no interest was being accruedtotaled $4,915, $885, and $2,990, respectively.  A portion of the loans onwhich no interest was being accrued as well as other loans identified bymanagement are classified as impaired.  Impaired loans at March 31, 2009, March31, 2008, and December 31, 2008, were $4,974, $385, and $4,158, respectively.  TheCompany had $1,670 of foreclosed real estate at March 31, 2009, $64 offoreclosed real estate at March 31, 2008, and $639 of foreclosed real estate atDecember 31, 2008.  Loans 90 days past due and still accruing interest totaled$275, $323, and $608 at March 31, 2009, March 31, 2008, and December 31, 2008,respectively.

At March 31, 2009, March31, 2008, and December 31, 2008 classified assets, the majority consisting ofclassified loans, were $24,740, $16,678, and $18,170, respectively.  At March31, 2009,  March 31, 2008, and December 31, 2008 classified assets represented 26.80%,18.55%, and 19.99% of total capital (the sum of Tier 1 Capital and theAllowance for Loan Losses), respectively.

-11-

**NOTE 5 -PREMISES AND EQUIPMENT**     Property at March 31, 2009 and December 31, 2008is summarized as follows:

**March 31,**

**December 31,**

**2009**

**2008**
   
 

 

**Land  and buildings**

$ 26,262

$ 26,262

 
**Furniture,  fixtures and equipment**

9,486

8,811

 
**Construction  in progress**

        223

        119

 
** **

$ 35,971

$ 35,192

 
** **

 

 

 
**Less  accumulated depreciation and amortization**

   12,119

   11,789

 
$ 23,852

$ 23,403

 
     Depreciation and amortization of bank premisesand equipment charged to operating expense was $330 for the three-month periodended March 31, 2009, and $1,330 for the year ended December 31, 2008.  Theconstruction in progress is primarily related to the renovation of theCompany's Surfside branch office located in Conway, South Carolina and landimprovements and installation of an automated teller machine (ATM) at theCompany's Carolina Forest site located in Myrtle Beach, South Carolina.  Remainingconstruction and equipment costs associated with the Surfside branch office andthe Carolina Forest ATM are estimated at approximately $61 and $82, respectively.

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

     At March 31, 2009 and December 31, 2008, certificatesof deposit of $100 or more included in time deposits totaled approximately $194,918and $210,669, respectively.  Interest expense on these deposits wasapproximately $1,440 for the three-month period ended March 31, 2009 and $8,110for the year ended December 31, 2008. 

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

     At March 31, 2009 and December 31, 2008,securities sold under repurchase agreements totaled $96,688 and $67,415,respectively.  Securities with a book value of $103,414 ($104,119 fair value)and $71,752 ($72,845 fair value), respectively, were used as collateral for theagreements.  The weighted-average interest rate of these agreements was 1.32percent and 2.41 percent at March 31, 2009 and December 31, 2008, respectively.

**NOTE 8 - LINES OF CREDIT**

     At March 31, 2009, the Bank had unused short-termlines of credit to purchase Federal Funds from unrelated banks totaling $33,500. These lines of credit are available on a one to seven day basis for generalcorporate purposes of the Bank.  All of the lenders have reserved the right towithdraw 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 $1,995 at March 31, 2009. The amount outstanding under the note totaled $1,497 and $2,672 at March31, 2009 and December 31, 2008, respectively.

     The Bank also has a line of credit from theFederal Home Loan Bank of Atlanta for $88,034 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 $30,000 in borrowings underthe agreement at March 31, 2009 and $30,000 at December 31, 2008.

-12-

**NOTE 9 - INCOME TAXES**

     Income tax expense for the quarters ended March31, 2009 and March 31, 2008 on pretax income of $2,858 and $3,835 totaled $920and $1,295, respectively.   The provision for federal income taxes iscalculated by applying the 34% statutory federal income tax rate and increasingor reducing this amount due to any tax-exempt interest, state bank tax (net offederal benefit), business credits, surtax exemption, tax preferences,alternative minimum tax calculations, or other factors.  A summary of incometax components and a reconciliation of income taxes to the federal statutoryrate are included in fiscal year-end reports.

     The Company accounts for income taxes inaccordance with Statement of Financial Accounting Standards ("SFAS")No. 109, "Accounting for Income Taxes," and FASB Interpretation No. 48 (FIN48),Accounting for Uncertainty in Income Taxes - an Interpretation of SFAS No.109."**NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES**

     Fromtime to time the Bank is a party to various litigation matters, both asplaintiff and as defendant, arising from its normal operations.  No materiallosses are anticipated in connection with any of these matters at March 31,2009.

     In the normal course of business, the Bank is a partyto financial instruments with off-balance-sheet risk including commitments to extendcredit and standby letters of credit.  Such instruments have elements of creditrisk in excess of the amount recognized in the balance sheet.  The exposure tocredit loss in the event of nonperformance by the other parties to thefinancial instruments for commitments to extend credit and standby letters ofcredit is represented by the contractual notional amount of those instruments. Generally, the same credit policies used for on-balance-sheet instruments, suchas loans, are used in extending loan commitments and standby letters of credit.

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

** **

**    March  31, 2009**

**           Loan  Commitments                   **

          $ 49,354  

**           Standby  letters of credits         **

               2,501  

     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 other terminationclauses and some involve payment of a fee.  Many of the commitments areexpected to expire without being fully drawn.  Therefore, the total amount ofloan commitments does not necessarily represent future cash requirements.  Eachcustomer's creditworthiness is evaluated on a case-by-case basis.  The amountof 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 subsidiary to fund theloan commitments and to perform under standby letters of credit, if the needarises.  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-monthperiod ended March 31, 2009 and the year ended December 31, 2008, $100 and $579,respectively, was charged to operations under the plan.

-13-

**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 March 31, 2009:

**Company**

 

 

** **

 

 

** **

 

**For**

** **

 

**Capital adequacy**

** **

**                                   **

**         Purposes          **

** **

**            Actual            **

**         Minimum         **

** **

**Amount**

**Ratio**

**Amount**

** Ratio **

 

 

 

 

 

 

 

 

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

$90,834

14.78%

$49,176

8.0%

 

 

 
** **

 

 

 

 

 

 

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

83,869

13.64   

24,588

4.0   

 

 

 
** **

 

 

 

 

 

 

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

83,869

9.41   

35,635

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)**

$91,314

14.86%

$49,173

8.0%

$61,467

10.0%

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

84,349

13.72   

24,587

4.0   

36,880

6.0   

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

84,349

9.47   

35,634

4.0   

44,543

5.0   

 
****-14-

**NOTE 13 - FAIR VALUE MEASUREMENTS**

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

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

**Level 1**

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

**Level 2**

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

**Level 3**

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

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

TheCompany's available-for-sale investment securities ($199,884 at March 31, 2009)include debt securities of U.S. government sponsored enterprises, municipalbonds, and mortgage backed securities.  The Company considers the market quotedprices of these instruments to be equivalent to debt securities that are tradedless frequently than exchange-traded instruments and therefore classifies themas Level 2 inputs.  The Company predominantly makes loans for the purposes ofreal estate acquisition, construction, agriculture, commercial and industrialneeds, and consumer expenditures.  The majority of the Company's loansare real estate secured.  Loans which are deemed to be impaired areprimarily valued at the fair values of the underlying real estate collateral.  Suchfair values are obtained using independent appraisals, which the Companyconsiders to be Level 2 inputs. The aggregate carrying amount of impaired loansat March 31, 2009 was $4,974.  The Company also generally acquires other realestate owned through foreclosure of debts previously contracted.  Other realestate owned is valued at fair value.  Fair values for other real estate ownedare obtained using independent appraisals, which the Company considers to be Level2 inputs.  The aggregate carrying amount of other real estate owned at March31, 2009 was $1,670.

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.

-15-

**NOTE14 - CONDENSED FINANCIAL INFORMATION**

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

**CONDENSED  BALANCE SHEET  (Unaudited)**

** **

**March 31,**

**ASSETS**

**    2009   **

**    2008   **

   Cash

$      616 

$       548 

   Investment in subsidiary

85,340 

83,269 

   Fixed Assets

0 

0 

   Other assets

          37 

          36 

$ 85,993 

$ 83,853 
   
 

 
   
 

 

**LIABILITIES AND STOCKHOLDERS' EQUITY**

 

 

   Short-term note payable

$   1,120 

$          0 

   Other liabilities

13 

0 

   Stockholders' equity

   84,860 

   83,853 
   
$ 85,993 

$ 83,853 
   
 

 
   
 

 

**CONDENSED  STATEMENT OF INCOME  (Unaudited)**

**For the three-month   period ended   March 31,**

**    2009   **

**   2008  **

   Equity in net income of subsidiary

$  2,012 

$ 2,603 

   Other income

0 

0 

   Other expenses

       (74)

      (63)

**      NET INCOME**

$  1,938 

$ 2,540 

**Item 2.**

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

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

Management's Discussion andAnalysis is provided to afford a clearer understanding of the major elements ofthe Company's results of operations, financial condition, liquidity, andcapital resources. The following discussion should be read in conjunction withthe Company's financial statements and notes thereto and other detailedinformation appearing elsewhere in this report.  In addition, the results ofoperations for the interim periods shown in this report are not necessarilyindicative of results to be expected for the fiscal year.  The accompanying consolidatedfinancial statements include all accounts of the Company and the Bank.  Allsignificant intercompany accounts and transactions have been eliminated inconsolidation.  The accompanying unaudited consolidated financial statements atMarch 31, 2009 and for the three-month periods ending March 31, 2009 and 2008  havebeen prepared in accordance with generally accepted accounting principles("GAAP") for interim financial information and with the instructionsto Form 10-Q of the Securities and Exchange Commission.  Accordingly, they donot include all information and footnotes required by GAAP for completefinancial statements.  However, in the opinion of management, all adjustments(consisting of normal recurring adjustments) considered necessary for a fairpresentation have been included.

****-16-

**DISTRIBUTIONOF ASSETS AND LIABILITIES**

The Company has historically maintained a conservative approach in determiningthe distribution of assets and liabilities.  Loans increased 2.4% from $583,759at March 31, 2008 to $597,763 at March 31, 2009, and decreased .1%, from $598,281at December 31, 2008 to $597,763 at March 31, 2009.  Loans decreased as apercentage of total assets from 68.3% to 66.8% from March 31, 2008 to March 31,2009 and decreased from 68.4% to 66.8% from December 31, 2008 to March 31, 2009. Loan demand in our market area slowed to a moderate pace during 2007.  Thistrend has continued throughout 2008, into 2009, and is expected to continuethrough the remainder of 2009.  Securities and federal funds sold decreased asa percentage of total assets from 26.2% at March 31, 2008 to 25.7% at March 31,2009, and decreased from 26.1% of total assets at December 31, 2008 to 25.7% atMarch 31, 2009, a reflection of continued moderate loan demand coupled withlower levels of deposits.  The level of investments and federal funds soldprovides for a more than adequate supply of liquidity.

Management has sought to build the deposit base with stable, relativelynon-interest-sensitive deposits by offering the small to medium deposit accountholders a wide array of deposit instruments at competitive rates.Non-interest-bearing demand deposits decreased as a percentage of total assetsfrom 13.3% at March 31, 2008 to 12.0% at March 31, 2009, and increased from 11.5%at December 31, 2008 to 12.0% at March 31, 2009.  As more customers, bothbusiness and personal, are attracted to interest-bearing deposit accounts, weexpect the percentage of non-interest bearing demand deposits to decline overthe long-term.  Interest-bearing deposits decreased from 69.8% of total assetsat March 31, 2008 to 63.3% at March 31, 2009, and decreased from 66.2% atDecember 31, 2008 to 63.3% at March 31, 2009.  Securities sold under agreementto repurchase increased from 5.8% at March 31, 2008 to 10.8% at March 31, 2009,and increased from 7.7% of total assets at December 31, 2008 to 10.8% at March31, 2009.  Other short-term borrowings decreased from 3.9% of total assets atDecember 31, 2008 to 3.7% at March 31, 2009.  Other short-term borrowings increasedfrom .2% at March 31, 2008 to 3.7% at March 31, 2009.

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

 

** March 31,**

**December 31,**

 

**   2009 **

**   2008  **

**  2008  **

**Assets:**

** **

** **

** **

   Earning  assets:

** **

** **

** **

   Loans

66.8%

68.3%

68.4%

 
   Securities  held to maturity

1.0   

1.0   

1.1   

 
   Securities  available for sale

22.7   

23.2   

22.6   

 
   Federal  funds sold and securities purchased under agreement to resell

    2.0   

    2.0   

    2.4   

 
      Total  earning assets

  92.5   

  94.5   

  94.5   

 
   Other  assets

    7.5   

    5.5   

    5.5   

 
      Total  assets

100.0%

100.0%

100.0%

    
** **

** **

 

 
**Liabilities  and stockholder's equity:**

** **

** **

 

 
  Interest-bearing  liabilities:

** **

** **

 

 
    Interest-bearing  deposits

63.3%

69.8%

66.2%

 
    Federal  funds purchased and securities sold under agreement to repurchase

10.8   

5.8   

7.7   

 
    Other  short-term borrowings

    3.7   

     .2   

    3.9   

 
        Total  interest-bearing liabilities

  77.8   

 75.8   

  77.8   

 
    Noninterest-bearing  deposits

12.0   

13.3   

 11.5   

 
    Other  liabilities

.7   

1.1   

1.2   

 
    Stockholders'  equity

    9.5   

    9.8   

    9.5   

 
        Total  liabilities and stockholders' equity

100.0%

100.0%

100.0%

    
 

 

 

    
 

 

 

    
 

 

 

 
-17-

**RESULTSOF OPERATIONS**

Earnings for the three-month periods ended March 31, 2009 and 2008 were $1,938 and$2,540, respectively, resulting in a return on average assets of .87% and 1.16%and a return on average stockholders' equity of 9.05% and 12.24%, 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 $40,311 or 4.7% to $894,545 at March 31, 2009 from$854,234 at March 31, 2008. The following table sets forth the financialhighlights for the three-month periods ending at March 31, 2009 and March 31,2008:

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

 
** **

 
 
****

**                Three-Month  Period Ended    March 31,                **

 
** **

** **

** **

** **

 
 
** **

**2009  **

**2008  **

**Percent     Increase  (Decrease)**

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

  $   6,637

  $   7,627

          (13.0)%

 
 
**Income  before income taxes**

2,858

3,835

    (25.5)

 
 
**Net  Income**

1,938

2,540

    (23.7)

 
 
**Per  Share**

2.34

3.00

    (22.0)

 
 
**Cash  dividends declared**

0

0

   -

 
 
**     Per  Share**

0

0

   -

 
 
**Total  assets**

894,545

854,234

          4.7%

 
 
**Total  deposits**

673,931

710,098

        (5.1) 

 
 
**Loans**

597,763

583,759

       2.4

 
 
**Investment securities and securities available for sale**

209,102

204,625

             2.2

 
 
**Stockholders' equity**

84,860

83,853

       1.2

 
 
**    Book value per share**

102.38

99.75

       2.6

 
 
**Ratios:**

 

 

 

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

.87%

1.16%

         (25.0)%

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

9.05%

12.24%

         (26.1)%

 
 
 

 

 

 

 

 
 
(1)       For the three-month period ended March31, 2009, average total assets amounted to $890,887 with average stockholdersequity            totaling$85,704 for the same period. 

-18-

**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 re-priced either up or down within a certaintime interval. A rate sensitive liability (RSL) is an interest paying depositor other liability on which the interest rate can be re-priced either up or downwithin a certain time interval.  When a proper balance between RSA and RSLexists, market interest rate fluctuations should not have a significant impacton earnings. The larger the imbalance, the greater the interest rate riskassumed by the Bank and the greater the positive or negative impact of interestrate fluctuations on earnings.  The Bank seeks to manage its assets andliabilities in a manner that will limit interest rate risk and thus stabilizelong-term earning power. Management believes that a 200 basis point rise orfall in interest rates will have less than a 10 percent effect on before-tax netinterest income over a one-year period, which is within Bank guidelines.

TheBank maintained net interest margins for the three-month periods ended March31, 2009 and March 31, 2008, of 3.79% and 3.93%, respectively, as compared tomanagement's long-term target of 4.20%.  Net interest margins have beencompressed for the Bank and industry-wide for several years for a variety ofreasons.  Dramatic decreases in market interest rates by the Federal Reserve duringthe first quarter of 2008 and additional decreases in market rates during 2008placed further significant pressure on net interest margins for the industry asa whole.  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,competition in the Bank's specific market remains significant, as newcompetitors seek market share and other competitors attempt to reduce theirdependence on brokered deposits.  These factors tend to compress margins bydriving the cost of deposits upward while driving the yields on loans downward. 

Fully-tax-equivalent net interest income for the three-month period ended March31, 2009 was $8,015, a decrease of 1.4% from the $8,127 attained for the three-monthperiod ended March 31, 2008.  During the same period, totalfully-tax-equivalent interest income decreased by 17.5% to $11,401 from $13,821and total interest expense decreased by 40.5% to $3,386 from $5,694.  Fully-tax-equivalentnet interest income as a percentage of average total earning assets decreased .14%to 3.79% for the three-month period ended March 31, 2009 from 3.93% for the three-monthperiod ended March 31, 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 periods ended March 31, 2009 and 2008, and a summaryof changes in net interest income resulting from changes in volume and changesin rate between the three-month periods ended March 31, 2009 and 2008.

-19-

 

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

 

 

**Three Months Ended 3/31/09**

**Three Months Ended 3/31/08**

** **

**Interest**

**Avg. Ann.**

** **

**Interest**

**Avg. Ann.**

**Avg.**

**Income/**

**Yield or**

**Avg.**

**Income/**

**Yield or**

**Balance**

**Expense**

**Rate**

**Balance**

**Expense**

**Rate**

**Assets:**

** **

** **

** **

** **

** **

** **

 
   Earning  assets:

** **

** **

** **

** **

** **

** **

 
      Loans,  net of unearned income (1)

$598,200

$ 9,378

6.27%

$580,223

$  10,587

7.30%

 
      Securities:

** **

** **

** **

** **

** **

** **

 
        Taxable

177,948

1,569

3.53   

179,516

2,500

5.57   

 
        Tax-exempt

29,846

432

(2)     5.79   

27,637

414

(2)   5.99   

 
      Federal  funds sold and securities purchased under 

** **

** **

** **

** **

** **

** **

 
        agreement  to resell

    26,663

       16

.24   

    39,716

       320

3.22   

 
      Other  earning assets

     12,784

           6

.19   

             0

           0

      0.00

 
          Total  earning assets

  845,441

  11,401

5.39   

  827,092

  13,821

6.68   

 
    Other  assets

    45,446

** **

** **

    52,207

** **

** **

 
          Total  assets

$890,887

** **

** **

$879,299

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Liabilities  and stockholder equity**

** **

** **

** **

** **

** **

** **

 
    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

 
      Interest-bearing  deposits

$575,550

2,990

2.08   

$570,687

5,103

3.58   

 
      Federal  funds purchased and securities sold under

** **

** **

** **

** **

** **

** **

 
        agreement  to repurchase

83,771

288

1.38   

62,116

479

3.08   

 
      Other  short-term borrowings

    32,036

        108

1.35   

      7,163

         112

6.25   

 
          Total  interest-bearing liabilities

$691,357

$   3,386

1.96   

$639,966

$   5,694

3.56   

 
    Noninterest-bearing  deposits

107,625

** **

** **

119,002

** **

** **

 
    Other  liabilities

6,201

** **

** **

37,308

** **

** **

 
    Stockholders'  equity

    85,704

** **

** **

    83,023

** **

** **

 
          Total  liabilities and stockholders' equity

$890,887

** **

** **

$879,299

** **

** **

 
    Net  interest income as a percent of total

** **

** **

** **

** **

** **

** **

 
       earning  assets

$845,441

$   8,015

3.79   

$827,092

$   8,127

3.93   

 
** **

** **

** **

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Ratios:**

** **

** **

** **

** **

** **

** **

 
Annualized  return on average total assets

** **

** **

.87   

** **

** **

1.16   

 
Annualized  return on average stockholders' equity

** **

** **

9.05   

** **

** **

12.24   

 
Cash  dividends declared as a percent of net income

** **

** **

0   

** **

** **

0   

 
Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

 
  Average  total assets

** **

** **

9.62   

** **

** **

9.44   

 
  Average  total deposits

** **

** **

12.54   

** **

** **

12.04   

 
  Average  loans

** **

** **

14.33   

** **

** **

14.31   

 
Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

 
   average  total assets

** **

** **

94.90   

** **

** **

92.64   

 
** **

** **

 

** **

** **

 

 
(1)  The  Company had no out-of-period adjustments or foreign activities.  Loan fees of  $138 and $163 are included in the above interest income for March 31, 2009  and 2008, respectively.  Loans on a non-accrual basis for the recognition of  interest income totaling $4,915 and $885 for March 31, 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 $147 and $141 for March  31, 2009 and 2008, respectively.

 
** **

** **

 

** **

** **

 

 
****-20-
 
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 March 31, 2009 and 2008   (Dollars in Thousands)**

 

 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

 

**Average**

**Average**

** **

** **

**Interest**

**Interest**

** **

**Change**

**Change**

** **

 

**Volume**

**Volume**

**Yield/Rate**

**Yield/Rate**

**Earned/Paid**

**Earned/Paid**

** **

**Due to**

**Due to**

** **

 

**2009**

**2008**

**2009(3)**

**2008(3)**

**2009**

**2008**

**Variance**

**Rate**

**Volume**

** **

**Earning   Assets:**

 

 

 

 

 

 

 

 

 

 

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

$598,200

$580,223

6.27%

7.30%

$9,378

$10,587

$(1,209)

$(1,491)

$   282 

 

**  Investment   securities:**

 

 

 

 

 

 

 

 

 

 

**    Taxable**

177,948

179,516

3.53%

5.57%

1,569

2,500

(931)

(917)

(14)

 

**    Tax-exempt   (2)**

29,846

27,637

5.79%

5.99%

432

414

18  

(14)

32 

 

**  Federal   funds sold and Securities**

 

 

 

 

 

 

 

 

 

 

**    purchased   under agreement to resell**

    26,663

    39,716

.24%

3.22%

      16

      320

    (304)

    (296)

     (8)

 

** Other   Earning Assets**

    12,784

             0

.19%

0.00%

           6

           0

           6 

         0 

         6 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Earning Assets**

$845,441

$827,092

5.39%

6.68%

$11,401

$13,821

$(2,420)

$(2,718)

$   298 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest-bearing   Liabilities:**

 

 

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**  Interest-bearing   deposits**

$575,550

$570,687

2.08%

3.58%

$  2,990

$  5,103

$(2,113)

$(2,138)

$     25 

 

**  Federal   funds purchased and securities**

 

 

 

 

 

 

 

 

 

 

**    sold   under agreement to repurchase**

83,771

62,116

1.38%

3.08%

288

479

(191)

(265)

74 

 

**  Other   short-term borrowings**

    32,036

      7,163

1.35%

6.25%

       108

       112

          (4)

       (88)

       84 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Interest-bearing Liabilities**

  691,357

  639,966

1.96%

3.56%

    3,386

    5,694

   (2,308)

  (2,491)

     183 

 

**Interest-free    Funds Supporting**

 

 

 

 

 

 

 

 

 

 

**  Earning   Assets**

  154,084

  187,126

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Funds Supporting Earning Assets**

$845,441

$827,092

1.60%

2.75%

$  3,386

$  5,694

$ (2,308)

$(2,491)

$   183 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest   Rate Spread**

 

 

3.43%

3.12%

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

**  on   Net Yield on Earning Assets**

 

 

  .36%

  .81%

             

             

 

 

 

 

**Net   Yield on Earning Assets**

 

 

3.79%

3.93%

$  8,015

$  8,127

 

 

 

 

(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

-21-

**NET INCOME (continued)**

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

The provision for loan losses was $1,231 for the three-month period ended March31, 2009 and $359 for the three-month period ended March 31, 2008.  Net loancharge-offs/(recoveries) totaled $1,357 for the three-month period ended March31, 2009 and $227 for the same period in 2008.  The increased provisions duringthe three-month period ended March 31, 2009 reflects moderate growth in theloan portfolio compared to the 2008 period and a higher level of net charge-offsduring the 2009 period.  The allowance for loan losses as a percentage of netloans was 1.18 at March 31, 2009 and was 1.15% at March 31, 2008.

The levels of loans on which no interest was being accrued, impaired loans,foreclosed real estate, and classified assets at March 31, 2009 and 2008 areoutlined in the notes to the consolidated unaudited financial statements (SeeNOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES).  All of these measurementsincreased during 2008, some markedly, and remained above levels historicallyexperienced by the Company at March 31, 2009.  Although increased, managementconsiders all such levels well manageable, within guidelines previouslyestablished by the Company, and well below current industry averages.  However,management recognizes the potential for further deterioration of economicconditions in the Company's market areas in the short-term, especially withrespect to real estate related activities and real property values. Consequently, management anticipates the Company will continue to incur aboveaverage provisions for the first half of 2009, and possibly further into thefuture.

SecuritiesTransactions - At March 31, 2009, December 31, 2008, and March 31, 2008 total marketvalue appreciation in the investment portfolio totaled $1,580, $2,310, and $3,583,respectively.  As indicated, market values decreased from March 31, 2008 toDecember 31, 2008, and from December 31, 2008 to March 31, 2009.  Bond valueshave fluctuated during 2008 due to variances in the slope of the yield curve becauseof instability 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.  The decline in the total market valueappreciation during the periods is also attributable to numerous bond callsexperienced by the Company and the consequent reinvestment of those funds atcurrently lower market interest rates.  As well, the decline in the totalmarket value appreciation declined due to the sale of securities.  The changesin market value appreciation/(depreciation) in the investment portfolio do not generallydirectly affect operating results since the Company does not acquire investmentsecurities for trading.  However, the changes in the market valueappreciation/(depreciation) in the investment portfolio for the three periodsended March 31, 2009 and March 31, 2008 are a component of Comprehensive Incomeand are set forth in the Condensed Consolidated Statements of Comprehensive Incomecontained herein.

Noninterest Income - Noninterest income increased by 2.5% to $1,892 for the three-monthperiod ended March 31, 2009 from $1,845 for the three-month period ended March31, 2008.   The increase in noninterest income for the three-month period endedMarch 31, 2009, was primarily due to realized gains from the sale of investmentsecurities, $477.  These gains were offset by decreased service charges ondeposit accounts, down $121 or 12.9% to $819, and decreased other operating income,down $309 or 34.1% to $596.

Noninterest Expenses - Noninterest expenses increased by .6% to $5,671 for the three-monthperiod ended March 31, 2009 from $5,637 for the three-month period ended March31, 2008.  The major components of noninterest expenses are salaries andemployee benefits, which decreased 4.1% to $3,568 from $3,721; occupancyexpense which decreased 5.8% to $790 from $839; and other operating expenseswhich increased by 21.9% to $1,313 from $1,077.  Occupancy expense generally continuesto grow due to the addition of new banking facilities.  However, the decreasein occupancy expense and the increase in other operating expense is primarilydue to the reclassification of a portion of utilities expense andtelecommunications expense to other operating expense.

Income Taxes -Provisions for income taxes decreased 29.0% to $920 for the three-month periodended March 31, 2009 from $1,295 for the three-month period ended March 31,2008.  Income before income taxes less interest on tax-exempt investmentsecurities decreased 27.8% to $2,573 for the three-month period ended March 31,2009 from $3,562 for the same period in 2008. 

-22-

**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. Managementfeels that short-term and long-term liquidity sources are more than adequate tomeet funding needs, including the funding of off-balance sheet loan commitmentsand standby letters of credit, if the need arises.  Although the Bank has notexperienced heavy liquidity pressures, there can be no assurance that suchpressures could not be felt in the future.  Neither the Company nor the Bank isinvolved in other off-balance sheet contractual relationships or transactionsthat could result in liquidity needs or other commitments or significantlyimpact earnings.

Thetable below summarizes future contractual obligation as of March 31, 2009 (inthousands).

**At March 31, 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**

293,514     

38,980      

6,556      

7,430      

-        

346,480     

**Borrowings**

116,689     

11,120      

       -        

       -        

       -        

127,809     

 

 

 

 

 

 

**     Total**

410,203     

50,100      

6.556      

7,430      

       -        

474,289     

**CAPITALRESOURCES**

Total stockholders' equity was $84,860 and $83,526 at March 31, 2009 and December31, 2008, representing 9.49% and 9.55% of total assets, respectively.  At  March31, 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. 

-23-

**RISKS AND UNCERTAINTIES**

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

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

**Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Market risk, in regard to interest rate risk, is the risk of loss from adversechanges in market prices and rates.  The Company's market risk arisesprincipally from the interest rate risk inherent in its lending, deposit, andborrowing activities. Management actively monitors and manages its interestrate risk exposure.  In addition to other risks which the Company manages inthe normal course of business, such as credit quality and liquidity risk,management considers interest rate risk to be a significant market risk thatcould potentially have a material effect on the Company's financial conditionand results of operations (See MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS - Net Income - Net InterestIncome).  Other types of market risks, such as foreign currency risk andcommodity price risk, do not arise in the normal course of the Company'sbusiness activities.

**Item 4.  CONTROLS AND PROCEDURES**

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

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

-24-

**PART II**

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

**ISSUER SALES OF EQUITY SECURITIES**

The  Company began a limited offering of up to 25,000 shares of the Company's  Common Stock, $10.00 par value per share, in March, 2009.  The offering price  is $158.00 per share with a minimum purchase of 25 shares, or $3,950, and an  aggregate offering amount of $3,950,000.  Through March 31, 2009, the Company  had sold 400 shares for $63,200.  Through May 1, 2009, total sales (including  sales in March, 2009) equaled 7,385 shares, or $1,166,830.  There were no  underwriting discounts or commissions.  The shares were offered to and  purchased by selected accredited investors and nonaccredited investors  employed by or having a business relationship with the Company (limited to 35  purchasers).  The shares were offered in reliance upon the exemption from  registration provided by Section 4(2) of the Securities Act of 1933 and Rule  506 thereunder.

** 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**

January 1 - January 31, 2009

-           

$       

-

-

February 1 - February 28, 2009

826           

 158.00

-

-

March 1 - March 31, 2009

   200           

  158.00 

-

-

Total

1,026           

$158.00

-

-

(1) During the periodcovered by this report, the Company purchased 1,026 shares of stock fromshareholders, at the request of the shareholders, which are held by the Companyas authorized and unissued shares.  These shares were purchased on acase-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:  May11, 2009

-25-

**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. |