|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **SECURITIES  AND EXCHANGE COMMISSION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **Washington,  D.C.  20549**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **FORM  10-Q**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| (Mark One)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| [**X**]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                    For  the quarterly period ended**                           June  30, 2008                                **                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| OR                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| [  ]                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
|                    For  the transition period from                                        to                                           |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Commission file number:  ** 000-24523 **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| ***                                     CNB  Corporation                            ***                                                                                                                                                                                                                |
| (Exact name of registrant as specified in its charter)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **                                   South Carolina                               **                                                                                                                                                                                                              | **                       57-0792402                  ** |
|  (State or  other jurisdiction of incorporation or organization)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | (I.R.S.  Employer Identification No.) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| **                    1400 Third Avenue, Conway, S.C.                **                                                                                                                                                                                                                                                                                                                                                                                 | **                            29526                      ** |
|                    (Address of  principal executive offices)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | (Zip  Code)                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| (Registrant's telephone number, including area  code):  **(843)  248-5721**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|       Indicate  by check mark whether the registrant (1) has filed all reports required to be  filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during  the preceding 12 months (or for such shorter period that the registrant was  required to file such reports), and (2) has been subject to such filing  requirements for the past 90 days.  Yes **  X  **.   No       .                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|      Indicate  by check mark whether the registrant 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:  833,168 shares of common stock, par  value $10 per share, August 1, 2008.                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |  |  |

 

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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, 2008,  December 31, 2007, and June 30, 2007**                                                                                                                                    | 2          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Income for the Three and Six  Months Ended June 30, 2008 and 2007**                                                                                                                              | 3          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Comprehensive  Income for the Three and Six Months Ended June 30, 2008   and 2007**                                                                                                              | 4          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Changes in Stockholders' Equity  for the Six Months Ended June 30, 2008 and 2007**                                                                                                               | 5          |
| ** **                                                                                                                                                                                                                               |       |
| **Condensed  Consolidated Statements of Cash Flows for the Six Months  Ended June 30, 2008 and 2007**                                                                                                                                    | 6          |
| ** **                                                                                                                                                                                                                               |       |
| **Notes  to Consolidated Financial Statements**                                                                                                                                                                                          | 7-16       |
| ** **                                                                                                                                                                                                                               |       |
| **Item  2.     Management's Discussion and Analysis of  Financial                   Condition  and Results of Operations** | 16-25      |
| ** **                                                                                                                                                                                                                               |       |
| **Item  3.     Quantitative and Qualitative Disclosures  About Market Risk**                                                                                                                                    | 26         |
| ** **                                                                                                                                                                                                                               |       |
| **Item  4.     Controls and Procedures**                                                                                                                                                                        | 26         |
| ** **                                                                                                                                                                                                                               |       |
| ** **                                                                                                                                                                                                                               |       |
| **PART  II.   OTHER INFORMATION**                                                                                                                                                                                         |       |
| ** **                                                                                                                                                                                                                               |       |
| **Item  2.     Unregistered Sales of Equity Securities and  Use of Proceeds**                                                                                                                                   | 27         |
| ** **                                                                                                                                                                                                                               |       |
| **Item  4.     Submission of Matters to a Vote of Securities  Holders**                                                                                                                                         | 27         |
| **   Item 6.     Exhibits**                                                                                                                                                                                | 28         |
| **      SIGNATURE**                                                                                                                                                                                                            | 28         |

----

**CAUTIONARYNOTICE WITH RESPECT TOFORWARD LOOKING STATEMENTS**

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

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

          Theseforward-looking statements are based on current expectations, estimates andprojections about the banking industry, management's beliefs, and assumptionsmade by management.  Such information includes, without limitation, discussionsas to estimates, expectations, beliefs, plans, strategies, and objectivesconcerning future financial and operating performance.  These statements arenot guarantees of future performance and are subject to risks, uncertaintiesand assumptions that are difficult to predict. Therefore, actual results maydiffer materially from those expressed or forecasted in such forward-lookingstatements.  The risks and uncertainties include, but are not limited to:

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

Allforward-looking statements are expressly qualified in their entirety by thiscautionary notice.  The Company has no obligation, and does not undertake, toupdate, revise or correct any of the forward-looking statements after the dateof this report.  The Company has expressed its expectations, beliefs andprojections in good faith and believes they have a reasonable basis.  However,there is no assurance that these expectations, beliefs or projections willresult or be achieved or accomplished.

****-1-

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| **PART  I.**                                                                                                                                                                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                    |
| **Item  1. Financial Statements**                                                                                                                                                                                                             |
| **CNB Corporation and Subsidiary  Condensed Consolidated Balance Sheets  (All Dollar Amounts, Except Per Share Data, in Thousands) **                                                                                                    |
| **ASSETS:**                                                                                                                                                                                                                                   | **June 30,** |   | **June 30,** |
| ** **                                                                                                                                                                                                                                    | **2008** | **December 31,** | **2007** |
| ** **                                                                                                                                                                                                                                    | (Unaudited) | **       2007       ** | (Unaudited) |
| ** **                                                                                                                                                                                                                                    |   |   |   |
| **    Cash  and due from banks**                                                                                                                                                                                          | $  21,694  | $  20,941   | $  31,217     |
| **    Investment  securities held to maturity**                                                                                                                                                                           | 8,301  | 7,711   | 3,421     |
|       (Fair  values of $8,281 at June 30, 2008,         $7,731 at December 31, 2007, and  $3,432  at         June 30, 2007)     |   |   |   |
| **    Investment  securities available for sale**                                                                                                                                                                         | 182,350  | 206,133   | 200,297     |
|       (Amortized  cost of  $182,871 at June 30,         2008, $204,425 at December 31, 2007,  and          $202,468 at June 30, 2007 |   |   |   |
| **    Federal  funds sold and securities purchased**                                                                                                                                                                      |   |   |   |
| **      under  agreement to resell**                                                                                                                                                                            | 25,000  | 26,000   | 20,000     |
| **    Other  investments**                                                                                                                                                                                                | 1,674  | 2,297   | 1,622     |
| **    Loans:**                                                                                                                                                                                                            |   |   |   |
| **       Total  loans**                                                                                                                                                                                    | 589,410  | 573,751   | 555,184     |
| **       Less  allowance for possible loan losses**                                                                                                                                                        |      (6,736) |      (6,507)  |      (6,364)    |
| **         Net  loans**                                                                                                                                                                          | 582,674  | 567,244   | 548,820     |
| **    Bank  premises and equipment**                                                                                                                                                                                      | 23,265  | 22,928   | 22,671     |
| **    Other  assets**                                                                                                                                                                                                     |     13,333  |     12,384   |     14,174     |
| **Total  assets**                                                                                                                                                                                                                             | $858,291  | $865,638   | $842,222     |
| ** **                                                                                                                                                                                                                                    |   |   |   |
| **LIABILITIES  AND STOCKHOLDERS' EQUITY:**                                                                                                                                                                                                    |   |   |   |
| ** **                                                                                                                                                                                                                                    |   |   |   |
| **    Deposits:**                                                                                                                                                                                                         |   |   |   |
| **       Non-interest  bearing**                                                                                                                                                                           | $118,222  | $112,450   | $136,098     |
| **       Interest-bearing**                                                                                                                                                                                |    595,500  |   579,839   |   545,759     |
| **          Total  deposits**                                                                                                                                                               |    713,722  |   692,289   |   681,857     |
| **    Federal  funds purchased and securities sold under**                                                                                                                                                                |   |   |   |
| **          agreement  to repurchase**                                                                                                                                                      | 49,835  | 60,936   | 69,232     |
| **    United  States Treasury demand notes**                                                                                                                                                                              | 3,345  | 2,377   | 2,049     |
| **    Federal  Home Loan Bank advances**                                                                                                                                                                                  | 0  | 15,000   | 0     |
| **    Short  term note payable**                                                                                                                                                                                          | 1,119  | 0  | 0     |
| **    Other  liabilities**                                                                                                                                                                                                |       7,831  |     12,924   |       7,773     |
| ** Total  liabilities**                                                                                                                                                                                                                  |   775,852  |   783,526   |   760,911     |
| ** **                                                                                                                                                                                                                                    |   |   |   |
| **   Stockholders'  equity:**                                                                                                                                                                                                  |   |   |   |
|       **Common  stock**, par value $10 per share:                                                                                                                                                               | 8,684  | 8,684   | 7,898     |
|        Authorized  1,500,000 in 2008 and 2007; issued                                                                                                                                                      |   |   |   |
|        868,422  at June 30, 2008 and December 31, 2007,         and 789,744 at June 30, 2007.                                                                           |   |   |   |
| **       Capital  in excess of par value of stock**                                                                                                                                                        | 55,939  | 55,939   | 43,555     |
| **       Retained  earnings**                                                                                                                                                                              | 23,724  | 19,047   | 31,989     |
| **       Accumulated  other comprehensive income/(loss)**                                                                                                                                                  | (312) | 1,025   | (1,303)    |
| **       Less:   Treasury stock**                                                                                                                                                                     |      (5,596) |      (2,583)  |         (828)    |
| **   Total  stockholders' equity**                                                                                                                                                                                             |     82,439  |     82,112   |     81,311     |
| **Total  liabilities and stockholders' equity**                                                                                                                                                                                               | $858,291  | $865,638   | $842,222     |
| ** **                                                                                                                                                                                                                                    |   |   |   |

-2-

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| **CNB Corporation and Subsidiary  Condensed Consolidated Statement of Income  (All Dollar Amounts, Except Per Share Data, in Thousands)  (Unaudited)** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| **  **                                                                                                                                       |
| ** **                                                                                                                                             | **    Three Months Ended** | **       Six Months Ended           ** |
| ** **                                                                                                                                             | **     June 30,** | **June 30,                    ** |
| ** **                                                                                                                                             | **   2008** | **    2007 ** | **    2008 ** | **        2007** |
| **Interest  Income:**                                                                                                                                  | ** ** |
| **  Interest  and fees on loans**                                                                                                            | **$10,152** | **$10,905** | **$20,739   ** | **$21,892** |
| **  Interest  on investment securities:**                                                                                                    |   | ** ** |   | ** ** |
| **    Taxable  investment securities**                                                                                             | **    1,900 ** | ** 1,731** | **4,400   ** | **    3,293** |
| **    Tax-exempt  investment securities**                                                                                          | **       274 ** | ** 209** | **547   ** | **       437** |
| **  Interest on federal  funds sold and securities        purchased under agreement to resell**                | **          102  ** | **           406 ** | **       422    ** | **       743** |
| **      Total  interest income**                                                                                         | **  12,428 ** | **   13,251 ** | **  26,108   ** | **  26,365** |
| **Interest  Expense:**                                                                                                                                 | ** ** | ** ** | ** ** | ** ** |
| **  Interest  on deposits**                                                                                                                  | **    4,365 ** | ** 4,986 ** | **9,468   ** | **    9,785** |
| **  Interest  on federal funds purchased and securities**                                                                                    | ** ** | **  ** | ** ** | ** ** |
| **     sold  under agreement to repurchase**                                                                                  | **       277 ** | ** 636 ** | **756   ** | **    1,327** |
| **  Interest  on other short-term borrowings**                                                                                               | **         18 ** | **         23 ** | **       130   ** | **         36** |
| ** **                                                                                                                                             | ** ** | **  ** | ** ** | ** ** |
| **      Total  interest expense**                                                                                        | **    4,660  ** | **    5,645 ** | **  10,354   ** | **  11,148** |
| **  Net  interest income**                                                                                                                   | **    7,768  ** | **     7,606 ** | **  15,754   ** | **  15,217** |
| **  Provision  for loan losses**                                                                                                             | **       495  ** | **          (4)** | **       854   ** | **       361** |
| ** **                                                                                                                                             | ** ** | ** ** | **  ** | ** ** |
| **  Net  interest income after provision for loan losses**                                                                                   | **    7,273  ** | **    7,610 ** | **  14,900   ** | **  14,856** |
| **  Other  income:**                                                                                                                         | ** ** | ** ** | ** ** | ** ** |
| **    Service  charges on deposit accounts**                                                                                       | **       971  ** | **870 ** | **1,911   ** | **    1,789** |
| **    Gains/(Losses)  on sale of securities          available-for-sale**                       | **           0  ** | **0 ** | **0   ** | **       9** |
| **    Other  operating income**                                                                                                    | **       757  ** | **        919 ** | **    1,662   ** | **    1,609** |
| **        Total  other income**                                                                                | **    1,728  ** | **    1,789 ** | **    3,573   ** | **    3,407** |
| ** **                                                                                                                                             | ** ** | **  ** | ** ** | ** ** |
| **  Other  expenses:**                                                                                                                       | ** ** | **  ** | ** ** | ** ** |
| **    Salaries  and employee benefits**                                                                                            | **    3,690  ** | **3,500 ** | **7,411   ** | **    6,661** |
| **    Occupancy  expense**                                                                                                         | **       695  ** | ** 793 ** | **1,534   ** | **    1,613** |
| **    Other  operating expenses**                                                                                                  | **    1,439  ** | **     1,217 ** | **    2,516   ** | **    2,332** |
| **        Total  other expenses**                                                                              | **    5,824  ** | **     5,510 ** | **  11,461   ** | **  10,606** |
| **  Income  before income taxes**                                                                                                            | **    3,177  ** | **    3,889 ** | **    7,012   ** | **    7,657** |
| **    Income  tax provision**                                                                                                      | **    1,040  ** | **    1,359 ** | **    2,335   ** | **    2,686** |
| **  Net  income**                                                                                                                            | **    2,137  ** | **    2,530 ** | **    4,677   ** | **    4,971** |
| ** **                                                                                                                                             | ** ** | ** ** | **  ** | ** ** |
| **Per  Share Data***                                                                                                                                   | ** ** | **  ** | ** ** | ** ** |
| ** **                                                                                                                                             | ** ** | **  ** | ** ** | ** ** |
| **   Net  income per weighted average shares        outstanding**                                         | **$    2.56  ** | **$    2.93 ** | **$    5.56   ** | **$    5.76** |
| ** **                                                                                                                                             | ** ** | **  ** | ** ** | ** ** |
| **   Cash  dividend paid per share**                                                                                                    | **$         0  ** | ** $         0 ** | **$         0   ** | **$         0** |
| ** **                                                                                                                                             | ** ** | **  ** | ** ** | ** ** |
| **   Book  value per actual number of shares outstanding**                                                                              | **$  98.90  ** | ** $  94.24 ** | **$  98.90   ** | **$  94.24** |
| ** **                                                                                                                                             | ** ** | **  ** | ** ** | ** ** |
| **   Weighted  average number of shares outstanding**                                                                                   | **834,264  ** | **863,145 ** | **841,100   ** | **863,321** |
| ** **                                                                                                                                             | ** ** | **  ** | ** ** | ** ** |
| **   Actual  number of shares outstanding**                                                                                             | **833,566  ** | **862,853 ** | **833,566   ** | **862,853** |
| ** **                                                                                                                                             |
| ***Adjusted for the effect of a 10% stock dividend  issued during 2007.**                                                                              |

-3-

----

|  
**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,** |
|                                                                                                                                                                         | **    2008    ** | **   2007   ** | **    2008       ** | **   2007       ** |
| **Net  Income**                                                                                                                                                              | $   2,137   | $  2,530  | $   4,677      | $  4,971   | ** ** |
| ** **                                                                                                                                                                   |   |   |   |   |   |
| **Other  comprehensive income/(loss), net of tax**                                                                                                                           |   |   |   |   |   |
| ** **                                                                                                                                                                   |   |   |   |   |   |
| **    Unrealized  losses on securities:**                                                                                                                |   |   |   |   |   |
| ** **                                                                                                                                                                   |   |   |   |   |   |
| **    Unrealized  holding losses during period**                                                                                                         | (2,398)  | (482) | (1,337)     | (183)  |   |
| ** **                                                                                                                                                                   |   |   |   |   |   |
|                                                                                                                                                                              | **                ** | **              ** | **                  ** | **               ** |   |
| **Net  Comprehensive Income/(Loss)**                                                                                                                                         | **$   (261)  ** | **$ 2,048  ** | **$   3,340    ** | **$   4,788 ** | ** ** |

 

-4-

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| **CNB Corporation and Subsidiary  Condensed Consolidated Statements of Changes in Stockholders' Equity  (All Dollar Amounts in Thousands)  (Unaudited)** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                     | **Six Months Ended          June 30,       ** |
|                                                                                                                                                     | **  2008  ** | **  2007  ** |
| **Common  Stock:**                                                                                                                                       |   |   |
| ($10  par value; 1,500,000 shares authorized)                                                                                                            |   |   |
| Balance,  January 1                                                                                                                                      | $  8,684      | $ 7,898   |
| Issuance  of Common Stock                                                                                                                 | None      |     None   |
| Stock  Dividend                                                                                                                                          |     None      |     None   |
| Balance  at end of period                                                                                                                                |    8,684      |    7,898   |
|                                                                                                                                                          |   |   |
| **Surplus:**                                                                                                                                             |   |   |
| Balance,  January 1                                                                                                                                      | 55,939      | 43,555   |
| Issuance  of Common Stock                                                                                                                                | None      | None   |
| Stock  Dividend                                                                                                                                          | None      | None   |
| Gain  on sale of Treasury stock                                                                                                                          |     None      |     None   |
| Balance  at end of period                                                                                                                                |  55,939      |  43,555   |
|                                                                                                                                                          |   |   |
| **Undivided  profits:**                                                                                                                                  |   |   |
| Balance,  January 1                                                                                                                                      | 19,047      | 27,017   |
| Net  Income                                                                                                                                              | 4,677      | 4,971   |
| Stock  Dividend                                                                                                                                          | None      | None   |
| Cash  dividends declared                                                                                                                                 |     None      |     None   |
| Balance  at end of period                                                                                                                                |  23,724      |  31,988   |
|                                                                                                                                                          |   |   |
| **Net  unrealized holding gains/(losses) on**                                                                                                            |   |   |
| **  available-for-sale  securities:**                                                                                                          |   |   |
| Balance,  January 1                                                                                                                                      | 1,025      | (1,120)  |
| Change  in net unrealized gains/losses                                                                                                                   |  (1,337)     |      (183)  |
| Balance  at end of period                                                                                                                                |     (312)     |   (1,302)  |
|                                                                                                                                                          |   |   |
| **Treasury  stock:**                                                                                                                                     |   |   |
| Balance,  January 1                                                                                                                                      | (2,583)     | (687)  |
|   (16,316  shares in 2008; 4,495 shares in 2007)                                                                                               |   |   |
| Purchase  of treasury stock                                                                                                                              | (3,013)     | (141)  |
| Issuance  of stock                                                                                                                                       |     None      |     None   |
| Balance  at end of period                                                                                                                                |   (5,596)     |      (828)  |
|   (34,856  shares in 2008; 5,362 shares in 2007)                                                                                               |   |   |
|                                                                                                                                                          | **                  ** | **               ** |
| **Total  stockholders' equity**                                                                                                                          | **$82,439     ** | **$81,311  ** |
| ** **                                                                                                                                               | ** ** | ** ** |
| **Note:  Columns  may not add due to rounding.**                                                                                               | ** ** | ** ** |
| ** **                                                                                                                                               | ** ** | ** ** |
| ** **                                                                                                                                               | ** ** | ** ** |
| ** **                                                                                                                                               | ** ** | ** ** |
| ** **                                                                                                                                               | ** ** | ** ** |

-5-

----

 

|  
**CNB CORPORATION AND SUBSIDIARY  Condensed Consolidated Statements of Cash Flows  (All Dollar Amounts in Thousands)  (Unaudited)** |
|--------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                 | **  For the Six  months  ended                      June  30,                  ** |
| ** **                                                                                                                                 | **    2008    ** | **     2007    ** |  
**OPERATING  ACTIVITIES**

** **

** **

 
  Net  Income

 $    4,677 

$   4,971  

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

** **

** **

 
    Depreciation  and amortization

710  

643  

 
    Provision  for loan losses

854  

361  

 
    Provision  for deferred income taxes

206  

272  

 
    Discount  accretion and premium amortization on investment securities

(712) 

(71) 

 
    Gain  on sale of investment securities

-   

(9) 

 
    Gain  on sale of foreclosed assets

(11) 

-   

 
    (Increase)/decrease  in accrued interest receivable

482  

(612) 

 
    Increase  in other assets

(730) 

(748) 

 
    Increase/(decrease)  in other liabilities

       (618) 

       876  

 
** **

** **

** **

 
        Net  cash provided by operating activities

     4,858  

    5,683  

 
 

 

 

 
**INVESTING  ACTIVITIES**

 

 

 
  Proceeds  from sale of investment securities available for sale

0  

2,325  

 
  Proceeds  from maturities/calls of investment securities held to maturity

250  

895  

 
  Proceeds  from maturities/calls of investment securities available for sale

99,036  

36,939  

 
  Purchase  of investment securities available for sale

(76,763) 

(65,908) 

 
  Purchase  of investment securities held to maturity

(847) 

0  

 
  Proceeds  from sale of foreclosed assets

77  

-  

 
  Net  decrease in federal funds sold

1,000  

6,000  

 
  Net  (increase)/decrease in loans

(16,365) 

12,591  

 
  Proceeds  from sales of equity securities

623  

78  

 
  Premises  and equipment expenditures

    (1,047) 

     (885) 

 
 

 

 
        Net  cash provided/(used) for investing activities

     5,964  

  (7,965) 

 
 

 

 
**FINANCING  ACTIVITIES**

 

 

 
  Dividends  paid

(4,475) 

(4,123) 

 
  Net  increase in deposits

21,433  

6,805  

 
  Net  decrease in securities sold under repurchase agreement

(11,101) 

(3,098) 

 
  Increase/(decrease)  in United States Treasury demand notes

968  

(816) 

 
  Increase  in Federal Home Loan Bank advances

(15,000) 

-  

 
  Increase  in other short-term borrowings

1,119  

-  

 
  Treasury  stock transactions, net

   (3,013) 

     (141) 

 
 

 

 
        Net  cash used by financing activities

 (10,069) 

  (1,373) 

 
 

 

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

753  

(3,655) 

 
 

 

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

  20,941  

  34,872  

 
 

 

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

$21,694  

$31,217  

 
 

 

 
**CASH  PAID FOR:**

 

 

 
  Interest

$11,428  

$10,513  

 
  Income  taxes

$  2,264  

$  2,668  

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

Net income per share - Net income per share is computed on the basis of the weightedaverage number of common shares outstanding resulting in 841,100 shares for thesix-month period ended June 30, 2008 and 863,321 shares for the six-month periodended June 30, 2007, adjusted for the effect of a 10% stock dividend issued inSeptember 2007.

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

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

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests inConsolidated Financial Statements - an amendment of ARB No. 51" ("SFAS 160").SFAS 160 establishes new accounting and reporting standards for thenoncontrolling interest in a subsidiary and for the deconsolidation of asubsidiary. Before this statement, limited guidance existed for reportingnoncontrolling interests (minority interest). As a result, diversity inpractice exists. In some cases minority interest is reported as a liability andin others it is reported in the mezzanine section between liabilities andequity. Specifically, SFAS 160 requires the recognition of a noncontrollinginterest (minority interest) as equity in the consolidated financialsstatements and separate from the parent's equity. The amount of net income attributableto the noncontrolling interest will be included in consolidated net income onthe face of the income statement. SFAS 160 clarifies that changes in a parent'sownership interest in a subsidiary that do not result in deconsolidation areequity transactions if the parent retains its controlling financial interest.In addition, this statement requires that a parent recognize gain or loss innet income when a subsidiary is deconsolidated. Such gain or loss will bemeasured using the fair value of the noncontrolling equity investment on thedeconsolidation date. SFAS 160 also includes expanded disclosure requirementsregarding the interests of the parent and its noncontrolling interests. SFAS160 is effective for the Company on January 1, 2009.   Earlier adoption isprohibited. The Company is currently evaluating the impact, if any, theadoption of SFAS 160 will have on its financial position, results of operationsand cash flows. 

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instrumentsand Hedging Activities" ("SFAS 161").  SFAS 161 requires enhanced disclosuresabout an entity's derivative and hedging activities, thereby improving thetransparency of financial reporting.  It is intended to enhance the currentdisclosure framework in SFAS 133 by requiring that objectives for usingderivative instruments be disclosed in terms of underlying risk and accountingdesignation. This disclosure better conveys the purpose of derivative use interms of the risks that the entity intends to manage. SFAS 161 is effective forthe Company on January 1, 2009. This pronouncement does not impact accountingmeasurements but will result in additional disclosures if the Company isinvolved in material derivative and hedging activities at that time.

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

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

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

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

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

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

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

The Bank is required to maintain average reserve balances either at the Bank oron deposit with the Federal Reserve Bank.  The average amounts of these reservebalances for the six-month period ended June 30, 2008 and for the year endedDecember 31, 2007 were approximately $2,854 and $10,486, respectively.

-8-
 
**NOTE3 - INVESTMENT SECURITIES**

Investment securities with a par value of approximately $164,707 at June 30,2008 and $182,651 at December 31, 2007 were pledged to secure public depositsand for other purposes required by law.

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

** **

**                             June  30, 2008                           **

** **

**(Dollars in Thousands)**

** **

**Book**

**Unrealized Holding**

**Fair**

** **

** **

**Value**

**Gains**

**Losses**

**Value**

**Yield(1)**

 

  

 

 

 

 

**AVAILABLE  FOR SALE**

 

 

 

 

 
   
  

 

 

 

 

  Government  Sponsored Enterprises

 

 

 

 

 

    Within  one year

26,224

115

-

26,339

3.84%  

    One  to five years

114,542

568

1,200

113,910

4.05     

    Six  to ten  years

   19,575

      191

         142

    19,624

4.96     

 160,341

      874

      1,342

  159,873

4.13     

  Mortgage  Backed Securities

 

 

 

 

 

    Six  to ten years

611

5

25

591

5.15%  

    Over  ten years

     2,351

          0

        101

      2,250

4.66     

     2,962

          5

        126

      2,841

4.76     

  State,  county and municipal

 

 

 

 

 

    Within  one year

954

13

-

967

7.07%  

    One  to five years

5,508

157

-

5,665

6.86     

    Six  to ten years

7,304

17

82

7,239

5.56     

    Over  ten years

      5,088

        18

          55

      5,051

5.65     

    18,854

      205

        137

    18,922

6.04     
   
 

 

 

 

 

  Other  Investments

 

 

 

 

 

     CRA  Qualified Investment Fund

704

-

-

704

-     

     Mastercard  International Stock

           10

            -

            -

           10

-     

         714

            -

            -

         714

-     
   
 

 

 

 

 

  Total  available for sale

$182,871

$  1,084

$   1,605

$182,350

4.34%  
   
 

 

 

 

 

**HELD  TO MATURITY**

 

 

 

 

 
   
 

 

 

 

 

  State,  county and municipal

 

 

 

 

 

    Within  one year

$       535

$         8

$          -

$       543

6.41%  

    One  to five years

1,746

25

9

1,762

5.67     

    Six  to ten years

4,370

15

26

4,359

5.49     

    Over  ten years

      1,650

           0

         33

      1,617

5.45     
   
 

 

 

 

 

    Total  held to maturity

$    8,301

$        48

$        68

$    8,281

5.58%  
   
 

 

 

 

 

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

As of June 30, 2008, the Bank did not hold any securities of an issuer thatexceeded 10% of stockholders' equity. The net unrealized holding losses onavailable-for-sale securities component of capital is $(312) as of June 30,2008.

-9-
 
**NOTE3 - INVESTMENT SECURITIES (Continued)**

** **

**                           December  31, 2007                            **

** **

**(Dollars in Thousands)**

** **

**Book**

**Unrealized Holding**

**Fair**

** **

** **

**Value**

**Gains**

**Losses**

**Value**

**Yield(1)**

 

 

 

 

 

 

**AVAILABLE  FOR SALE**

 

 

 

 

 

 

 

 

 

 

  Government  Sponsored Enterprises

 

 

 

 

 

    Within  one year

61,611

2

236

61,377

3.56%   

    One  to five years

103,464

1,408

8

104,864

5.03      

    Six  to ten years

   18,276

      407

           -

    18,683

5.28      

 183,351

   1,817

      244

  184,924

4.56      

 

 

 

 

 

  Mortgage  Backed Securities

 

 

 

 

 

    Six  to ten years

389

11

-

400

5.77%   

    Over  ten years

        846

          4

        20

         830

4.88      

     1,235

        15

        20

      1,230

5.16      

 

 

 

 

 

  State,  county and municipal

 

 

 

 

 

    Within  one year

209

3

-

212

7.08%   

    One  to five years

6,244

166

-

6,410

6.98      

    Six  to ten years

1,916

16

6

1,926

5.56      

    Over  ten years

    10,758

        10

         49

    10,719

5.60      

    19,127

      195

         55

    19,267

6.06      

 

 

 

 

 

  Other  Investments

 

 

 

 

 

     CRA  Qualified Investment Fund

701

-

-

701

-      

     Mastercard  International Stock

           11

          -

          -

           11

-      

         712

          -

          -

         712

-      

 

 

 

 

 

  Total  available for sale

$204,425

$2,027

$   319

$206,133

4.71%   

 

 

 

 

 

**HELD  TO MATURITY**

 

 

 

 

 

 

 

 

 

 

  State,  county and municipal

 

 

 

 

 

    Within  one year

$       250

$       -

$        -

$       250

7.56%   

    One  to five years

1,438

32

-

1,470

6.94      

    Six  to ten years

3,764

20

5

3,779

5.52      

    Over  ten years

      2,259

         -

       27

      2,232

5.41      

 

 

 

 

 

    Total  held to maturity

$    7,711

$     52

$     32

$    7,731

5.82%   

 

 

 

 

 

 

 

 

 

 

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

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

-10-
 
**NOTE 4 - LOANS AND ALLOWANCE FORLOAN LOSSES**     The following is a summary of loans at June 30,2008 and December 31, 2007 by major classification:

 

**  June 30, **

**December 31,**

 

**          2008  **

**        2007         **

 

 

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

$ 347,264 

$ 350,138 

 
                             **- construction**

96,641 

83,398 

 
**Agriculture**

4,323 

3,264 

 
**Commercial  and industrial loans**

93,170 

88,106 

 
**Loans  to individuals for household,**

 

 

 
**  family  and other consumer expenditures**

47,337 

47,731 

 
**All  other loans, including overdrafts**

430 

794 

 
**Unamortized  deferred loan costs**

          245 

           320 

 
**     Gross  loans**

$ 589,410 

$  573,751 

 
**       Less  allowance for loan losses**

     (6,736)

      (6,507)

 
**         Net  loans**

$ 582,674 

$  567,244 

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

** **

**Quarter Ended **

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

**        June  30,**

**December 31,**

 

**  2008   **

**  2007  **

** **

**  2008  **

**  2007  **

**   2007          **

 

** **

** **

** **

** **

** **

** **

**Balance,  beginning of period**

$ 6,639 

$ 6,418 

** **

$ 6,507 

$ 6,476 

$  6,476        

**Charge-offs:**

** **

** **

** **

** **

** **

** **

   Commercial,  financial, and agricultural

315 

22 

 

400 

410 

732        

   Real  Estate - construction and mortgage

0 

43 

 

103 

52 

127        

   Loans  to individuals

      161 

       76 

** **

      318 

     172 

       587        

       Total  charge-offs

$    476 

$   141 

** **

$    821 

$   634 

$  1,446        

**Recoveries:**

** **

** **

** **

** **

** **

** **

   Commercial,  financial, and agricultural

$      37 

$     38 

** **

$      76 

$     59 

$       96        

   Real  Estate - construction and mortgage

3 

1 

 

3 

1 

25        

   Loans  to individuals

        38 

       52 

** **

      117 

     101 

       211        

       Total  recoveries

$      78 

$     91 

** **

$    196 

$   161 

$     332        

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

$    398 

$     50 

** **

$    625 

$   473 

$  1,114        

**Additions  charged to operations**

$    495 

$     (4)  

 

$    854 

$   361 

$  1,145        

**Balance,  end of period**

$ 6,736 

$6,364 

 

$ 6,736 

$6,364 

$  6,507        

 

** **

** **

** **

** **

** **

** **

Ratio  of net charge-offs during the period

** **

** **

** **

** **

** **

** **

    to average loans outstanding during the period

   .07%  

    .01%

** **

   .11%  

    .08%

     .20%       

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

At June 30, 2008 and June30, 2007 and December 31, 2007 loans on which no interest was being accruedtotaled approximately $718, $606, and $861, respectively.  The Company had $79of foreclosed real estate at June 30, 2008, $46 of foreclosed real estate atJune 30, 2007, and $64 of foreclosed real estate at December 31, 2007.  Loans90 days past due and still accruing interest totaled $199, $257, and $147 at June30, 2008, June 30, 2007, and December 31, 2007, respectively.

At June 30, 2008, June30, 2007, and December 31, 2007 classified assets, the majority consisting ofclassified loans, were $17,666, $12,630, and $15,180, respectively.  At June 30,2008,  June 30, 2007, and December 31, 2007 classified assets represented 19.61%,15.00% and 17.63% of total capital (the sum of Tier 1 Capital and the Allowancefor Loan Losses), respectively.

 

-11-
 
**NOTE 5 -PREMISES AND EQUIPMENT**     Property at June 30, 2008 and December 31, 2007is summarized as follows:

**June 30,**

**December 31,**

**2008**

**2007**

 

 

**Land  and buildings**

$ 25,191

$ 25,192

 
**Furniture,  fixtures and equipment**

8,081

7,768

 
**Construction  in progress**

     1,404

        669

 
** **

$ 34,676

$ 33,629

 
** **

 

 

 
**Less  accumulated depreciation and amortization**

   11,411

   10,701

 
$ 23,265

$ 22,928

 
     Depreciation and amortization of bank premisesand equipment charged to operating expense was $710 for the six-month periodended June 30, 2008, and $1,285 for the year ended December 31, 2007.  Theconstruction in progress is primarily related to renovations to the Company'sMain Office in Conway, South Carolina; the construction of a branch officelocated in Little River, South Carolina; the renovation of the Company's RedHill branch office located in Conway, South Carolina; and the land improvementsand installation of an automated teller machine (ATM) at the Company's CarolinaForest site located in Myrtle Beach, South Carolina.  There are no remaining coststo be incurred associated with the Main Office renovation or the Little Riverbranch office construction.  Remaining construction and equipment costs associatedwith the Red Hill branch office and the Carolina Forest ATM are estimated atapproximately $20 and $233, respectively.

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

     At June 30, 2008 and December 31, 2007,certificates of deposit of $100,000 or more included in time deposits totaledapproximately $214,134 and $201,855, respectively.  Interest expense on thesedeposits was approximately $4,704 for the six-month period ended June 30, 2008and $8,944 for the year ended December 31, 2007. 

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

     At June 30, 2008 and December 31, 2007,securities sold under repurchase agreements totaled $49,835 and $60,936,respectively.  Securities with a book value of $64,105 ($64,062 fair value) and$74,717 ($76,064 fair value), respectively, were used as collateral for theagreements.  The weighted-average interest rate of these agreements was 2.12percent and 4.20 percent at June 30, 2008 and December 31, 2007, respectively.

**NOTE 8 - LINES OF CREDIT**

     At June 30, 2008, the Bank had unused short-termlines of credit to purchase Federal Funds from unrelated banks totaling $37,000. 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 $3,944 at June 30, 2008. The amount outstanding under the note totaled $3,345 and $2,377 at June30, 2008 and December 31, 2007, respectively.

     The Bank also has a line of credit from theFederal Home Loan Bank of Atlanta for $89,749 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 no borrowings under theagreement at June 30, 2008 and $15,000 at December 31, 2007.

-12-
 
**NOTE 9 - INCOME TAXES**

     Income tax expense for the quarters ended June 30,2008 and June 30, 2007 on pretax income of $3,177 and $3,889 totaled $1,040 and$1,359, respectively.   The provision for federal income taxes is calculated byapplying the 34% statutory federal income tax rate and increasing or reducingthis amount due to any tax-exempt interest, state bank tax (net of federalbenefit), business credits, surtax exemption, tax preferences, alternativeminimum tax calculations, or other factors.  A summary of income tax componentsand a reconciliation of income taxes to the federal statutory rate are includedin fiscal year-end reports.

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

**NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES**

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

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

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

** **

**June  30, 2008**

**           Loan  Commitments                   **

    $ 56,700

**           Standby  letters of credits         **

         2,891

     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, 2008 and the year ended December 31, 2007,$190, $283, and $712, respectively, was charged to operations under the plan.

 

**-**13**-**
 
**NOTE12 - REGULATORY MATTERS**

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

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

**Company**

 

 

** **

 

 

** **

 

**For**

** **

 

**Capital adequacy**

** **

**                                 **

**           Purposes          **

** **

**           Actual           **

**          Minimum         **

** **

**Amount**

**Ratio**

**Amount**

** Ratio **

 

 

 

 

 

 

 

 

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

$89,488

14.86%

48,184

8.0%

 

 

 
** **

 

 

 

 

 

 

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

82,752

13.74   

24,092

4.0   

 

 

 
** **

 

 

 

 

 

 

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

82,752

9.72   

34,047

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)**

$90,084

14.96%

48,181

8.0%

$60,227

10.0%

 
** **

 

 

 

 

 

 

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

83,348

13.84   

24,091

4.0   

36,136

6.0   

 
** **

 

 

 

 

 

 

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

83,348

9.79   

34,046

4.0   

42,558

5.0   

 
****-14-
 
**NOTE 13 - FAIR VALUE MEASUREMENTS**

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

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

**Level 1**

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

**Level 2**

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

**Level 3**

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

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

TheCompany's available-for-sale investment securities ($182,350 at June 30, 2008) 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 as Level2 inputs.  Also, 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, 2008 was $367.  The Company's available-for-sale investment securities andimpaired loans are the only assets whose fair values the Company measures on arecurring basis using level 2 inputs.  The Company has no liabilities whosefair values are measured using level 2 inputs.

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

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

-15-
 
**NOTE14 - CONDENSED FINANCIAL INFORMATION**

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

**CONDENSED  BALANCE SHEET  (Unaudited)**

** **

**June 30,**

**ASSETS**

**    2008   **

**    2007   **

   Cash

$      498 

$   2,323 

   Investment in subsidiary

83,035 

77,843 

   Fixed Assets

0 

1,109 

   Other assets

           36 

           36 

$ 83,569 

$ 81,311 

 

 

 

 

**LIABILITIES AND STOCKHOLDERS' EQUITY**

 

 

   Short tern note payable

$   1,119 

$           0 

   Other liabilities

11 

0 

   Stockholders' equity

   82,439 

   81,311 

$ 83,569 

$ 81,311 

 

 

 

 

**CONDENSED  STATEMENT OF INCOME  (Unaudited)**

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

**    2008   **

**   2007  **

**EQUITY IN NET INCOME OF SUBSIDIARY**

$  4,767 

$ 5,055 

**OTHER INCOME**

0 

1 

**OTHER EXPENSES**

      (90)

      (85)

   Net Income

$  4,677 

$ 4,971 

**Item 2.**

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

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

Management's Discussion andAnalysis is provided to afford a clearer understanding of the major elements ofthe Company's results of operations, financial condition, liquidity, andcapital resources. The following discussion should be read in conjunction withthe Company's financial statements and notes thereto and other detailedinformation appearing elsewhere in this report.  In addition, the results ofoperations for the interim periods shown in this report are not necessarilyindicative of results to be expected for the fiscal year.  The accompanyingconsolidated financial statements include all accounts of the Company and theBank.  All significant intercompany accounts and transactions have been eliminatedin consolidation.  The accompanying unaudited consolidated financial statementsat June 30, 2008 and for the three and six-month periods ending June 30, 2008and 2007 have been prepared in accordance with generally accepted accountingprinciples ("GAAP") for interim financial information and with theinstructions 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.

****-16-
 
**DISTRIBUTIONOF ASSETS AND LIABILITIES**

The Company has historically maintained a conservative approach in determiningthe distribution of assets and liabilities.  Loans increased 6.2% from $555,184at June 30, 2007 to $589,410 at June 30, 2008, and increased 2.7%, from $573,751at December 31, 2007 to $589,410 at June 30, 2008.  Loans increased as apercentage of total assets from 65.9% to 68.7% from June 30, 2007 to June 30, 2008and increased from 66.3% to 68.7% from December 31, 2007 to June 30, 2008.  Loandemand in our market area slowed to a moderate pace during 2007. This trend hascontinued throughout the first half of 2008 and is expected to continue throughthe remainder of 2008. Securities and federal funds sold decreased as apercentage of total assets from 26.6% at June 30, 2007 to 25.3% at June 30,2008. Securities and federal funds sold decreased from 28.0% of total assetsat December 31, 2007 to 25.3% at June 30, 2008, a reflection of continuedmoderate loan demand coupled with a lower level of percentage growth indeposits and a decline in repurchase agreements sold. The level of investmentsand federal funds sold provides for a more than adequate supply of liquidity.

Management has sought to build the deposit base with stable, relativelynon-interest-sensitive deposits by offering the small to medium deposit accountholders a wide array of deposit instruments at competitive rates.Non-interest-bearing demand deposits decreased as a percentage of total assetsfrom 16.2% at June 30, 2007 to 13.8% at June 30, 2008, and increased from 13.0%at December 31, 2007 to 13.8% at June 30, 2008.  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 increased from 64.8% of total assetsat June 30, 2007 to 69.4% at June 30, 2008, and increased from 67.0% atDecember 31, 2007 to 69.4% at June 30, 2008. Securities sold under agreementto repurchase decreased from 8.2% at June 30, 2007 to 5.8% at June 30, 2008.  Securitiessold under agreement to repurchase decreased from 7.0% of total assets atDecember 31, 2007 to 5.8% at June 30, 2008.  Other short-term borrowings decreasedfrom 2.0% of total assets at December 31, 2007 to .5% at June 30, 2008 due to adecline in FHLB advances. Other short-term borrowings increased from .2% atJune 30, 2007 to .5% at June 30, 2008 due to an increase in short-termborrowings in the second quarter of 2008.

The following table sets forth the percentage relationship to total assets ofsignificant components of the Company's balance sheets as of June 30, 2008 and June30, 2007 and December 31, 2007:

 

**    June  30,   **

**December 31**

 

**  2008  **

**  2007  **

**  2007  **

**Assets:**

** **

** **

** **

   Earning  assets:

** **

** **

** **

   Loans

68.7%

65.9%

66.3%

 
   Securities  held-to-maturity

1.0   

.4   

.9   

 
   Securities  available-for-sale

21.4   

23.8   

24.1   

 
   Federal  funds sold and securities purchased under agreement to resell

    2.9   

    2.4   

    3.0   

 
      Total  earning assets

  94.0   

  92.5   

  94.3   

 
   Other  assets

    6.0   

    7.5   

    5.7   

 
      Total  assets

100.0%

100.0%

100.0%

 
** **

** **

 

 
**Liabilities  and stockholder's equity:**

** **

** **

 

 
  Interest-bearing  liabilities:

** **

** **

 

 
    Interest-bearing  deposits

69.4%

64.8%

67.0%

 
    Federal  funds purchased and securities sold under agreement to repurchase

5.8   

8.2   

7.0   

 
    Other  short-term borrowings

      .5   

     .2   

    2.0   

 
        Total  interest-bearing liabilities

  75.7   

 73.2   

  76.0   

 
          Noninterest-bearing  deposits

13.8   

16.2   

13.0   

 
    Other  liabilities

.9   

.9   

1.5   

 
    Stockholders'  equity

    9.6   

   9.7   

    9.5   

 
        Total  liabilities and stockholders' equity

100.0%

100.0%

100.0%

 
 

 

 

 
 

 

 

 
 

 

 

 
-17-
 
**RESULTSOF OPERATIONS**

Earnings for the three-month periods ended June 30, 2008 and 2007 were $2,137 and$2,530, respectively, resulting in a return on average assets of 1.00% and 1.20%and a return on average stockholders' equity of 10.13% and 12.55%, respectively.

Earnings for the six-month periods ended June 30, 2008 and 2007 were $4,677 and$4,971, respectively, resulting in a return on average assets of 1.08% and1.18% and a return on average stockholders' equity of 11.17% and 12.53%,respectively.

The earnings were primarily attributable to net interest income in each period(see Net Income-Net Interest Income). Other factors include management'songoing effort to maintain other income at adequate levels (see Net Income -Other Income) and to control other expenses (see Net Income - Other Expenses).This level of earnings, coupled with a moderate dividend policy, has suppliedthe necessary capital funds to support growth in total assets. Total assetsincreased $16,069 or 1.9% to $858,291 at June 30, 2008 from $842,222 at June 30,2007. The following table sets forth the financial highlights for the three andsix-month periods ending at June 30, 2008 and June 30, 2007:

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

** **

 

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

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

** **

** **

** **

** **

** **

** **

**2008**

**2007**

**Percent           Increase  (Decrease)**

**2008 **

**2007**

**Percent   Increase(Decrease)**

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

  $   7,273

  $   7,610

  (4.4)%   

  $ 14,900

  $  14,856

  .3%      

**Income  before income taxes**

3,177

3,889

(18.3)      

7,012

7,657

(8.4)        

**Net  Income**

2,137

2,530

(15.5)      

4,677

4,971

(5.9)        

**Per  Share**

2.56

2.93

(12.6)      

5.56

5.76

(3.5)        

**Cash  dividends declared**

0

0

-        

0

0

-          

**     Per  Share**

0

0

-        

0

0

-          

**Total  assets**

858,291

842,222

1.9%    

858,291

842,222

1.9%      

**Total  deposits**

713,722

681,857

4.7       

713,722

681,857

4.7         

**Loans**

589,410

555,184

6.2       

589,410

555,184

6.2         

**Investment securities and securities available for sale**

190,651

203,718

(6.4)      

190,651

203,718

(6.4)        

**Stockholders' equity**

82,439

81,311

1.4       

82,439

81,311

1.4         

**    Book value per share**

98.90

94.24

4.9       

98.90

94.24

4.9         

**Ratios (1):**

 

 

 

 

 

 

**Annualized return on average total assets (2)**

1.00%

1.20%

(16.7)%  

1.08%

1.18%

(8.5)%     

**Annualized return on average stockholders' equity (2)**

   10.13%

    12.55%

(19.3)%  

     11.17%

     12.53%

      (10.9)%     

 

 

 

 

         (1)       Adjusted forthe effect of the 10% Stock Dividend paid in September 2007.         (2)       For the three-month period endedJune 30, 2008, average total assets amounted to $851,199 with averagestockholders                    equity totaling $84,419 forthe same period.                    For thesix-month period ended June 30, 2008, average total assets amounted to $865,249with average stockholders'                    equity totaling$83,721 forthe same period. 

-18-
 
**NET INCOME**

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

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

TheBank has maintained net interest margins for the three-month and six-month periodsended June 30, 2008, of 3.91% and 3.92%, respectively, and 3.95% and 3.97%,respectively, for the same periods in 2007, as compared to management'slong-term target of 4.20%.  Net interest margins have been compressed for the Bankand industry-wide as we experienced a flat to slightly inverted treasury yieldcurve during 2007.  Interest rate reductions by the Federal Reserve during thesecond half of 2007, improved this situation.  However, dramatic decreases inmarket interest rates during the first quarter of 2008 placed furthersignificant pressure on net interest margins for the industry as a whole.  Theresulting more historically upward-sloping yield curve should enhance theBank's net interest margin in future periods.  Still, 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, 2008 was $7,909, an increase of 2.5% from the $7,714 attained for thethree-month period ended June 30, 2007.  During the same period, totalfully-tax-equivalent interest income decreased by 5.9% to $12,569 from $13,359and total interest expense decreased by 17.4% to $4,660 from $5,645.  Fully-tax-equivalentnet interest income as a percentage of average total earning assets decreased .04%to 3.91% for the three-month period ended June 30, 2008 from 3.95% for the three-monthperiod ended June 30, 2007.

Fully-tax-equivalent net interest income showed a 3.8% increase at $16,036 forthe six-month period ended June 30, 2008 as compared to $15,442 for thesix-month period ended June 30, 2007.  During the same period, totalfully-tax-equivalent interest income decreased by .75% to $26,390 from $26,590,and total interest expense decreased by 7.1% to $10,354 from $11,148. Fully-tax-equivalent net interest income as a percentage of total earningassets decreased .05% to 3.92.% for the six-month period ended June 30, 2008from 3.97% for the six-month period ended June 30, 2007.

The tables on the following four pages present an analysis of average balances,yields and rates for the interest sensitive segments of the Company's balancesheets for the three-month and six-month periods ended June 30, 2008 and 2007,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, 2008 and 2007.

-19-
 
**CNB Corporation and Subsidiary  Average Balances, Yields, and Rates  (Dollars in Thousands)**

 

 

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

**Three Months Ended 6/30/07**

** **

**Interest**

**Avg. Ann.**

** **

**Interest**

**Avg. Ann.**

**Avg.**

**Income/**

**Yield or**

**Avg.**

**Income/**

**Yield or**

**Balance**

**Expense**

**Rate**

**Balance**

**Expense**

**Rate**

**Assets:**

** **

** **

** **

** **

** **

** **

 
   Earning  assets:

** **

** **

** **

** **

** **

** **

 
      Loans,  net of unearned income (1)

$589,333

$ 10,152

6.89%

$561,352

$ 10,905

7.77%

 
      Securities:

** **

** **

** **

** **

** **

** **

 
        Taxable

171,025

1,900

4.44   

168,588

1,731

4.11   

 
        Tax-exempt

27,563

415

(2)     6.02   

20,549

317

(2)   6.17   

 
      Federal funds sold and securities purchased 

** **

** **

** **

** **

** **

** **

 
        under agreement  to resell

    20,347

       102

2.00   

    31,248

       406

5.20   

 
          Total  earning assets

  808,268

  12,569

6.22   

  781,737

  13,359

6.84   

 
    Other  assets

    42,931

** **

** **

    61,869

** **

** **

 
          Total  assets

$851,199

** **

** **

$843,606

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Liabilities  and stockholder equity**

** **

** **

** **

** **

** **

** **

 
    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

 
      Interest-bearing  deposits

$570,623

4,365

3.06   

$547,249

4,986

3.64   

 
      Federal  funds purchased and securities

** **

** **

** **

** **

** **

** **

 
        sold under agreement  to repurchase

49,422

277

2.24   

62,307

636

4.08   

 
      Other  short-term borrowings

      2,737

          18

2.63   

      1,712

         23

5.37   

 
          Total  interest-bearing liabilities

$622,782

$   4,660

2.99   

$611,268

$  5,645

3.69   

 
    Noninterest-bearing  deposits

115,614

** **

** **

137,782

** **

** **

 
    Other  liabilities

28,384

** **

** **

13,908

** **

** **

 
    Stockholders'  equity

    84,419

** **

** **

    80,648

** **

** **

 
          Total  liabilities and stockholders' equity

$851,199

** **

** **

$843,606

** **

** **

 
    Net  interest income as a percent of total

** **

** **

** **

** **

** **

** **

 
       earning  assets

$808,268

$   7,909

3.91   

$781,737

$  7,714

3.95   

 
** **

** **

** **

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Ratios:**

** **

** **

** **

** **

** **

** **

 
Annualized  return on average total assets

** **

** **

1.00   

** **

** **

1.20   

 
Annualized  return on average stockholders'        equity

** **

** **

10.13   

** **

** **

12.55   

 
Cash  dividends declared as a percent of net         income

** **

** **

0   

** **

** **

0   

 
Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

 
  Average  total assets

** **

** **

9.92   

** **

** **

9.56   

 
  Average  total deposits

** **

** **

12.30   

** **

** **

11.77   

 
  Average  loans

** **

** **

14.32   

** **

** **

14.37   

 
Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

 
   average  total assets

** **

** **

94.96   

** **

** **

92.66   

 
** **

** **

 

** **

** **

 

 
(1)  The  Company had no out-of-period adjustments or foreign activities.  Loan fees of  $168 and $110 are included in the above interest income for June 30, 2008 and  2007, respectively.  Loans on a non-accrual basis for the recognition of  interest income totaling $718 and $606 for June 30, 2008 and 2007,  respectively, are included in loans for the purpose of this analysis.

 
** **

** **

 

** **

** **

 

 
(2)  Tax-exempt  income is presented on a tax-equivalent basis using a 34% tax rate.  The  amounts shown include tax-equivalent adjustments of $141 and $108 for June 30,  2008 and 2007, respectively.

 
** **

** **

 

** **

** **

 

 
****-20-
 
**CNB Corporation and Subsidiary  Average Balances, Yields, and Rates  (Dollars in Thousands)**

 

 

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

**Six Months Ended 6/30/07**

** **

**Interest**

**Avg. Ann.**

** **

**Interest**

**Avg. Ann.**

**Avg.**

**Income/**

**Yield or**

**Avg.**

**Income/**

**Yield or**

**Balance**

**Expense**

**Rate**

**Balance**

**Expense**

**Rate**

**Assets:**

** **

** **

** **

** **

** **

** **

 
   Earning  assets:

** **

** **

** **

** **

** **

** **

 
      Loans,  net of unearned income (1)

$584,778

$ 20,739

7.09%

$564,694

$ 21,892

7.75%

 
      Securities:

** **

** **

** **

** **

** **

** **

 
        Taxable

175,271

4,400

5.02   

164,006

3,293

4.02   

 
        Tax-exempt

27,600

829

(2)     6.01   

21,295

662

(2)   6.22   

 
      Federal funds sold and securities purchased

** **

** **

** **

** **

** **

** **

 
        under agreement  to resell

    30,032

       422

2.81   

    28,214

       743

5.27   

 
          Total  earning assets

  817,681

  26,390

6.45   

  778,209

  26,590

6.83   

 
    Other  assets

    47,568

** **

** **

    61,463

** **

** **

 
          Total  assets

$865,249

** **

** **

$839,672

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Liabilities  and stockholder equity**

** **

** **

** **

** **

** **

** **

 
    Interest-bearing  liabilities:

** **

** **

** **

** **

** **

** **

 
      Interest-bearing  deposits

$570,655

9,468

3.32   

$544,055

9,785

3.60   

 
      Federal funds purchased and securities sold 

** **

** **

** **

** **

** **

** **

 
        under agreement  to repurchase

55,769

756

2.71   

65,841

1,327

4.03   

 
      Other  short-term borrowings

      4,950

        130

5.25   

      1,461

          36

4.93   

 
          Total  interest-bearing liabilities

$631,374

$ 10,354

3.28   

$611,357

$ 11,148

3.65   

 
    Noninterest-bearing  deposits

117,308

** **

** **

135,971

** **

** **

 
    Other  liabilities

32,846

** **

** **

13,003

** **

** **

 
    Stockholders'  equity

    83,721

** **

** **

    79,341

** **

** **

 
          Total  liabilities and stockholders' equity

$865,249

** **

** **

$839,672

** **

** **

 
    Net  interest income as a percent of total

** **

** **

** **

** **

** **

** **

 
       earning  assets

$817,681

$ 16,036

3.92   

$778,209

$ 15,442

3.97   

 
** **

** **

** **

** **

** **

** **

 
** **

** **

** **

** **

** **

** **

 
**Ratios:**

** **

** **

** **

** **

** **

** **

 
Annualized  return on average total assets

** **

** **

1.08   

** **

** **

1.18   

 
Annualized  return on average stockholders'        equity

** **

** **

11.17   

** **

** **

12.53   

 
Cash  dividends declared as a percent of net        income

** **

** **

0   

** **

** **

0   

 
Average  stockholders' equity as a percent of:

** **

** **

** **

** **

** **

** **

 
  Average  total assets

** **

** **

9.68   

** **

** **

9.45   

 
  Average  total deposits

** **

** **

12.17   

** **

** **

11.67   

 
  Average  loans

** **

** **

14.32   

** **

** **

14.05   

 
Average  earning assets as a percent of

** **

** **

** **

** **

** **

** **

 
   average  total assets

** **

** **

94.50   

** **

** **

92.68   

 
** **

** **

 

** **

** **

 

 
(1)  The  Company had no out-of-period adjustments or foreign activities.  Loan fees of  $331 and $189 are included in the above interest income for June 30, 2008 and  2007, respectively.  Loans on a non-accrual basis for the recognition of  interest income totaling $718 and $606 for June 30, 2008 and 2007,  respectively, are included in loans for the purpose of this analysis.

 
** **

** **

 

** **

** **

 

 
(2)  Tax-exempt  income is presented on a tax-equivalent basis using a 34% tax rate.  The  amounts shown include tax-equivalent adjustments of $282 and $225 for June  30, 2008 and 2007, respectively.

 
** **

** **

 

** **

** **

 

 
****-21-

** **
 
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, 2008 and 2007   (Dollars in Thousands)**

 

 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

 

**Average**

**Average**

** **

** **

**Interest**

**Interest**

** **

**Change**

**Change**

** **

 

**Volume**

**Volume**

**Yield/Rate**

**Yield/Rate**

** Earned/Paid**

** Earned/Paid**

** **

**Due to**

**Due to**

** **

 

**2008**

**2007**

**2008(3)**

**2007(3)**

**2008**

**2007**

**Variance**

**Rate**

**Volume**

** **

**Earning   Assets:**

 

 

 

 

 

 

 

 

 

 

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

$589,333

$561,352

6.89%

7.77%

$10,152

     $10,905

$ (753) 

$(1,235)

$   482 

 

**  Investment   securities:**

 

 

 

 

 

 

 

 

 

 

**    Taxable**

171,025

168,588

4.44%

4.11%

1,900

1,731

169  

142 

27 

 

**    Tax-exempt   (2)**

27,563

20,549

6.02%

6.17%

415

317

98  

(8)

106 

 

**  Federal   funds sold and Securities**

 

 

 

 

 

 

 

 

 

 

**    purchased   under agreement to resell**

    20,347

    31,248

2.00%

5.20%

       102

       406

   (304) 

    (249)

      (55)

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Earning Assets**

$808,268

$781,737

6.22%

6.84%

$12,569

$13,359

$ (790) 

$(1,350)

$   560 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest-bearing   Liabilities:**

 

 

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**  Interest-bearing   deposits**

$570,623

$547,249

3.06%

3.64%

$  4,365

$ 4,986

$ (621) 

$   (800)

$   179 

 

**  Federal   funds purchased and securities**

 

 

 

 

 

 

 

 

 

 

**    sold   under agreement to repurchase**

49,422

62,307

2.24%

4.08%

277

636

(359) 

(287)

(72)

 

**  Other   short-term borrowings**

      2,737

      1,712

2.63%

5.37%

        18

        23

       (5) 

      (12)

         7 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Interest-bearing Liabilities**

  622,782

  611,268

2.99%

3.69%

   4,660

   5,645

   (985) 

 (1,099)

     114 

 

**Interest-free    Funds Supporting**

 

 

 

 

 

 

 

 

 

 

**  Earning   Assets**

  185,486

  170,469

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Funds Supporting Earning Assets**

$808,268

$781,737

2.31%

2.89%

$ 4,660

$ 5,645

$ (985) 

$(1,099)

$   114 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest   Rate Spread**

 

 

3.23%

3.15%

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

**  on   Net Yield on Earning Assets**

 

 

  .68%

  .80%

             

             

 

 

 

 

**Net   Yield on Earning Assets**

 

 

3.91%

3.95%

$  7,909

$  7,714

 

 

 

 

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

-22-

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

 

 

** **

** **

** **

** **

** **

** **

** **

** **

** **

** **

 

**Average**

**Average**

** **

** **

**Interest**

**Interest**

** **

**Change**

**Change**

** **

 

**Volume**

**Volume**

**Yield/Rate**

**Yield/Rate**

** Earned/Paid**

** Earned/Paid**

** **

**Due to**

**Due to**

** **

 

**2008**

**2007**

**2008(3)**

**2007(3)**

**2008**

**2007**

**Variance**

**Rate**

**Volume**

** **

**Earning   Assets:**

 

 

 

 

 

 

 

 

 

 

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

$584,778

$564,694

7.09%

7.75%

$20,739

$21,892

$(1,153) 

$(1,865)

$    712 

 

**  Investment   securities:**

 

 

 

 

 

 

 

 

 

 

**    Taxable**

175,271

164,006

5.02%

4.02%

4,400

3,293

1,107  

824 

283 

 

**    Tax-exempt   (2)**

27,600

21,295

6.01%

6.22%

829

662

167  

(22)

189 

 

**  Federal   funds sold and Securities**

 

 

 

 

 

 

 

 

 

 

**    purchased   under agreement to resell**

    30,032

    28,214

2.81%

5.27%

       422

       743

   (321) 

    (347)

        26 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Earning Assets**

$817,681

$778,209

6.45%

6.83%

$26,390

$26,590

$ (200) 

$(1,410)

$ 1,210 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest-bearing   Liabilities:**

 

 

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**  Interest-bearing   deposits**

$570,655

$544,055

3.32%

3.60%

$  9,468

$  9,785

$ (317) 

$   (758)

$    441 

 

**  Federal   funds purchased and securities**

 

 

 

 

 

 

 

 

 

 

**    sold   under agreement to repurchase**

55,769

65,841

2.71%

4.03%

756

1,327

(571) 

(434)

(137)

 

**  Other   short-term borrowings**

      4,950

      1,461

5.25%

4.93%

       130

         36

      94   

         2 

        92 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Interest-bearing Liabilities**

  631,374

  611,357

3.28%

3.65%

  10,354

  11,148

   (794) 

 (1,190)

     396 

 

**Interest-free    Funds Supporting**

 

 

 

 

 

 

 

 

 

 

**  Earning   Assets**

  186,307

  166,852

 

 

 

 

 

 

 

 

** **

 

 

 

 

 

 

 

 

 

 

**Total   Funds Supporting Earning Assets**

$817,681

$778,209

2.53%

2.87%

$10,354

$11,148

$ (794) 

$(1,190)

$   396 

 

** **

 

 

 

 

 

 

 

 

 

 

**Interest   Rate Spread**

 

 

3.17%

3.18%

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

**  on   Net Yield on Earning Assets**

 

 

  .75%

  .79%

             

             

 

 

 

 

**Net   Yield on Earning Assets**

 

 

3.92%

3.97%

$16,036

$15,442

 

 

 

 

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

-23-
 
**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 $495 for the three-month period ended June 30,2008 and $(4) for the three-month period ended June 30, 2007.  Net loancharge-offs/(recoveries) totaled $398 for the three-month period ended June 30,2008 and $50 for the same period in 2007.  The negative provision for the three-monthperiod ended June 30, 2007 was due to the decline in loans during that period.

The provision for loan losses was $854 for the six-month period ended June 30,2008 and $361 for the six-month period ended June 30, 2007.  Net loancharge-offs/(recoveries) totaled $625 for the six-month period ended June 30,2008 and $473 for the same period in 2007. The increased provision during thesix-month period ended June 30, 2008 reflects moderate growth in the loanportfolio and a higher level of net charge-offs during the period.  Theallowance for loan losses as a percentage of net loans was 1.16% at June 30,2008 and was 1.16% at June 30, 2007.  

SecuritiesTransactions - At June 30, 2008, December 31, 2007, and June 30, 2007 total marketvalue appreciation/(depreciation) in the investment portfolio totaled $(541), $1,728,and $(2,160), respectively.  As indicated, market values increased from June30, 2007 to December 31, 2007 due to a decline in market rates commencing inthe third quarter of 2007.  Market interest rates further declined during thefirst quarter of 2008 but leveled by the end of the second quarter.  However,new issue bond coupon rates rose during the second quarter of 2008 resulting indepreciation of the Company's investment portfolio, a significant portion ofwhich was purchased during the first quarter of 2008 after a substantial numberof investment calls due to the dramatic decline in market interest rates.  Thechanges in market value appreciation/(depreciation) in the investment portfoliodo not directly affect operating results since the Company does not acquireinvestment securities for trading.  However, the changes in the market valueappreciation/(depreciation) in the investment portfolio for the three and six-monthperiods ended June 30, 2008 and June 30, 2007 are a component of ComprehensiveIncome and are set forth in the Condensed Consolidated Statements ofComprehensive Income contained herein.

Other Income - Other income, net of any gains/losses on security transactions, decreasedby 3.4% to $1,728 for the three-month period ended June 30, 2008 from $1,789for the three-month period ended June 30, 2007.   Other income, net of anygains/losses on security transactions, increased by 4.9% to $3,573 for thesix-month period ended June 30, 2008 from $3,407 for the six-month period endedJune 30, 2007.  The decrease in other income for the three-month period endedJune 30, 2008, was primarily due to lower other operating income, which was down17.6%.  The increase in other income for the six-month period ended June 30,2008, was primarily due to higher service charge income on deposit accounts, whichwas up 6.8%.

Other Expenses - Other expenses increased by 5.7% to $5,824 for the three-monthperiod ended June 30, 2008 from $5,510 for the three-month period ended June 30,2007.  The major components of other expenses are salaries and employeebenefits, which increased 5.4% to $3,690 from $3,500; occupancy expense which decreased12.4% to $695 from $793; and other operating expenses which increased by 18.2% to$1,439 from $1,217.  The increase in salaries and employee benefits for thethree-month period ended June 30, 2008 is attributable to increased salariesand employee benefits expense in the form of increased salaries and associatedtaxes, medical and life insurance expense, and education expense.  Occupancyexpense generally continues to grow due to the addition of new bankingfacilities and staff.  However, occupancy expense declined for the second quarterof 2008 due to minor reductions in repairs and upkeep expenses, propertyinsurance, and maintenance contracts.  Occupancy expense also declined due to areclassification of a portion of utilities expense, telecommunications, toother expense which increased during the period for the same reason.

Other expenses increased by 8.1% to $11,461 for the six-month period ended June30, 2008 from $10,606 for the six-month period ended June 30, 2007.  The majorcomponents of other expenses are salaries and employee benefits which increased11.3% to $7,411 from $6,661.  A portion of the implied increase in salariesexpense is attributable to the implementation of amended FAS 91 accountingprocedures in the first quarter of 2007 which effectively lowered salariesexpense for that period due to increased deferred loan costs.  Occupancyexpense decreased 4.9% to $1,534 for the six-month period ended June 30, 2008from $1,613 for the same period in 2007.  Other operating expenses increased7.9% to $2,516 from $2,332 for the same periods, respectively.

-24-

**NET INCOME(continued)**

Income Taxes - Provisions for income taxes decreased 23.5% to $1,040 for thethree-month period ended June 30, 2008 from $1,359 for the three-month periodended June 30, 2007.  Income before income taxes less interest on tax-exemptinvestment securities decreased 21.1% to $2,903 for the three-month periodended June 30, 2008 from $3,680 for the same period in 2007. 

Provisions for income taxes decreased 13.1% to $2,335 for the six-month periodended June 30, 2008 from $2,686 for the six-month period ended June 30, 2007. Income before income taxes less interest on tax-exempt investment securitiesdecreased by 10.5% to $6,465 for the six-month period ended June 30, 2008 from$7,220 for the same period in 2007.

**LIQUIDITY**

The Bank's liquidity position is primarily dependent on short-term demands forfunds caused by customer credit needs and deposit withdrawals and upon 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 of creditfrom correspondent banks and has the ability to borrow funds from the FederalReserve System and the Federal Home Loan Bank of Atlanta. Management feels thatshort-term and long-term liquidity sources are more than adequate to meetfunding needs, including the funding of off-balance sheet loan commitments andstandby letters of credit, if the need arises.  Neither the Company nor theBank is involved in other off-balance sheet contractual relationships ortransactions that could result in liquidity needs or other commitments or significantlyimpact earnings.

**CAPITAL RESOURCES**

Total stockholders' equity was $82,439 and $82,112 at June 30, 2008 and December31, 2007, representing 9.61% and 9.49% of total assets, respectively.  At June30, 2008, the Company and the Bank exceeded quantitative measures establishedby regulation to ensure capital adequacy (see NOTE 12 to the consolidatedunaudited financial statements - REGULATORY MATTERS).  Capital is consideredsufficient by management to meet current and prospective capital requirementsand to support anticipated growth in Bank operations.

**CRITICAL ACCOUNTING POLICIES**

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

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

**RISKS AND UNCERTAINTIES**

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

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

-25-

**Item3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

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

**Item 4.  CONTROLS AND PROCEDURES**

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

There has been no change 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.

-26-
 
**PART II**

** **

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

**ISSUER PURCHASES OF EQUITY SECURITIES**

**Period**

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

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

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

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

April 1 - April 30, 2008

7,103           

$162.50         

-

-

May 1 - May 31, 2008

0           

0        

-

-

June 1 - June 30, 2008

       15           

  162.50         

-

-

Total

7,118           

$162.50         

-

-

  (1) During the period covered by this report, the Company purchased 7,118  shares of stock from shareholders, at the request of the shareholders, which  are held by the Company as Treasury Stock.  These shares were purchased on a  case-by-case basis and not pursuant to any formal program.

**Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

On Tuesday, May 13, 2008, the Company held its annual meeting of  shareholders.  At the meeting, two matters were voted on with results as  follows:

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

 

 

**                                  SHARES  VOTED                                        **

 

** **

**AUTHORITY**

**BROKER**

 

**FOR**

**WITHHELD**

**NON-VOTES**

 

 

 

 

**Three-year  terms**

 

 

 

Harold  G. Cushman, Jr.

606,992

2,764

0

William  O. Marsh

606,221

3,535

0

John  C. Thompson

608,136

1,620

0

 

 

 

 

The following directorscontinue to serve until the annual meetings in the years indicated and were notvoted on at the 2008 annual meeting:  William R. Benson - 2009; Edward T.Kelaher - 2009; George F. Sasser - 2009; Lynn Gatlin Stevens - 2009; James W.Barnette, Jr. - 2010; Harold G. Cushman, III - 2010; W. Jennings Duncan - 2010.

2.  Ratification of Elliott Davis, LLC as the Company's independentregistered public accounting firm for the year ending     December 31, 2008.
**Harold G. Cushman, Jr.**
**FOR**

**AGAINST**

**ABSTAIN**
   
606,696

0

3,060

-27-
 
**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:  August 8, 2008

-28-
 
**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.

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