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| **SECURITIES  AND EXCHANGE COMMISSION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **Washington,  D.C.  20549**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **FORM  10-Q**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (Mark One)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| [**X**]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|               For  the quarterly period ended**                             June  30, 2009                                             **                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| OR                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| [  ]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|               For  the transition period from                                                    to                                                        |
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| Commission file number:  ** 000-24523 **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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| ***                              CNB  Corporation                            ***                                                                                                                                                                                                                                                                                                                                                                                  |
| (Exact name of registrant as specified in its charter)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **                                 South  Carolina                               **                                                                                                                                                                                                                                                                                                                                                 | **                       57-0792402                  ** |
| (State or  other jurisdiction of incorporation or organization)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | (I.R.S.  Employer Identification No.) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| **                  1400 Third Avenue, Conway, S.C.               **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | **                            29526                      ** |
| (Address of  principal executive offices)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | (Zip  Code)                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
| (Registrant's telephone number, including area  code):  **(843)  248-5721**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|       Indicate by check  mark whether the registrant (1) has filed all reports required to be filed by  Section 13 or 15(d) of the Securities Exchange Act of 1934 during the  preceding 12 months (or for such shorter period that the registrant was  required to file such reports), and (2) has been subject to such filing  requirements for the past 90 days.  Yes **  X  **.   No       .                                                                                                                                                                                                                                                                |
|      Indicate by check mark  whether the registrant has submitted electronically and posted on its  corporate Web site, if any, every Interactive Data File required to be  submitted and posted pursuant to Rule 405 of Regulation S-T during the  preceding 12 months (or for such shorter period that the registrant was  required to submit and post such files).  Yes [   ]     No  [   ]  (Not yet applicable to Registrant)                                                                                                                                                                                                                              |
|      Indicate by check mark  whether the registrant is a large accelerated filer, an accelerated filer, a  non-accelerated filer, or a smaller reporting company.  See the definitions  of "large accelerated filer," "accelerated filer" and "smaller reporting  company" in Rule 12b-2 of the Exchange Act. (Check one):                                                                                                                                                                                                                                                                                                                                                                              |
|      Large accelerated filer [  ]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Accelerated filer [**X**] |
|      Non-accelerated filer [  ](Do not check if a smaller reporting company)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Smaller Reporting Company [  ] |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|      Indicate by check mark  whether the registrant is a shell company (as defined in Rule 12b-2 of the  Exchange Act).  [  ] Yes  [**X**]  No.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|      State the number of shares  outstanding of each of the issuer's classes of common equity as of the latest  practical date:  841,171 shares of common stock, par value $10 per share, August  1, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |  |

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

----

**CAUTIONARYNOTICE WITH RESPECT TOFORWARD LOOKING STATEMENTS**

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

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

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

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

Allforward-looking statements are expressly qualified in their entirety by thiscautionary notice.  The Company has no obligation, and does notundertake, to update, revise or correct any of the forward-looking 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-

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| **PART  I.**                                                                                                                                                                                                                              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                |
| **Item  1. Financial Statements**                                                                                                                                                                                                         |
| **CNB Corporation and Subsidiary  Condensed Consolidated Balance Sheets  (All Dollar Amounts, Except Per Share Data, in Thousands) **                                                                                                |
| **ASSETS:**                                                                                                                                                                                                                               | **June 30,** | **December 31,** | **    June 30,** |
| ** **                                                                                                                                                                                                                                | **2009** | **2008** | **2008** |
| ** **                                                                                                                                                                                                                                | (Unaudited) |                           | (Unaudited) |
| ** **                                                                                                                                                                                                                                |   |   |   |
| **    Cash  and due from banks**                                                                                                                                                                                      | $ 56,873  | $ 19,259   | $ 21,694      |
| **    Investment  securities held to maturity**                                                                                                                                                                       | 9,214  | 9,758   | 8,301      |
|       (Fair  values of  $9,162 at June 30, 2009,        $9,570 at December 31, 2008, and  $8,281  at         June 30, 2008) |   |   |   |
| **    Investment  securities available for sale**                                                                                                                                                                     | 200,834  | 194,178   | 182,350      |
|       (Amortized  cost of  $200,527 at June 30,         2009, $191,680 at December 31, 2008,  and                                                                   |   |   |   |
|        $182,871at  June 30, 2008)                                                                                                                                                                      |   |   |   |
| **    Federal  funds sold and securities purchased**                                                                                                                                                                  | 0  | 21,000   | 25,000      |
| **      under  agreement to resell**                                                                                                                                                                        |   |   |   |
| **    Other  investments**                                                                                                                                                                                            | 3,041  | 3,024   | 1,674      |
| **    Loans:**                                                                                                                                                                                                        |   |   |   |
| **       Total  loans**                                                                                                                                                                                | 596,426  | 598,281   | 589,410      |
| **       Less  allowance for possible loan losses**                                                                                                                                                    |     (8,400) |      (7,091)  |      (6,736)     |
| **         Net  loans**                                                                                                                                                                      | 588,026  | 591,190   | 582,674      |
| **    Bank  premises and equipment**                                                                                                                                                                                  | 23,678  | 23,403   | 23,265      |
| **    Other  assets**                                                                                                                                                                                                 |     13,881  |     12,813   |     13,333      |
| **Total  assets**                                                                                                                                                                                                                         | $895,547  | $874,625   | $858,291      |
| ** **                                                                                                                                                                                                                                |   |   |   |
| **LIABILITIES AND STOCKHOLDERS' EQUITY:**                                                                                                                                                                                                 |   |   |   |
| ** **                                                                                                                                                                                                                                |   |   |   |
| **    Deposits:**                                                                                                                                                                                                     |   |   |   |
| **       Non-interest  bearing**                                                                                                                                                                       | $106,799  | $100,560   | $118,222       |
| **       Interest-bearing**                                                                                                                                                                            |    572,819  |    578,659   |   595,500       |
| **          Total  deposits**                                                                                                                                                           |    679,618  |    679,219   |   713,722       |
| **    Federal funds purchased  and securities sold under**                                                                                                                                                            | 100,945  | 67,415   | 49,835       |
| **          agreement  to repurchase**                                                                                                                                                  |   |   |   |
| **    United  States Treasury demand notes**                                                                                                                                                                          | 1,588  | 2,672   | 3,345       |
| **    Federal  Home Loan Bank advances**                                                                                                                                                                              | 20,000  | 30,000   | 0       |
| **    Short  term note payable**                                                                                                                                                                                      | 0  | 1,120   | 1,119       |
| **    Other  liabilities**                                                                                                                                                                                            |       6,485  |     10,673   |       7,831       |
| ** Total  liabilities**                                                                                                                                                                                                              |   808,636  |   791,099   |   775,852       |
| ** **                                                                                                                                                                                                                                |   |   |   |
| **   Stockholders'  equity:**                                                                                                                                                                                              |   |   |   |
|       **Common  stock**, par value $10 per share:                                                                                                                                                           | 8,417  | 8,295   | 8,335       |
|        Authorized  1,500,000 in 2009 and 2008; issued                                                                                                                                                  |   |   |   |
|        841,654  at June 30, 2009, 829,518 at December         31, 2008, and  833,566 at June  30, 2008.                                                   |   |   |   |
| **       Capital  in excess of par value of stock**                                                                                                                                                    | 51,881  | 50,085   | 50,692       |
| **       Retained  earnings**                                                                                                                                                                          | 26,429  | 23,648   | 23,724       |
| **       Accumulated  other comprehensive income/(loss)**                                                                                                                                              |          184  |       1,498   |        (312)      |
| **   Total  stockholders' equity**                                                                                                                                                                                         |     86,911  |     83,526   |     82,439       |
| **Total  liabilities and stockholders' equity**                                                                                                                                                                                           | $895,547  | $874,625   | $858,291       |
| ** **                                                                                                                                                                                                                                |   |   |   |
| ***See Notes to Consolidated  Financial Statements***                                                                                                                                                                                     |
|                                                                                                                                                                                                                                           |  |  |  |  |  |

-2-

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| **CNB Corporation and Subsidiary  Condensed Consolidated Statements of Income  (All Dollar Amounts, Except Per Share Data, in Thousands)  (Unaudited)** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                              |
| ** **                                                                                                                                              | **Three Months Ended** | **Six Months Ended** |
| ** **                                                                                                                                              | **June 30,** | **June 30,** |
| **Interest  Income:**                                                                                                                                   | **2009** | **2008** | **2009** | **2008** |
|   Interest and fees on  loans                                                                                                                 | $9,411   | $10,152      | $18,789     | $20,739     |
|   Interest on  investment securities:                                                                                                         |   |   |   |   |
|     Taxable  investment securities                                                                                                  | 1,441   | 1,900      | 3,010     | 4,400     |
|     Tax-exempt  investment securities                                                                                               | 296   | 274      | 581     | 547     |
|   Interest on federal  funds sold and securities        purchased under agreement to resell                     |           4   |         102      |        20     |        422     |
|  Other interest income                                                                                                                             |         11   |             0      |          17     |             0     |
| **      Total  interest income**                                                                                          |   11,163  |    12,428      |   22,417     |   26,108     |
|                                                                                                                                                         | ** ** | ** ** | ** ** | ** ** |
| **Interest  Expense:**                                                                                                                                  | ** ** | ** ** | ** ** | ** ** |
|   Interest on deposits                                                                                                                        | 2,673   | 4,365      | 5,663     | 9,468     |
|   Interest on federal  funds purchased and securities                                                                                         |   |   |   |   |
|      sold  under agreement to repurchase                                                                                       | 302   | 277      | 590     | 756     |
|   Interest on other  short-term borrowings                                                                                                    |          78   |          18      |        186     |        130     |
| **      Total  interest expense**                                                                                         |     3,053   |     4,660      |     6,439     |   10,354     |
|                                                                                                                                                         |  |   |   |   |
| **  Net  interest income**                                                                                                                    |     8,110   |     7,768      |    15,978    |     15,754     |
| **  Provision  for loan losses**                                                                                                              |     3,095   |        495      |      4,326    |        854     |
| **  Net  interest income after provision for loan losses**                                                                                    |     5,015   |     7,273      |    11,652    |   14,900     |
|                                                                                                                                                         | ** ** | ** ** | ** ** | ** ** |
| **  Noninterest  income:**                                                                                                                    | ** ** | ** ** | ** ** | ** ** |
|     Service  charges on deposit accounts                                                                                            | 881   | 971      | 1,700     | 1,911     |
|     Gains on  sale of securities                                                                                                    | 875   | 0      | 1,352     | 0     |
|     Other  operating income                                                                                                         |        728   |        757      |     1,324     |     1,662     |
| **        Total  noninterest income**                                                                           |     2,484   |     1,728      |     4,376     |     3,573     |
| ** **                                                                                                                                              | ** ** | ** ** | ** ** | ** ** |
| **  Noninterest  expenses:**                                                                                                                  | ** ** | ** ** | ** ** | ** ** |
|     Salaries  and employee benefits                                                                                                 | 3,525   | 3,690      | 7,093     | 7,411     |
|     Occupancy  expense                                                                                                              | 812   | 695      | 1,602     | 1,534     |
|     Other  operating expenses                                                                                                       |     1,996   |     1,439      |     3,309     |     2,516     |
| **        Total  noninterest expenses**                                                                         |     6,333   |     5,824      |   12,004     |   11,461     |
|                                                                                                                                                         |  |   |   |   |
| **  Income  before income taxes**                                                                                                             |     1,166   |      3,177     |     4,024     |     7,012     |
| **    Income  tax provision**                                                                                                       |        325   |      1,040     |     1,245     |     2,335     |
| **  Net  income**                                                                                                                             | $     841   | $   2,137      | $  2,779     | $   4,677     |
| ** **                                                                                                                                              | ** ** | ** ** | ** ** | ** ** |
| **Per  Share Data**                                                                                                                                     | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                              | ** ** | ** ** | ** ** | ** ** |
| **   Net  income per weighted average shares outstanding**                                                                               | $    1.01   | $    2.56      | $    3.34     | $    5.56     |
| ** **                                                                                                                                              |   |   |   |   |
| **   Cash  dividend paid per share**                                                                                                     | $         0   | $          0      | $         0     | $         0     |
| ** **                                                                                                                                              |   |   |   |   |
| **   Book  value per actual number of shares outstanding**                                                                               | $ 103.26  | $  98.90      | $103.26     | $   98.90    |
| ** **                                                                                                                                              |   |   |   |   |
| **   Weighted  average number of shares outstanding**                                                                                    | 836,597   | 834,264      | 832,892     | 841,100     |
| ** **                                                                                                                                              |   |   |   |   |
| **   Actual  number of shares outstanding**                                                                                              | 841,654   | 833,566      | 841,654     | 833,566     |
| ***See Notes to Consolidated Financial Statements***                                                                                                    |

-3-

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|  
**CNB Corporation and Subsidiary  Condensed Consolidated Statements of Comprehensive Income  (All Dollar Amounts, Except Per Share Data, in Thousands)  (Unaudited)** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                         | **Three Months EndedJune 30,** | **Six Months EndedJune 30,** |
|                                                                                                                                                                         | ** ** | ** ** | ** ** |
|                                                                                                                                                                         | **    2009    ** | **   2008   ** | **    2009    ** | **   2008   ** |
| **Net  income**                                                                                                                                                              | $      841   | $  2,137  | $   2,779   | $  4,677  |
| ** **                                                                                                                                                                   |   |   |   |   |
| **Other  comprehensive income/(loss), net of tax**                                                                                                                           |   |   |   |   |
| ** **                                                                                                                                                                   |   |   |   |   |
|     Unrealized  gains on securities:                                                                                                                     |   |   |   |   |
|                                                                                                                                                                              |   |   |   |   |
|     Unrealized  holding gains/(losses) during period                                                                                                     | (251) | (2,398) | (449) | (1,337) |
| ** **                                                                                                                                                                   |   |   |   |   |
| **    **Reclassification adjustment for  gains included in net        income** **                                     | (556) | -   | (865) | -   |
|                                                                                                                                                                              | **               ** | **             ** | **               ** | **             ** |
| **Net  comprehensive income/(loss)**                                                                                                                                         | **$        34 ** | **$  (261)** | **$   1,465 ** | **$ 3,340 ** |

 

***See Notes toConsolidated Financial Statements***

-4-

----

| **CNB Corporation and Subsidiary  Condensed Consolidated Statements of Changes in Stockholders' Equity  (All Dollar Amounts in Thousands)  (Unaudited)** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                     | **Six  Months Ended  June 30,** |
|                                                                                                                                                     | **2009** | **2008** |
| **Common  Stock:**                                                                                                                                       |   |   |
| ($10  par value; 1,500,000 shares authorized)                                                                                                            |   |   |
| Balance,  January 1                                                                                                                                      | $   8,295  | $    8,521  |
| Issuance  of Common Stock                                                                                                                 | 188  | -    |
| Repurchase  of Common Stock                                                                                                                              |         (67) |     (186)  |
| Balance  at end of period                                                                                                                                |      8,417  |    8,335   |
|                                                                                                                                                          |   |   |
| **Surplus:**                                                                                                                                             |   |   |
| Balance,  January 1                                                                                                                                      | 50,085  | 53,519   |
| Issuance  of Common Stock                                                                                                                                | 2,786  | -    |
| Repurchase  of Common Stock                                                                                                                              |       (990) |    (2,827)  |
| Balance  at end of period                                                                                                                                |    51,881  |    50,692   |
|                                                                                                                                                          |   |   |
| **Undivided  profits:**                                                                                                                                  |   |   |
| Balance,  January 1                                                                                                                                      | 23,648  | 19,047   |
| Net  Income                                                                                                                                              | 2,779  | 4,677   |
| Cash  dividends declared                                                                                                                                 |            -   |             -    |
| Balance  at end of period                                                                                                                                |    26,429  |    23,724   |
|                                                                                                                                                          |   |   |
| **Net  unrealized holding gains/(losses) on securities:**                                                                                                |   |   |
| Balance,  January 1                                                                                                                                      | 1,498  | 1,025   |
| Change  in net unrealized gains/losses                                                                                                                   |    (1,314) |    (1,337)  |
| Balance  at end of period                                                                                                                                |        184  |       (312)  |
|                                                                                                                                                          |   |   |
|                                                                                                                                                          | **               ** | **               ** |
| **Total  stockholders' equity**                                                                                                                          | **$86,911  ** | **$82,439  ** |
| ** **                                                                                                                                               | ** ** | ** ** |
| **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 Six months ended  June 30,** |
| ** **                                                                                                                                 | **2009** | **2008** |
| **OPERATING  ACTIVITIES**                                                                                                                  | ** ** | ** ** |
|   Net  Income                                                                                                                    | $    2,779   | $    4,677   |
|   Adjustments  to reconcile net income to net cash provided by operating activities                                              | ** ** | ** ** |
|     Depreciation  and amortization                                                                                     | 750   | 710   |
|     Provision  for loan losses                                                                                         | 4,326   | 854   |
|     Provision  for deferred income taxes                                                                               | (339) | 206   |
|     Net  discount accretion and premium amortization on investment securities                                          |    359   | (712)  |
|     Gain  on sale of investment securities                                                                             | (1,352)  | -    |
|     Net  (gain)/loss on sale of foreclosed assets                                                                      | 13   | (11) |
|     Write-down  of foreclosed assets                                                                                   | 137   | -    |
|     Decrease  in accrued interest receivable                                                                           | 962   | 482  |
|     Decrease  in other assets                                                                                          |   (44) |  (730) |
|     Increase/(decrease)   in other liabilities                                                                    |         171   |        (618) |
| ** **                                                                                                                                 | ** ** | ** ** |
|         Net  cash provided by operating activities                                                 |      7,762   |      4,858   |
|                                                                                                                                       |   |   |
| **INVESTING  ACTIVITIES**                                                                                                                  |   |   |
|   Proceeds  from sale of investment securities available for sale                                                                | 46,951   | -   |
|   Proceeds  from maturities/calls of investment securities held to maturity                                                      | 535   | 250   |
|   Proceeds  from maturities/calls of investment securities available for sale                                                    | 81,495   | 99,036   |
|   Purchase  of investment securities available for sale                                                                          | (136,290)  | (76,763)  |
|   Purchase  of investment securities held to maturity                                                                            | -    | (847)  |
|   Proceeds  from sale of foreclosed assets                                                                                       | 675   | 77   |
|   Net  decrease in federal funds sold                                                                                            | 21,000   | 1,000   |
|   Net  increase in loans                                                                                                         | (2,758)  | (16,365)  |
|   Net  proceeds from sales and purchases of equity securities                                                                    | (17)  | 623   |
|   Premises  and equipment expenditures                                                                                           |     (1,025)  |    (1,047)  |
|                                                                                                                                       |   |   |
|         Net  cash provided for investing activities                                                |    10,566   |       5,964  |
|                                                                                                                                       |   |   |
| **FINANCING  ACTIVITIES**                                                                                                                  |   |   |
|   Dividends  paid                                                                                                                | (4,356)  | (4,475)  |
|   Net  increase in deposits                                                                                                      | 399   | 21,433   |
|   Net  increase/(decrease) in securities sold under repurchase agreement                                                         | 33,530   | (11,101)  |
|   Net  increase/(decrease) in United States Treasury demand notes                                                                | (1,084)  | 968   |
|   Net  decrease in Federal Home Loan Bank advances                                                                               | (10,000)  | (15,000) |
|   Net  increase/(decrease) in other short-term borrowings                                                                        | (1,120)  | 1,119   |
|   Common  shares purchased                                                                                                       | (1,057)  | (3,013)  |
|   Common  shares sold                                                                                                            |      2,974   |            -    |
|                                                                                                                                       |   |   |
|         Net  cash provided/(used) by financing activities                                          |    19,286   |  (10,069)  |
|                                                                                                                                       |   |   |
|         Net  increase in cash and due from banks                                                   | 37,614   | 753   |
|                                                                                                                                       |   |   |
| **CASH  AND DUE FROM BANKS, BEGINNING OF YEAR**                                                                                            |    19,259   |   20,941   |
|                                                                                                                                       |   |   |
| **CASH  AND DUE FROM BANKS,  END OF PERIOD**                                                                                          | $ 56,873   | $21,694   |
|                                                                                                                                       |   |   |
| **CASH  PAID FOR:**                                                                                                                        |   |   |
|   Interest                                                                                                                       | $   6,950   | $11,428   |
|   Income  taxes                                                                                                                  | $   1,692   | $  2,264   |

***See Notes toConsolidated Financial Statements***-6-

----

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

Net income per share - Net income per share is computed on the basis of theweighted average number of common shares outstanding resulting in 832,892 sharesfor the six-month period ended June 30, 2009 and 841,100 shares for the six-monthperiod ended June 30, 2008.

Fair values of financial instruments

SFAS No. 107, *"Disclosures About Fair Value of FinancialInstruments,"* as amended by SFAS No. 119 and SFAS No. 133, requiresdisclosure of fair value information for financial instruments, whether or notrecognized in the balance sheet, when it is practicable to estimate the fairvalue.  SFAS No. 107 defines a financial instrument as cash, evidenceof an ownership interest in an entity or contractual obligations which requirethe exchange of cash or other financial instruments.  Certain itemsare specifically excluded from the disclosure requirements, including theCompany's common stock.  In addition, other nonfinancial instrumentssuch as premises and equipment and other assets and liabilities are not subjectto the disclosure requirements.

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

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

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

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

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

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

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

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

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

-7-

----

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

InJune 2009, the Financial Accounting Standards Board ("FASB") issued Statementof Financial Accounting Standards ("SFAS") No. 168, "The *FASB AccountingStandards Codification*TM and the Hierarchy of GenerallyAccepted Accounting Principles - a replacement of FASB Statement No. 162,"("SFAS 168").  SFAS 168 establishes the *FASB Accounting Standards Codification*TM ("Codification") as the source of authoritative generallyaccepted accounting principles ("GAAP") for nongovernmental entities.  TheCodification does not change GAAP. Instead, it takes the thousands ofindividual pronouncements that currently comprise GAAP and reorganizes theminto approximately 90 accounting Topics, and displays all Topics using aconsistent structure.  Contents in each Topic are further organized first bySubtopic, then Section and finally Paragraph. The Paragraph level is the onlylevel that contains substantive content.Citingparticular content in theCodificationinvolves specifying the unique numeric path to the content through the Topic,Subtopic, Section and Paragraph structure. FASB suggests that all citationsbegin with "FASB ASC," where ASC stands for *Accounting StandardsCodification*.SFAS 168, (FASBASC 105-10-05, 10, 15, 65, 70) is effective for interim and annual periodsending after September 15, 2009 and will not have an impact on the Company'sfinancial position but will change the referencing system for accountingstandards.  The following pronouncements provide citations to the applicableCodification by Topic, Subtopic and Section in addition to the originalstandard type and number. 

In December 2008 the FASB issued FASB Staff Position ("FSP") SFAS 132(R)-1(FASB ASC 715-20-65), "Employers' Disclosures about Postretirement Benefit PlanAssets," ("FSP SFAS 132(R)-1").  This FSP provides guidance on an employer'sdisclosures about plan assets of a defined benefit pension or otherpostretirement plan.  The objective of the FSP is to provide the users offinancial statements with an understanding of: (a) how investment allocationdecisions are made, including the factors that are pertinent to anunderstanding of investment policies and strategies; (b) the major categoriesof plan assets; (c) the inputs and valuation techniques used to measure thefair value of plan assets; (d) the effect of fair value measurements usingsignificant unobservable inputs (Level 3) on changes in plan assets for theperiod; and (e) significant concentrations of risk within plan assets.  The FSPalso requires a nonpublic entity, as defined in Statement of FinancialAccounting Standard ("SFAS") 132, to disclose net periodic benefit cost foreach period for which a statement of income is presented.  FSP SFAS 132(R)-1 iseffective for fiscal years ending after December 15, 2009.  The Staff Positionwill require the Company to provide additional disclosures related to itsbenefit plans.

FSP EITF 99-20-1, "Amendments to the Impairment Guidance of EITF Issue No.99-20," (FASB ASC 325-40-65) ("FSP EITF 99-20-1") was issued in January 2009. Prior to the FSP, other-than-temporary impairment was determined by usingeither Emerging Issues Task Force ("EITF") Issue No. 99-20, "Recognition ofInterest Income and Impairment on Purchased Beneficial Interests and BeneficialInterests that Continue to be Held by a Transferor in Securitized FinancialAssets," ("EITF 99-20") or SFAS No. 115, "Accounting for Certain Investments inDebt and Equity Securities," ("SFAS 115") depending on the type of security. EITF 99-20 required the use of market participant assumptions regarding futurecash flows regarding the probability of collecting all cash flows previouslyprojected.  SFAS 115 determined impairment to be other than temporary if it wasprobable that the holder would be unable to collect all amounts due accordingto the contractual terms. To achieve a more consistent determination ofother-than-temporary impairment, the FSP amends EITF 99-20 to determine anyother-than-temporary impairment based on the guidance in SFAS 115, allowingmanagement to use more judgment in determining any other-than-temporaryimpairment.  The FSP was effective for reporting periods ending after December15, 2008.  Management has reviewed the Company's security portfolio andevaluated the portfolio for any other-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 (FASB ASC 320-10-65), "Recognition andPresentation of Other-Than-Temporary Impairments," ("FSP SFAS 115-2 and SFAS124-2") categorizes losses on debt securities available-for-sale orheld-to-maturity determined by management to be other-than-temporarily impairedinto losses due to credit issues and losses related to all other factors. Other-than-temporary impairment (OTTI) exists when it is more likely than notthat the security will mature or be sold before its amortized cost basis can berecovered.  An OTTI related to credit losses should be recognized throughearnings.  An OTTI related to other factors should be recognized in othercomprehensive income.  The FSP does not amend existing recognition and measurementguidance related to other-than-temporary impairments of equity securities. Annual disclosures required in SFAS 115 and FSP SFAS 115-1 and SFAS 124-1 arealso required for interim periods (including the aging of securities withunrealized losses). 

FSP SFAS 157-4 (FASB ASC 820-10-65), "Determining Fair ValueWhen the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That are Not Orderly"recognizes that quoted prices may not be determinative 

-8-

----

offair value when the volume and level of trading activity has significantlydecreased.  The evaluation of certain factors may necessitate thatfair value be determined using a different valuation technique.  Fair valueshould be the price that would be received to sell an asset or paid to transfera liability in an orderly transaction, not a forced liquidation or distressedsale.  If a transaction is considered to not be orderly, little, if any, weightshould be placed on the transaction price.  If there is not sufficientinformation to conclude as to whether or not the transaction is orderly, thetransaction price should be considered when estimating fair value.  An entity'sintention to hold an asset or liability is not relevant in determining fairvalue.  Quoted prices provided by pricing services may still be used whenestimating fair value in accordance with SFAS 157; however, the entity shouldevaluate whether the quoted prices are based on current information and orderlytransactions.  Inputs and valuation techniques are required to be disclosed inaddition to any changes in valuation techniques.

FSP SFAS 107-1 and APB 28-1 (FASB ASC 825-10-65), "Interim Disclosures aboutFair Value of Financial Instruments" requires disclosures about the fair valueof financial instruments for interim reporting periods of publicly tradedcompanies as well as in annual financial statements and also requires thosedisclosures in summarized financial 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 of all three permitted for periods ending after March 15,2009.  The Company adopted the staff positions for its second quarter 10-Q. The staff positions had no material impact on the financial statements. Additional disclosures have been provided where applicable.

The Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin("SAB") No. 111 (FASB ASC 320-10-S99-1) on April 9, 2009 to amend Topic 5.M.,"Other Than Temporary Impairment of Certain Investments in Debt and EquitySecurities" and to supplement FSP SFAS 115-2 and SFAS 124-2.  SAB 111 maintainsthe staff's previous views related to equity securities; however debtsecurities are excluded from its scope.  The SAB provides that"other-than-temporary" impairment is not necessarily the same as "permanent"impairment and unless evidence exists to support a value equal to or greaterthan the carrying value of the equity security investment, a write-down to fairvalue should be recorded and accounted for as a realized loss.  The SAB waseffective upon issuance and had no impact on the Company's financial position.

SFAS 165 (FASB ASC 855-10-05, 15, 25, 45, 50, 55), "Subsequent Events," ("SFAS165") was issued in May 2009 and provides guidance on when a subsequent eventshould be recognized in the financial statements.  Subsequent events thatprovide additional evidence about conditions that existed at the date of thebalance sheet should be recognized at the balance sheet date. Subsequent eventsthat provide evidence about conditions that arose after the balance sheet datebut before financial statements are issued, or are available to be issued, arenot required to be recognized. The date through which subsequent events havebeen evaluated must be disclosed as well as whether it is the date thefinancial statements were issued or the date the financial statements wereavailable to be issued.  For nonrecognized subsequent events which should bedisclosed to keep the financial statements from being misleading, the nature ofthe event and an estimate of its financial effect, or a statement that such anestimate cannot be made, should be disclosed.  The standard is effective forinterim or annual periods ending after June 15, 2009.  In preparing thesefinancial statements, the Company has evaluated events and transactions forpotential recognition or disclosure through August 13, 2009.  See Note 15 forManagement's evaluation of subsequent events.

The FASB issued SFAS 166 (not yet reflected in FASB ASC), "Accounting forTransfers of Financial Assets - an amendment of FASB Statement No. 140," ("SFAS166") in June 2009.  SFAS 166 limits the circumstances in which a financialasset should be derecognized when the transferor has not transferred the entirefinancial asset by taking into consideration the transferor's continuinginvolvement.  The standard requires that a transferor recognize and initiallymeasure at fair value all assets obtained (including a transferor's beneficialinterest) and liabilities incurred as a result of a transfer of financialassets accounted for as a sale.  The concept of a qualifying special-purposeentity is removed from SFAS 140 along with the exception from applying FIN46(R).  The standard is effective for the first annual reporting period thatbegins after November 15, 2009, for interim periods within the first annualreporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited.  The Company does not expect the standard tohave any 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 six-month period ended June 30, 2009 and for the year endedDecember 31, 2008 were approximately $2,219 and $2,638, respectively.

-9-

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**NOTE3 - INVESTMENT SECURITIES**

Investment securities with a par value of approximately $191,111 at June 30,2009 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 June 30, 2009 and at December 31, 2008.

| ** **                                                    | **June 30, 2009 **                                        |
|---------------------------------------------------------------|----------------------------------------------------------------|
| ** **                                                    | **Book**                                                       | **Unrealized Holding** | **Fair** | ** ** |
| ** **                                                    | **Value**                                                      | **Gains** | **Losses** | **Value** | **Yield(1)** |
|                                                          |                                                           |   |   |   |   |
| **AVAILABLE  FOR SALE**                                       |                                                           |   |   |   |   |
|                                                               |                                                           |   |   |   |   |
|   Government  Sponsored Enterprises                 |                                                           |   |   |   |   |
|     One  to five years                    | $141,736                                                       | $      676 | $       172 | $ 142,240 | 2.75%   |
|     Six  to ten  years               |    26,153                                       |           49 |          206 |     25,996 | 2.90      |
|                                                               |  167,889                                                  |         725 |          378 |   168,236 | 2.77      |
|   Mortgage  Backed Securities                       |                                                           |   |   |   |   |
|     Six  to ten years                     | 2,552                                                          | 15 | 6 | 2,561 | 3.25%   |
|     Over  ten years                       |      5,418                            |           56 |           15 |       5,459 | 3.98      |
|                                                               |      7,970                            |           71 |           21 |       8,020 | 3.74      |
|   State,  county and municipal                      |                                                           |   |   |   |   |
|     Within  one year                      | 1,560                                                          | 27 | - | 1,587 | 7.19%   |
|     One  to five years                    | 2,991                                                          | 115 | - | 3,106 | 6.63      |
|     Six  to ten years                     | 15,077                                                         | 51 | 261 | 14,867 | 5.36      |
|     Over  ten years                       |      4,280                            |             1 |           23 |       4,258 | 5.32      |
|                                                               |    23,908                                       |         194 |         284 |     23,818 | 5.63      |
|                                                               |                                                           |   |   |   |   |
|   Other  Investments                                |                                                           |   |   |   |   |
|      CRA  Qualified Investment Fund  | 749                                                            | - | - | 749 | -      |
|      MasterCard  International Stock |           11 |              - |             - |            11 | -      |
|                                                               |         760            |              - |             - |          760 | -      |
|                                                               |                                                           |   |   |   |   |
|   Total  available for sale                         | $200,527                                                       | $      990 | $      683 | $200,834 | 3.15%   |
|                                                               |                                                           |   |   |   |   |
| **HELD  TO MATURITY**                                         |                                                           |   |   |   |   |
|                                                               |                                                           |   |   |   |   |
|   State,  county and municipal                      |                                                           |   |   |   |   |
|     Within  one year                      | $      905                       | $        12 | $          - | $       917 | 7.24%   |
|     One  to five years                    | 831                                                            | 14 | - | 845 | 4.03      |
|     Six  to ten years                     | 6,235                                                          | 31 | 118 | 6,148 | 5.50      |
|     Over  ten years                       |      1,243                            |             9 |             - |       1,252 | 6.13      |
|                                                               |                                                           |   |   |   |   |
|     Total  held to maturity               | $   9,214                                       | $        66 | $      118 | $    9,162 | 5.62%   |
|                                                               |                                                           |   |   |   |   |
| (1) Tax  equivalent adjustment based on a 34% tax rate.  |
|                                                               |                                                                |  |  |  |  |  |  |  |

As of June 30, 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 $184 as of June 30, 2009.

-10-

----

**NOTE3 - INVESTMENT SECURITIES (Continued) **

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

 

 

 

 

 

 
     Within one year

$   3,725

$      41

$        -

$     3,766

4.56%

 
     One to five years

151,174

2,030

-

153,204

3.66%

 
     Six to ten years

    14,522

      583

         -

    15,105

    4.84%

 
  169,421

   2,654

         -

  172,075

    3.78%

 
  Mortgage Backed Securities

 

 

 

 

 

 
     Six to ten years

507

18

-

525

4.91%

 
     Over ten years

      3,021

       63

         -

      3,084

    4.65%

 
      3,528

       81

         -

      3,609

    4.66%

 
  State, county and municipal

 

 

 

 

 

 
    Within one year

1,370

15

-

1,385

7.11%

 
    One to five years

4,243

133

-

4,376

7.03%

 
    Six to ten years

11,271

16

362

10,925

5.57%

 
    Over ten years

    1,115

          -

       39

      1,076

    5.91%

 
    17,999

      164

     401

    17,762

    6.05%

 
  Other Investments

 

 

 

 

 

 
    CRA Qualified Investment  Fund

721

-

-

721

-%

 
    MasterCard International  Stock

          11

          -

          -

           11

         -%

 
        732

          -

          -

         732

         -%

 
 

 

 

 

 

 
  Total available for sale

$191,680

$ 2,899

$    401

$194,178

   4.01%

 
 

 

 

 

 

 
**HELD TO MATURITY**

 

 

 

 

 

 
 

 

 

 

 

 
  State, county and municipal

 

 

 

 

 

 
    Within one year

$       795

$        11

$        -

$       806

6.71%

 
    One to five years

1,481

9

8

1,482

5.40%

 
    Six to ten years

4,589

12

70

4,531

5.51%

 
    Over ten years

      2,893

          -

      142

      2,751

   5.75%

 
 

 

 

 

 

 
  Total held to maturity

$    9,758

$      32

$    220

$    9,570

  5.66%

 
 

 

 

 

 

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

As of December 31, 2008, the Bank did not hold any securities of an issuer thatexceeded 10% of stockholders' equity. The net unrealized holding gains onavailable-for-sale securities component of capital was $1,498 as of December31, 2008.

-11-

**NOTE 3 - INVESTMENT SECURITIES,Continued**

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

**Available for Sale**

**June 30, 2009 **

  Government Sponsored Entities  State, county, and municipal  Mortgage Backed Securities            Total

**            Less  than        twelve months      **

**         Twelve  months                or  more          **

**             Total                  **

**Fair value**

**Unrealized     losses  **

**Fair value**

**Unrealized      losses  **

**Fair value**

**Unrealized    losses    **

$    50,297  10,926       3,176

$        378284            21

$             --               -

$             -  -                 -

$    50,29710,926       3,176

$          378  284              21

**$    64,699**

**$        683**

**$             -**

**$              **

**$   64,399**

**$          683**

** **

**December 31, 2008 **

   

**            Less than        twelve months      **

**         Twelve months                or more          **

**             Total                  **
   
**Fair value**

**Unrealized     losses  **

**Fair value**

**Unrealized      losses  **

**Fair value**

**Unrealized    losses    **
  State, county, and municipal
  $    10,926

  $          401

  $             -

  $              -

  $    10,926

  $          401
         Total
**$    10,926**

**$          401**

**$             -**

**$              -**

**$    10,926**

**$          401**

     Securities classified as available-for-sale arerecorded at fair market value.  The Company had no unrealized losses consistingof securities in a continuous loss position for twelve months or more at June30, 2009 or December 31, 2008.  The Company had total unrealized losses of $683consisting of 55 securities with a book value of $67,955 at June 30, 2009 andhad total unrealized losses of $401 consisting of 22 securities with a bookvalue of $11,328 at December 31, 2008.  Management does not consider theselosses other than temporary, intends to hold these securities to maturity, andbelieves that the Company has the ability to hold these securities to maturity.

     For the six-month period ended June 30, 2009, $45,605of par value available-for-sale securities were sold for a gain of $1,352.  Therewere no sales of securities available-for-sale in 2008.

     Managementreviews securities for other-than-temporary impairment on at least a quarterlybasis, and more frequently when economic or market concerns warrant suchevaluation.  Consideration is given to (1) the length of time and theextent to which the fair value has been less than cost, (2) the financialcondition and near-term prospects of the issuer, and (3) the Company does notintend to sell these securities and it is more likely than not that the Companywill not be required to sell these securities before recovery of theiramortized cost.

-12-
 
**NOTE 4 - LOANS ANDALLOWANCE FOR LOAN LOSSES******     The following is a summary of loans at June 30,2009 and December 31, 2008 by major classification:

 

**    June 30, **

**December 31,**

 

**2009**

**2008**

 

 

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

$ 373,263 

$ 366,948 

                              **- construction**

89,906 

92,010 

**Agricultural  loans**

4,036 

3,119 

**Commercial  and industrial loans**

82,668 

89,348 

**Loans  to individuals for household,**

 

 

**  family  and other consumer expenditures**

46,262 

46,278 

**All  other loans, including overdrafts and**

 

 

**  deferred  loan costs**

          291 

           578 

**     Gross  loans**

$ 596,426 

$  598,281 

**       Less  allowance for loan losses**

     (8,400)

      (7,091)

**         Net  loans**

$ 588,026 

$  591,190 

 

     Changes in the allowance for loan losses for the quarterand six months ended June 30, 2009 and 2008, and the year ended December 31,2008 are summarized as follows:

** **

**        Quarter  Ended**

**Year Ended**

**        Six-Months  Ended**
   
**   June 30,**

**December 31,**

**June 30,**

 

**   2009  **

**   2008  **

**  2008  **

**   2009  **

**   2008  **

**Balance,  beginning of period**

$ 6,965 

$ 6,639 

$  6,507      

$ 7,091 

$ 6,507 

**Charge-offs:**

** **

** **

** **

** **

** **

   Commercial,  financial, and agricultural

770 

315 

896      

1,129

400 

   Real  Estate - construction and mortgage

729 

0 

750      

1,650 

103 

   Loans  to individuals

      257 

      161 

       836      

      506 

      318 

**       Total  charge-offs**

$ 1,756 

$    476 

$  2,482      

$ 3,285 

$    821 

**Recoveries:**

** **

** **

** **

** **

** **

   Commercial,  financial, and agricultural

$      45 

$      37 

$     278      

$      141 

$      76 

   Real  Estate - construction and mortgage

6 

3 

44      

6 

3 

   Loans  to individuals

        45 

        38 

       211      

      121 

      117 

       Total  recoveries

$      96 

$      78 

$     533      

$    268 

$    196 

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

$ 1,660 

$    398 

$  1,949      

$ 3,017 

$    625 

**Additions  charged to operations**

$ 3,095 

$    495 

$  2,533      

$ 4,326 

$    854 

**Balance,  end of period**

$ 8,400 

$ 6,736 

$  7,091      

$ 8,400 

$ 6,736 

 

** **

** **

** **

** **

** **

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

    .28%

    .07%

     .33%     

    .50%

    .11%

**   to  average loans outstanding during the     period**

** **

** **

** **

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

At June 30, 2009, June 30,2008, and December 31, 2008 loans on which no interest was being accruedtotaled $6,097, $718, and $2,990, respectively.  A portion of the loans on whichno interest was being accrued as well as other loans identified by managementare classified as impaired.  Impaired loans at June 30, 2009, June 30, 2008,and December 31, 2008, were $7,792, $367, and $4,158, respectively.  TheCompany had $1,410 of foreclosed real estate at June 30, 2009, $79 offoreclosed real estate at June 30, 2008, and $639 of foreclosed real estate atDecember 31, 2008.  Loans 90 days past due and still accruing interest totaled$590, $199, and $608 at June 30, 2009, June 30, 2008, and December 31, 2008,respectively.

At June 30, 2009, June30, 2008, and December 31, 2008 classified assets, the majority consisting ofclassified loans, were $28,324, $17,666, and $18,170, respectively.  At June 30,2009,  June 30, 2008, and December 31, 2008 classified assets represented 30.25%,19.67%, and 19.99% of total capital (the sum of Tier 1 Capital and theAllowance for Loan Losses), respectively.
 
**NOTE5 - PREMISES AND EQUIPMENT******     Property at June 30, 2009 and December 31, 2008 issummarized as follows:

**  June 30,**

**December 31,**

**  2009**

**2008**

**Land  and buildings**

$ 26,262

$ 26,262     

**Furniture,  fixtures and equipment**

9,556

8,811     

**Construction  in progress**

        376

        119     

** **

$ 36,194

$ 35,192     

**Less  accumulated depreciation and amortization**

   12,516

   11,789     

$ 23,678

$ 23,403     

     Depreciation and amortization of bank premisesand equipment charged to operating expense was $750 for the six-month periodended June 30, 2009, and $1,330 for the year ended December 31, 2008.  The constructionin progress is primarily related to the renovation of the Company's Surfsidebranch office located in Conway, South Carolina, land improvements andinstallation of an automated teller machine (ATM) at the Company's CarolinaForest site located in Myrtle Beach, South Carolina, and the renovation of theCompany's Aynor branch office located in Aynor, South Carolina.  Remainingconstruction and equipment costs associated with the Surfside branch office,the Carolina Forest ATM, and the Aynor branch office are estimated atapproximately $0, $0, and $50, respectively.

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

     At June 30, 2009 and December 31, 2008, certificatesof deposit of $100 or more included in time deposits totaled approximately $208,237and $210,669, respectively.  Interest expense on these deposits wasapproximately $2,839 for the six-month period ended June 30, 2009 and $8,110for the year ended December 31, 2008. 

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

     At June 30, 2009 and December 31, 2008,securities sold under repurchase agreements totaled $100,945 and $67,415,respectively.  Securities with a book value of $104,470 ($108,720 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 1.11percent and 2.41 percent at June 30, 2009 and December 31, 2008, respectively.

**NOTE 8 - LINES OF CREDIT**

     At June 30, 2009, the Bank had unused short-termlines of credit to purchase Federal Funds from unrelated banks totaling $19,000. 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 $1,991 at June 30, 2009. The amount outstanding under the note totaled $1,588 and $2,672 at June30, 2009 and December 31, 2008, respectively.

     The Bank also has a line of credit from theFederal Home Loan Bank of Atlanta for $68,926 secured by a lien on the Bank's1-4 family mortgages. Allowable terms range from overnight to twenty years atvarying rates set daily by the FHLB.  There were $20,000 in borrowings underthe agreement at June 30, 2009 and $30,000 at December 31, 2008.

-14-
 
**NOTE 9 - INCOME TAXES**

     Income tax expense for the quarters ended June 30,2009 and June 30, 2008 on pretax income of $1,166 and $3,177 totaled $325 and $1,040,respectively.   The provision for federal income taxes is calculated by applyingthe 34% statutory federal income tax rate and increasing or reducing thisamount due to any tax-exempt interest, state bank tax (net of federal benefit),business credits, surtax exemption, tax preferences, alternative minimum taxcalculations, or other factors.  A summary of income tax components and areconciliation of income taxes to the federal statutory rate are included infiscal 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 June 30, 2009.

     In the normal course of business, the Bank is a partyto financial instruments with off-balance-sheet risk including commitments toextend credit and standby letters of credit.  Such instruments have elements ofcredit risk in excess of the amount recognized in the balance sheet.  The exposureto credit 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:

** **

**June  30, 2009**

**           Loan  Commitments                   **

    $ 45,423

**           Standby  letters of credit         **

         2,487

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

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

     Management believes that its various sources ofliquidity provide the resources necessary for the bank 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-balancesheet contractual relationships or transactions that could result in liquidityneeds or other commitments or significantly impact earnings.

**NOTE 11 - EMPLOYEE BENEFIT PLAN**

     The Bank has a defined contribution pension plancovering all employees who have attained age twenty-one and have a minimum ofone year of service.  Upon ongoing approval of the Board of Directors, the Bankmatches one-hundred percent of employee contributions up to three percent ofemployee salary deferred and fifty percent of employee contributions in excessof three percent and up to five percent of salary deferred.  The Board ofDirectors may also make discretionary contributions to the Plan.  For the three-monthand six-month periods ended June 30, 2009 and the year ended December 31, 2008,$94, $194, and $579 respectively, was charged to operations under the plan.

 

-15-

**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 June 30, 2009:

**Company**

 

 

 

 

 

**For**

 

**Capital adequacy**

**                                   **

**         Purposes          **

**            Actual            **

**         Minimum         **

**Amount**

**Ratio**

**Amount**

** Ratio **

 

 

 

 

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

$94,292

15.59%

$48,374

8.0%

** **

 

 

 

 

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

86,727

14.34   

24,187

4.0   

** **

 

 

 

 

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

86,727

9.66   

35,911

4.0   

 

**Bank**

 

 

**To be**

 

 

**Well capitalized**

 

**For**

**under prompt**

 

**Capital adequacy**

**corrective action**

**                                   **

**         Purposes          **

**         provisions         **

**            Actual            **

**         Minimum         **

**          Minimum         **

**Amount**

**Ratio**

**Amount**

** Ratio **

**Amount**

** Ratio **

 

 

 

 

 

 

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

$92,799

15.35%

$48,372

8.0%

$60,465

10.0%

** **

 

 

 

 

 

 

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

85,234

14.10   

24,186

4.0   

36,279

6.0   

** **

 

 

 

 

 

 

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

85,234

9.49   

35,909

4.0   

44,887

5.0   

****-16-

**NOTE 13 - FAIR VALUE MEASUREMENTS**

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

** **

**         June  30, 2009          Carrying            **  **Fair    **

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

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

** Amount   **  $  56,873    -    200,834    9,214    3,041    588,026    679,618    100,945    20,000    1,588    -  

**   Value   **$  56,873    -    200,834    9,162    3,041    600,872    680,677    100,945    20,000    1,588    -  

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

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

** **

**Notional  **

**Fair   **

**Notional  **

**Fair   **

** **

**Amount   **

**Value **

**Amount  **

**Value **

**OFF BALANCE SHEET INSTRUMENTS**

** **

** **

** **

** **

Commitments to extend credit

$  45,423  

$         -  

$  53,838  

$          -  

Standby letters of credit

2,487  

-  

2,111  

-  

EffectiveJanuary 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements"("SFAS 157") which provides a framework for measuring and disclosingfair value under generally accepted accounting principles. SFAS 157 requiresdisclosures about the fair value of assets and liabilities recognized in thebalance sheet in periods subsequent to initial recognition, whether themeasurements are made on a recurring basis (for example, available-for-saleinvestment securities) or on a nonrecurring basis (for example, impairedloans). 

SFAS 157 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.

-17-

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

TheCompany's available-for-sale investment securities ($200,834 at June 30, 2009) includedebt securities of U.S. government sponsored enterprises, municipal bonds, andmortgage backed securities.  The Company considers the market quoted prices ofthese instruments to be equivalent to debt securities that are traded lessfrequently than exchange-traded instruments and therefore classifies them asLevel 2 inputs.  The Company predominantly makes loans for the purposes of realestate acquisition, construction, agriculture, commercial and industrial needs,and consumer expenditures.  The majority of the Company's loans arereal estate secured.  Loans which are deemed to be impaired are primarilyvalued at the fair values of the underlying real estate collateral.  Such fairvalues are obtained using independent appraisals, which the Company considersto be Level 2 inputs. The aggregate carrying amount of impaired loans at June30, 2009 was $7,792.  The Company also generally acquires other real estateowned through foreclosure of debts previously contracted.  Other real estateowned is valued at fair value.  Fair values for other real estate owned areobtained using independent appraisals, which the Company considers to be Level2 inputs.  The aggregate carrying amount of other real estate owned at June 30,2009 was $1,410.

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

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

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

**NOTE 14 - CONDENSED FINANCIAL INFORMATION**

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

**CONDENSED  BALANCE SHEET  (Unaudited)**

** **

**June 30,**

**ASSETS**

**    2009   **

**    2008   **

   Cash

$   1,457 

$       498 

   Investment in subsidiary

85,418 

83,035 

   Other assets

          36 

          36 

$ 86,911 

$ 83,569 

 

 

 

 

**LIABILITIES AND STOCKHOLDERS' EQUITY**

 

 

   Short-term note payable

$          0 

$   1,119 

   Other liabilities

0 

11 

   Stockholders' equity

   86,911 

   82,439 

$ 86,911 

$ 83,569 

 

 

 

 

**CONDENSED  STATEMENT OF INCOME  (Unaudited)**

**For the six-month   period ended   June 30,**

**    2009   **

**   2008  **

   Equity in net income of subsidiary

$  2,896 

$ 4,767 

   Other income

0 

0 

   Other expenses

     (117)

      (90)

**      NET INCOME**

$  2,779 

$ 4,677 

** NOTE15 - SUBSEQUENT EVENTS**

Forthe second quarter of 2009, the Company evaluated subsequent events throughAugust 13, 2009.  Since SFAS No. 165 requires only additional disclosuresconcerning subsequent events, adoption of the standard did not affect theCompany's financial condition, results of operations or cash flows.

****-18-

**Item2.**

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

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

Management's Discussion andAnalysis is provided to afford a clearer understanding of the major elements ofthe Company's results of operations, financial condition, liquidity, andcapital resources. The following discussion should be read in conjunction withthe Company's financial statements and notes thereto and other detailedinformation appearing elsewhere in this report.  In addition, the results ofoperations for the interim periods shown in this report are not necessarilyindicative of results to be expected for the fiscal year.  The accompanyingconsolidated financial statements include all accounts of the Company and theBank.  All significant intercompany accounts and transactions have beeneliminated in consolidation.  The accompanying unaudited consolidated financialstatements at June 30, 2009 and for the three and six-month periods ending June30, 2009 and 2008  have been prepared in accordance with generally acceptedaccounting principles ("GAAP") for interim financial information andwith the instructions to Form 10-Q of the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by GAAPfor complete financial statements.  However, in the opinion of management, alladjustments (consisting of normal recurring adjustments) considered necessaryfor a fair presentation have been included.

**DISTRIBUTION OF ASSETS AND LIABILITIES**

The Company has historically maintained a conservative approach in determiningthe distribution of assets and liabilities.  Loans increased 1.2% from $589,410at June 30, 2008 to $596,426 at June 30, 2009, and decreased .3%, from $598,281at December 31, 2008 to $596,426 at June 30, 2009.  Loans decreased as apercentage of total assets from 68.7% to 66.6% from June 30, 2008 to June 30, 2009and decreased from 68.4% to 66.6% from December 31, 2008 to June 30, 2009.  Loandemand in our market area continues at a moderate pace.  Securities and federalfunds sold decreased as a percentage of total assets from 25.3% at June 30,2008 to 23.8% at June 30, 2009, and decreased from 26.1% of total assets atDecember 31, 2008 to 25.3% at June 30, 2009, a reflection of continued moderateloan demand coupled with lower levels of deposits.  The level of investmentsand excess Federal Reserve deposits provides for a more than adequate supply ofliquidity.

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 13.8% at June 30, 2008 to 11.9% at June 30, 2009, and increased from 11.5%at December 31, 2008 to 11.9% at June 30, 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 69.4% of total assetsat June 30, 2008 to 64.0% at June 30, 2009, and decreased from 66.2% atDecember 31, 2008 to 64.0% at June 30, 2009.  Securities sold under agreementto repurchase increased from 5.8% of total assets at June 30, 2008 to 11.3% at June30, 2009, and increased from 7.7% of total assets at December 31, 2008 to 11.3%at June 30, 2009.  Other short-term borrowings decreased from 3.9% of totalassets at December 31, 2008 to 2.4% at June 30, 2009.  Other short-termborrowings increased from .5% at June 30, 2008 to 2.4% at June 30, 2009.

The following table sets forth the percentage relationship to total assets ofsignificant components of the Company's balance sheets as of June 30, 2009 and June30, 2008 and December 31, 2008:

 

**   June 30,   **

**December 31,**

**Assets:**

**   2009 **

**  2008  **

**2008**

   Earning  assets:

** **

** **

** **

   Loans

66.6%

68.7%

68.4%          

   Securities  held to maturity

1.0   

1.0   

1.1             

   Securities  available for sale

22.8   

21.4   

22.6             

   Federal  funds sold and securities purchased under agreement to resell

    0.0   

    2.9   

    2.4             

   Other  earning assets

    4.6   

    0.0   

    0.0             

      Total  earning assets

  95.0   

  94.0   

  94.5             

   Other  assets

    5.0   

    6.0   

    5.5             

      Total  assets

100.0%

100.0%

100.0%          

** **

** **

 

**Liabilities  and stockholder's equity:**

** **

** **

 

  Interest-bearing  liabilities:

** **

** **

 

    Interest-bearing  deposits

64.0%

69.4%

66.2%

    Federal  funds purchased and securities sold under agreement to repurchase

11.3   

5.8   

7.7   

    Other  short-term borrowings

    2.4   

     .5   

    3.9   

        Total  interest-bearing liabilities

  77.7   

 75.7   

  77.8   

    Noninterest-bearing  deposits

11.9   

13.8   

 11.5   

    Other  liabilities

.7   

.9   

1.2   

    Stockholders'  equity

    9.7   

    9.6   

    9.5   

        Total  liabilities and stockholders' equity

100.0%

100.0%

100.0%

-19-

**RESULTSOF OPERATIONS**

Earnings for the three-month periods ended June 30, 2009 and 2008 were $841 and$2,137, respectively, resulting in a return on average assets of .37% and 1.00%and a return on average stockholders' equity of 3.84% and 10.13%, respectively.

Earnings for the six-month periods ended June 30, 2009 and 2008 were $2,779 and$4,677, respectively, resulting in a return on average assets of .62% and 1.08%and a return on average stockholders equity of 6.41% and 11.17%, 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 $37,256 or 4.3% to $895,547 at June 30, 2009 from$858,291 at June 30, 2008. The following table sets forth the financialhighlights for the three and six-month periods ended at June 30, 2009 and June30, 2008:

**                                CNB  Corporation and Subsidiary                                  FINANCIAL HIGHLIGHTS**

** **

****

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

** Six-Month  Period Ended  June 30,**

** **

** **

** **

** **

** **

** **

**2009**

**2008**

**Percent     Increase  (Decrease)**

**2009**

**2008**

**Percent     Increase  (Decrease)**

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

  $   5,015

  $   7,273

  (31.1)%

  $   11,652

  $   14,900

  (21.8)%

**Income  before income taxes**

1,166

3,177

(63.3)

4,024

7,012

(42.6)

**Net  Income**

841

2,137

(60.6)

2,779

4,677

(40.6)

**     Per  Share**

1.01

2.56

(60.5)

3.34

5.56

(39.9)

**Cash  dividends declared**

0

0

   -

0

0

   -

**     Per  Share**

0

0

   -

0

0

   -

**Total  assets**

895,546

858,291

4.3%

895,546

858,291

4.3%

**Total  deposits**

679,618

713,722

(4.8)

679,618

713,722

(4.8) 

**Loans**

595,547

589,410

1.2

595,547

589,410

1.2

**Investment securities and securities available for  sale**

210,048

190,651

10.2

210,048

190,651

10.2

**Stockholders' equity**

86,911

82,439

5.4

86,911

82,439

5.4

**    Book value per share**

103.26

98.90

4.4

103.26

98.90

4.4

**Ratios:**

 

 

 

 

 

 

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

.37%

1.00%

(63.0)%

.62%

1.08%

(42.6)%

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

3.84%

10.13%

(62.1)%

6.41%

11.17%

(42.6)%

 

 

 

 

 

 

(1)       For the three-month period ended June30, 2009, average total assets amounted to $897,773 with average stockholders'equity            totaling$87,581 for the same period.            For thesix-month period ended June 30, 2009, average total assets amounted to $894,330with average stockholders' equity            totaling $86,643for the same period.

-20-
 
**NET INCOME**

Net Interest Income - Earnings are dependent to a large degree on net interestincome, defined as the difference between gross interest and fees earned onearning assets, primarily loans and securities, and interest paid on depositsand borrowed funds.  Net interest income is affected by the interest ratesearned or paid and by volume changes in loans, securities, deposits, andborrowed funds.

Interestrates paid on deposits and borrowed funds and earned on loans and investmentshave generally followed the fluctuations in market interest rates in 2009 and2008.  However, fluctuations in market interest rates do not necessarily have asignificant impact on net interest income, depending on the bank's ratesensitivity position.  A rate sensitive asset (RSA) is any loan or investmenton which the interest rate can be repriced either up or down within a certaintime interval. A rate sensitive liability (RSL) is an interest paying depositor other liability on which the interest rate can be repriced either up or downwithin a certain time interval.  When a proper balance between RSA and 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 and six-month periods ended June30, 2009 of 3.87% and 3.83%, respectively, and 3.91% and 3.92%, respectively, forthe same periods in 2008, as compared to management's long-term target of 4.20%. Net interest margins have been compressed for the Bank and industry-wide forseveral years for a variety of reasons.  Dramatic decreases in market interestrates by the Federal Reserve during the first quarter of 2008 and additionaldecreases in market rates during 2008 placed further significant pressure onnet interest margins for the industry as a whole.  The resulting morehistorically typical upward-sloping yield curve would generally enhance theBank's net interest margin.  However, interest rates have been reduced tohistorically low levels.  An extremely low interest rate environment is not onewhich enhances net interest margin.  As well, competition in the Bank'sspecific market remains significant, as new competitors seek market share andother competitors attempt to reduce their dependence on brokered deposits. These factors tend to compress margins by driving the cost of deposits upwardwhile driving the yields on loans downward.  

Fully-tax-equivalent net interest income for the three-month period ended June30, 2009 was $8,262, an increase of 4.6% from the $7,909 attained for the three-monthperiod ended June 30, 2008.  During the same period, total fully-tax-equivalentinterest income decreased by 10.0% to $11,315 from $12,569 and total interestexpense decreased by 34.5% to $3,053 from $4,660.  Fully-tax-equivalent netinterest income as a percentage of average total earning assets decreased .04% to3.87% for the three-month period ended June 30, 2009 from 3.91% for the three-monthperiod ended June 30, 2008.

Fully-tax-equivalent net interest income for the six-month period ended June30, 2009 was $16,277, an increase of 1.5% from the $16,036 attained for thesix-month period ended June 30, 2008.  During the same period, totalfully-tax-equivalent interest income decreased by 13.9% to $22,716 from $26,390and total interest expense decreased by 37.8% to $6,439 from $10,354. Fully-tax-equivalent net interest income as  a percentage of average totalearning assets decreased .09% to 3.83% for the six-month period ended June 30,2009 from 3.92% for the six-month period ended June 30, 2008.

The tables on the following four pages present an analysis of average balances,yields and rates for the interest sensitive segments of the Company's balancesheets for the three-month and six-month periods ended June 30, 2009 and 2008,and a summary of changes in net interest income resulting from changes involume and changes in rate between the three-month and six-month periods ended June30, 2009 and 2008.

-21-

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

 

 

**Three Months Ended 6/30/09**

**Three Months Ended 6/30/08**

** **

**Interest**

**Avg. Annual**

** **

**Interest**

**Avg. Annual**

**Avg.**

**Income/**

**Yield or**

**Avg.**

**Income/**

**Yield or**

**Balance**

**Expense**

**Rate**

**Balance**

**Expense**

**Rate**

**Assets:**

** **

** **

** **

** **

** **

** **

   Earning  assets:

** **

** **

** **

** **

** **

** **

      Loans,  net of unearned income (1)

$600,557

$ 9,411

6.27%

$589,333

$  10,152

6.89%

      Securities:

** **

** **

** **

** **

** **

** **

        Taxable

188,296

1,441

3.06   

171,025

1,900

4.44   

        Tax-exempt

30,928

448

(2)     5.79   

27,563

415

(2)      6.02   

      Federal  funds sold and securities purchased under 

** **

** **

** **

** **

** **

** **

        agreement  to resell

4,440

4

.36   

    20,347

       102

2.00   

      Other  earning assets

    29,902

         11

.15   

             0

           0

0.00   

          Total  earning assets

  854,123

  11,315

5.30   

  808,268

  12,569

6.22   

    Other  assets

    43,650

** **

** **

    42,931

** **

** **

          Total  assets

$897,773

** **

** **

$851,199

** **

** **

** **

** **

** **

** **

** **

** **

**Liabilities  and stockholder equity**

** **

** **

** **

** **

** **

** **

    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

      Interest-bearing  deposits

$567,970

2,673

1.88   

$570,623

4,365

3.06   

      Federal  funds purchased and securities sold under

** **

** **

** **

** **

** **

** **

        agreement  to repurchase

108,386

302

1.11   

49,422

277

2.24   

      Other  short-term borrowings

    21,660

          78

1.44   

      2,737

          18

2.63   

          Total  interest-bearing liabilities

$698,016

$   3,053

1.75   

$622,782

$   4,660

2.99   

    Noninterest-bearing  deposits

104,871

** **

** **

115,614

** **

** **

    Other  liabilities

7,305

** **

** **

28,384

** **

** **

    Stockholders'  equity

    87,581

** **

** **

    84,419

** **

** **

          Total  liabilities and stockholders' equity

$897,773

** **

** **

$851,199

** **

** **

    Net  interest income as a percent of total

** **

** **

** **

** **

** **

** **

       earning  assets

$854,123

$   8,262

3.87   

$808,268

$   7,909

3.91   

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

**Ratios:**

** **

** **

** **

** **

** **

** **

Annualized  return on average total assets

** **

** **

.37   

** **

** **

1.00   

Annualized  return on average stockholders' equity

** **

** **

3.84   

** **

** **

10.13   

Cash  dividends declared as a percent of net income

** **

** **

0   

** **

** **

0   

Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

  Average  total assets

** **

** **

9.76   

** **

** **

9.92   

  Average  total deposits

** **

** **

13.02   

** **

** **

12.30   

  Average  loans

** **

** **

14.58   

** **

** **

14.32   

Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

   average  total assets

** **

** **

95.14   

** **

** **

94.96   

** **

** **

 

** **

** **

 

(1)  The  Company had no out-of-period adjustments or foreign activities.  Loan fees of  $132 and $168 are included in the above interest income for June 30, 2009 and  2008, respectively.  Loans on a non-accrual basis for the recognition of  interest income totaling $6,097 and $718 for June 30, 2009 and 2008,  respectively, are included in loans for the purpose of this analysis.

** **

** **

 

** **

** **

 

(2)  Tax-exempt  income is presented on a tax-equivalent basis using a 34% tax rate.  The  amounts shown include tax-equivalent adjustments of $152 and $141 for June 30,  2009 and 2008, respectively.

** **

** **

 

** **

** **

 

****-22-

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

 

 

**Six Months Ended 6/30/09**

**Six Months Ended 6/30/08**

** **

**Interest**

**Avg. Annual**

** **

**Interest**

**Avg. Annual**

**Avg.**

**Income/**

**Yield or**

**Avg.**

**Income/**

**Yield or**

**Balance**

**Expense**

**Rate**

**Balance**

**Expense**

**Rate**

**Assets:**

** **

** **

** **

** **

** **

** **

 
   Earning  assets:

** **

** **

** **

** **

** **

** **

 
      Loans,  net of unearned income (1)

$599,378

$ 18,789

6.27%

$584,778

$  20,739

7.09%

 
      Securities:

** **

** **

** **

** **

** **

** **

 
        Taxable

183,122

3,010

3.29   

175,271

4,400

5.02   

 
        Tax-exempt

30,387

880

(2)   5.79 

27,600

829

(2)    6.01   

 
      Federal  funds sold and securities purchased under 

** **

** **

** **

** **

** **

** **

 
        agreement  to resell

15,552

20

.26   

    30,032

       422

2.81   

 
      Other  earning assets

    21,343

         17

.16   

             0

           0

0.00   

 
          Total  earning assets

  849,782

  22,716

5.35   

  817,681

  26,390

6.45   

 
    Other  assets

    44,548

** **

** **

    47,568

** **

** **

 
          Total  assets

$894,330

** **

** **

$865,249

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Liabilities  and stockholder equity**

** **

** **

** **

** **

** **

** **

 
    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

 
      Interest-bearing  deposits

$571,760

5,663

1.98   

$570,655

9,468

3.32   

 
      Federal  funds purchased and securities sold under

** **

** **

** **

** **

** **

** **

 
        agreement  to repurchase

96,078

590

1.23   

55,769

756

2.71   

 
      Other  short-term borrowings

    26,848

        186

1.39   

      4,950

        130

5.25   

 
          Total  interest-bearing liabilities

$694,686

$   6,439

1.85   

$631,374

$ 10,354

3.28   

 
    Noninterest-bearing  deposits

106,248

** **

** **

117,308

** **

** **

 
    Other  liabilities

6,753

** **

** **

32,846

** **

** **

 
    Stockholders'  equity

    86,643

** **

** **

    83,721

** **

** **

 
          Total  liabilities and stockholders' equity

$894,330

** **

** **

$865,249

** **

** **

 
    Net  interest income as a percent of total

** **

** **

** **

** **

** **

** **

 
       earning  assets

$849,782

$16,277

3.83   

$817,681

$ 16,036

3.92   

 
** **

** **

** **

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Ratios:**

** **

** **

** **

** **

** **

** **

 
Annualized  return on average total assets

** **

** **

.62   

** **

** **

1.08   

 
Annualized  return on average stockholders' equity

** **

** **

6.41   

** **

** **

11.17   

 
Cash  dividends declared as a percent of net income

** **

** **

0   

** **

** **

0   

 
Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

 
  Average  total assets

** **

** **

9.69   

** **

** **

9.68   

 
  Average  total deposits

** **

** **

12.78   

** **

** **

12.17   

 
  Average  loans

** **

** **

14.46   

** **

** **

14.32   

 
Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

 
   average  total assets

** **

** **

95.02   

** **

** **

94.50   

 
** **

** **

 

** **

** **

 

 
(1)  The  Company had no out-of-period adjustments or foreign activities.  Loan fees of  $270 and $331 are included in the above interest income for June 30, 2009 and  2008, respectively.  Loans on a non-accrual basis for the recognition of  interest income totaling $6,097 and $718 for June 30, 2009 and 2008,  respectively, are included in loans for the purpose of this analysis.

 
** **

** **

 

** **

** **

 

 
(2)  Tax-exempt  income is presented on a tax-equivalent basis using a 34% tax rate.  The  amounts shown include tax-equivalent adjustments of $299 and $282 for June  30, 2009 and 2008, respectively.

 
-23-

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

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

 

 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

 

**Average**

**Average**

** **

** **

**Interest**

**Interest**

** **

**Change**

**Change**

** **

 

**Volume**

**Volume**

**Yield/Rate**

**Yield/Rate**

**Earned/Paid**

**Earned/Paid**

** **

**Due to**

**Due to**

** **

 

**2009**

**2008**

**2009(3)**

**2008(3)**

**2009**

**2008**

**Variance**

**Rate**

**Volume**

** **

**Earning   Assets:**

 

 

 

 

 

 

 

 

 

 

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

$600,557

$589,333

6.27%

6.89%

$9,411

$10,152

$   (741)

$   (917)

$   176 

 

**  Investment   securities:**

 

 

 

 

 

 

 

 

 

 

**    Taxable**

188,296

171,025

3.06%

4.44%

1,441

1,900

(459)

(591)

132 

 

**    Tax-exempt   (2)**

30,928

27,563

5.79%

6.02%

448

415

33  

(16)

49 

 

**  Federal   funds sold and Securities**

 

 

 

 

 

 

 

 

 

 

**    purchased   under agreement to resell**

4,440

20,347

.36%

2.00%

4

102

(98)

(84)

(14)

 

** Other   Earning Assets**

    29,902

             0

.15%

0.00%

          11

           0

          11 

         0 

       11 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Earning Assets**

$854,123

$808,268

5.30%

6.22%

$11,315

$12,569

$(1,254)

$(1,608)

$   354 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest-bearing   Liabilities:**

 

 

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**  Interest-bearing   deposits**

$567,970

$570,623

1.88%

3.06%

$  2,673

$  4,365

$(1,692)

$(1,680)

$   (12)

 

**  Federal   funds purchased and securities**

 

 

 

 

 

 

 

 

 

 

**    sold   under agreement to repurchase**

108,386

49,422

1.11%

2.24%

302

277

25  

(139)

164 

 

**  Other   short-term borrowings**

    21,660

      2,737

1.44%

2.63%

          78

         18

         60  

         (8)

       68 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Interest-bearing Liabilities**

  698,016

  622,782

1.75%

2.99%

    3,053

    4,660

   (1,607)

  (1,827)

     220 

 

**Interest-free    Funds Supporting**

 

 

 

 

 

 

 

 

 

 

**  Earning   Assets**

  156,107

  185,486

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Funds Supporting Earning Assets**

$854,123

$808,268

1.43%

2.31%

$  3,053

$  4,660

$ (1,607)

$(1,827)

$   220 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest   Rate Spread**

 

 

3.55%

3.23%

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

**  on   Net Yield on Earning Assets**

 

 

  .32%

  .68%

             

             

 

 

 

 

**Net   Yield on Earning Assets**

 

 

3.87%

3.91%

$  8,262

$  7,909

 

 

 

 

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

-24-
 
**CNB Corporation and Subsidiary   Rate/Volume Variance Analysis   For the Six Months Ended June 30, 2009 and 2008**

 

 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

 

**Average**

**Average**

** **

** **

**Interest**

**Interest**

** **

**Change**

**Change**

** **

 

**Volume**

**Volume**

**Yield/Rate**

**Yield/Rate**

**Earned/Paid**

**Earned/Paid**

** **

**Due to**

**Due to**

** **

 

**2009**

**2008**

**2009(3)**

**2008(3)**

**2009**

**2008**

**Variance**

**Rate**

**Volume**

** **

**Earning   Assets:**

 

 

 

 

 

 

 

 

 

 

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

$599,378

$584,778

6.27%

7.09%

$18,789

$20,739

$(1,950)

$(2,408)

$   458 

 

**  Investment   securities:**

 

 

 

 

 

 

 

 

 

 

**    Taxable**

183,122

175,271

3.29%

5.02%

3,010

4,400

(1,390)

(1,519)

129 

 

**    Tax-exempt   (2)**

30,387

27,600

5.79%

6.01%

880

829

51 

(30)

81 

 

**  Federal   funds sold and Securities**

 

 

 

 

 

 

 

 

 

 

**    purchased   under agreement to resell**

15,552

30,032

.26%

2.81%

20

422

(402)

(383)

(19)

 

** Other   Earning Assets**

    21,343

             0

.16%

0.00%

         17

           0

         17 

         0 

       17 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Earning Assets**

$849,782

$817,681

5.35%

6.45%

$22,716

$26,390

$(3,674)

$(4,340)

$   666 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest-bearing   Liabilities:**

 

 

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**  Interest-bearing   deposits**

$571,760

$570,655

1.98%

3.32%

$  5,663

$  9,468

$(3,805)

$(3,816)

$     11 

 

**  Federal   funds purchased and securities**

 

 

 

 

 

 

 

 

 

 

**    sold   under agreement to repurchase**

96,078

55,769

1.23%

2.71%

590

756

(166)

(414)

248 

 

**  Other   short-term borrowings**

    26,848

      4,950

1.39%

5.25%

       186

       130

         56  

       (96)

     152 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Interest-bearing Liabilities**

  694,686

  631,374

1.85%

3.28%

    6,439

  10,354

   (3,915)

  (4,326)

     411 

 

**Interest-free    Funds Supporting**

 

 

 

 

 

 

 

 

 

 

**  Earning   Assets**

  155,096

  186,307

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Funds Supporting Earning Assets**

$849,782

$817,681

1.52%

2.53%

$  6,439

$10,354

$ (3,915)

$(4,326)

$   411 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest   Rate Spread**

 

 

3.50%

3.17%

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

**  on   Net Yield on Earning Assets**

 

 

  .33%

  .75%

             

             

 

 

 

 

**Net   Yield on Earning Assets**

 

 

3.83%

3.92%

$16,277

$16,036

 

 

 

 

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

-25-

**NET INCOME (continued)**

Provision for Loan Losses - The allowance for loan losses is maintained atan amount based on considerations of classified and internally-identifiedproblem loans, the current trend in delinquencies, the volume of past-dueloans, historical loss experience, current economic conditions, 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 $3,095 for the three-month period ended June30, 2009 and $495 for the three-month period ended June 30, 2008.  Net loancharge-offs/(recoveries) totaled $1,660 for the three-month period ended June30, 2009 and $398 for the same period in 2008.  The increased provisions andhigher level of net charge-offs during the three-month period ended June 30,2009 reflects the, at present, national economic recession and its impact onthe local economy in which the Company operates.  The Myrtle Beach-Conway-NorthMyrtle Beach South Carolina Metropolitan Statistical Area, wherein the majorityof the Company's operations are situated, has experienced significant declinesin various sectors of its economy, primarily in the real estate sectors.  Theallowance for loan losses as a percentage of net loans was 1.43% at June 30,2009 and was 1.16% at June 30, 2008.

The provision for loan losses was $4,326 for the six-month period ended June30, 2009 and $854 for the six-month period ended June 30, 2008.  Net loancharge-offs/(recoveries) totaled $3,017 for the six-month period ended June 30,2009 and $625 for the same period in 2008.  The increased provision and higherlevel of net charge-offs during the six-month period ended June 30, 2009 againreflects the decline in local economic activity as noted in the precedingparagraph.

The levels of loans on which no interest was being accrued, impaired loans,foreclosed real estate, and classified assets at June 30, 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 2009, some markedly, and remained above levels historicallyexperienced by the Company at June 30, 2009.  Although increased, managementconsiders all such levels manageable, and well below current industry averages. However, management recognizes the potential for further deterioration ofeconomic conditions in the Company's market areas in the short-term, especiallywith respect to real estate related activities and real property values. Consequently, management anticipates the Company will continue to incur aboveaverage provisions for the remainder of 2009, and possibly further into thefuture.

SecuritiesTransactions - At June 30, 2009, December 31, 2008, and June 30, 2008 total marketvalue appreciation in the investment portfolio totaled $255, $2,310, and $(541),respectively.  As indicated, the market values of the Company's investmentportfolio increased from June 30, 2008 to December 31, 2008, and decreased fromDecember 31, 2008 to June 30, 2009.  During 2008 bond values fluctuated due tovariances in the slope of the yield curve because of instability in new issuecoupon rates and intermittent movement of funds between the bond market and thestock market.  However, the yield curve generally normalized over the period.  Duringthe first half of 2009 management sold a portion of its investment portfolio,in part, to take advantage of existing gains in a historically low interestrate environment, and, in part, to facilitate the re-establishment of itsinvestment portfolio maturity strategy previously impacted by numerousinvestment calls.  All investments sold were callable in the near term.  Thedecline in the total market value appreciation during the periods is alsoattributable to the reinvestment of investment proceeds at currently lowermarket interest rates.  The changes in market value appreciation/(depreciation)in the investment portfolio do not generally directly affect operating resultssince the Company does not acquire investment securities for trading.  However,the changes in the market value appreciation/(depreciation) in the investmentportfolio for the three periods ended June 30, 2009 and June 30, 2008 are acomponent of Comprehensive Income and are set forth in the CondensedConsolidated Statements of Comprehensive Income contained herein.

Noninterest Income - Noninterest income increased by 43.8% to $2,484 for the three-monthperiod ended June 30, 2009 from $1,728 for the three-month period ended June 30,2008.   Noninterest income increased by 22.5% to $4,376 for the six-monthperiod ended June 30, 2009 from $3,573 for the six-month period ended June 30,2008.  The increase in noninterest income for the three and six-month periodsended June 30, 2009, was primarily due to realized gains from the sale ofinvestment securities, $875 and $1,352, respectively.  These gains were offsetby decreased service charges on deposit accounts, down $90 or 9.3% to $881 for thethree-month period ended June 30, 2009, and down $211 or 11.0% to $1,700 forthe six-month period ended June 30, 2009.  These gains were also offset byother operating income, down $29 or 3.8% to $728 for the three-month periodended June 30, 2009, and down $338 or 20.3% to $1,324 for the six-month periodended June 30, 2009.

Noninterest Expenses - Noninterest expenses increased by 8.7% to $6,333 for thethree-month period ended June 30, 2009 from $5,824 for the three-month periodended June 30, 2008.  The major components of noninterest expenses are salariesand employee benefits, which decreased 4.5% to $3,525 from $3,690; occupancyexpense which increased 16.8% to $812 from $695; and other operating expenseswhich increased by 38.7% to $1,996 from $1,439.  Occupancy expense generally continuesto grow due to the addition of new banking facilities.  However, the increasein occupancy expense during 2009 is primarily attributable to the

-26-

**NET INCOME (continued)**

Company's installation of a new core application system, the renovation of branchoffices, and the replacement of automated teller machines (ATMs).  Otheroperating expenses have increased due to increased FDIC premiums, including aspecial assessment of $406 accrued as of June 30, 2009 and payable September30, 2009, and increased other miscellaneous expense.

Noninterest expenses increased by 4.7% to $12,004 for the six-month periodended June 30, 2009 from $11,461 for the six-month period ended June 30, 2008. The major components of noninterest expenses are salaries and employee benefitswhich decreased 4.3% to $7,093 from $7,411.  Occupancy expense increased 4.4%to $1,602 for the six-month period ended June 30, 2009 from $1,534 for the sameperiod in 2008.  Other operating expenses increased 31.5% to $3,309 from $2,516for the same periods, respectively.  Other operating expenses have increaseddue to increased FDIC premiums, including a special assessment of $406 accruedas of June 30, 2009 and payable September 30, 2009, and increased othermiscellaneous expense.

Income Taxes- Provisions for income taxes decreased 68.8% to $325 for the three-monthperiod ended June 30, 2009 from $1,040 for the three-month period ended June30, 2008.  Income before income taxes less interest on tax-exempt investmentsecurities decreased 70.0% to $870 for the three-month period ended June 30,2009 from $2,903 for the same period in 2008. 

Provisions for income taxes decreased 46.7% to $1,245 for the six-monthperiod ended June 30, 2009 from $2,335 for the six-month period ended June 30,2008.  Income before income taxes less interest on tax-exempt investmentsecurities decreased by 46.7% to $3,443 for the six-month period ended June 30,2009 from $6,465 for the same period in 2008.

**LIQUIDITY**

The Bank's liquidity position is primarily dependent on short-term demands forfunds caused by customer credit needs and deposit withdrawals and upon theliquidation of bank assets to meet these needs.  The Bank's liquidity sourcesinclude cash and due from banks, federal funds sold, and short-terminvestments. In addition, the Bank has established federal funds lines ofcredit from correspondent banks and has the ability to borrow funds from theFederal Reserve System and the Federal Home Loan Bank of Atlanta. Managementbelieves that short-term and long-term liquidity sources are adequate to meetfunding needs, including the funding of off-balance sheet loan commitments andstandby letters of credit, if the need arises.  Although the Bank has notexperienced heavy liquidity pressures, there can be no assurance that suchpressures will not be felt in the future.  Neither the Company nor the Bank isinvolved in other off-balance sheet contractual relationships or transactionsthat could result in liquidity needs or other commitments or significantlyimpact earnings.

Thetable below summarizes future contractual obligations as of June 30, 2009 (inthousands).

**At June 30, 2009**

**Payments Due by Period**

**Within One Year**

**Over One to Two Years**

**Over Two to Three Years**

**Over Three to Five Years**

**Over Five Years**

**Total**

**Certificates of Deposit**

313,802     

28,718      

4,795      

7,460      

-        

354,775     

**Borrowings**

112,533     

10,000      

        -       

        -       

       -        

122,533     

 

 

 

 

 

 

**     Total**

426,335     

38,718      

4.795      

7,460      

       -        

477,308     

** **

**CAPITAL RESOURCES**

Total stockholders' equity was $86,911 and $83,526 at June 30, 2009 and December31, 2008, representing 9.70% and 9.55% of total assets, respectively.  At June30, 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.

****-27-

**CRITICAL ACCOUNTING POLICIES**

We have adopted various accounting policies which govern the application ofaccounting principles generally accepted in the United States of America in thepreparation of our financial statements.  Our significant accounting policiesare described in the notes to the consolidated financial statements at December31, 2008 as filed in our Annual Report on Form 10-K.  Certain accountingpolicies involve significant judgments and assumptions by us which have amaterial impact on the carrying value of certain assets and liabilities.  Weconsider these accounting policies to be critical accounting policies.  Thejudgments and assumptions we use are based on historical experience and otherfactors, which we believe to be reasonable under the circumstances.  Because ofthe nature of the judgments and assumptions we make, actual results coulddiffer from these judgments and estimates that could have a major impact on ourcarrying values of assets and liabilities and our results of operations.

We believe the allowance for loan losses is a critical accounting policy thatrequires the most significant judgments and estimates used in preparation ofour consolidated financial statements.  Refer to the portions of our 2008Annual Report on Form 10-K and this Form 10-Q that address our allowance forloan losses for description of our processes and methodology for determiningour allowance for loan losses. 

**RISKS AND UNCERTAINTIES**

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

-28-
 
**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 June, 2009.  The offering price  was $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 June 1, 2009, when the offering  terminated, total sales (including sales through March, 2009) equaled 18,826  shares, or $2,974,508.  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 nonaccredited 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**

April 1 - April 30, 2009

1,220           

$158.00

-

-

May 1 - May 31, 2009

3,579           

 158.00

-

-

June 1 - June 30, 2009

   865           

 158.00

-

-

Total

5,664           

$158.00

-

-

(1) During the periodcovered by this report, the Company purchased 5,664 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

On Tuesday, May 12, 2009, the Company held its annual meeting of shareholders. At the meeting, two matters were voted on with results as follows:

1.   Election of four directors to each serve three-year terms:

 

**                                  SHARES  VOTED                                        **

 

** **

**AUTHORITY**

**BROKER**

 

**FOR**

**WITHHELD**

**NON-VOTES**

 

 

 

 

**Three-year  terms**

 

 

 

William  R. Benson

548,244

16,946

0

Edward  T. Kelaher

564,760

430

0

George  F. Sasser

565,190

0

0

Lynn  G. Stevens

565,190

0

0

The following directors continueto serve until the annual meetings in the years indicated and were not voted onat the 2009 annual meeting:  James W. Barnette, Jr. - 2010; Harold G. Cushman,III - 2010; W. Jennings Duncan - 2010; Harold G. Cushman, Jr. - 2011; WilliamO. Marsh - 2011; John C. Thompson - 2011.

 

2.    Ratification of Elliott Davis, LLC as the Company'sindependent registered public accounting firm for the year ending       December 31, 2009.

** **

**FOR**

**AGAINST**

**ABSTAIN**

563,758

0

1,432

-29-
 
**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:  August13, 2009

**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. |