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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-KSB



(Mark One)



|x | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------------



For fiscal year ended December 31, 2004



| ̈ | Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------



For the transition period from
 to



Commission file number 000-50729



CNB BANCORP, INC.

(Name of Small
Business Issuer in Its Charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Virginia                                                      |  | 54-2059214                         
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|11407 Windsor Blvd., Windsor, VA                              |  | 23487                              
|(Address of Principal Executive Offices)                      |  | (Zip Code)                         



(757) 242-4422

(Issuers Telephone Number, Including Area Code)



Securities registered pursuant to Section 12(b) of the Act: None.



Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par.



Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 past 90 days. Yes x No ̈



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. x



State issuers revenues for its most recent fiscal year: $928,000.



The aggregate market value of common stock held by non-affiliates (shareholders each holding
less than 5% of an outstanding class of stock, excluding directors and executive officers) of the Company on March 17, 2005 was $4,901,450. This calculation is based upon an estimate of the fair market value of the Companys common stock at
$12.50 per share, which was the price of the last trade of which management is aware prior to this date. There is not an active trading market for the common stock and it is not possible to identify precisely the market value of the common stock.



APPLICABLE ONLY TO CORPORATE REGISTRANTS



State the number of shares outstanding of each of the issuers classes of common equity,
as of the latest practicable date: As of March 17, 2005, 564,937 shares of the registrants common stock, $.01 par value, were issued and outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the definitive Proxy Statement dated April 4, 2005 to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on May 3,
2005, are incorporated by reference into Part III.



Transitional Small
Business Disclosure format (check one): Yes ̈No x



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TABLE OF CONTENTS



|           |  |                                                                                                                 |  |     
|---------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                 |  | Page
|PART I     |  | 3                                                                                                              
|           |  |                                                                                                                
|Item 1.    |  | Description of Business                                                                                         |  | 3   
|Item 2.    |  | Description of Properties                                                                                       |  | 12  
|Item 3.    |  | Legal Proceedings                                                                                               |  | 12  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                             |  | 12  
|           | 
|PART II    |  | 12                                                                                                             
|           |  |                                                                                                                
|Item 5.    |  | Market for Common Equity and Related Stockholder Matters                                                        |  | 12  
|Item 6.    |  | Managements Discussion and Analysis or Plan of Operations                                                      |  | 13  
|Item 7.    |  | Financial Statements                                                                                            |  | 23  
|Item 8.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 43  
|Item 8A.   |  | Controls and Procedures                                                                                         |  | 43  
|Item 8B.   |  | Other Information                                                                                               |  | 43  
|           | 
|PART III   |  | 43                                                                                                             
|           |  |                                                                                                                
|Item 9.    |  | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act |  | 43  
|Item 10.   |  | Executive Compensation                                                                                          |  | 43  
|Item 11.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  |  | 43  
|Item 12.   |  | Certain Relationships and Related Transactions                                                                  |  | 43  
|Item 13.   |  | Exhibits                                                                                                        |  | 44  
|Item 14.   |  | Principal Accountant Fees and Services                                                                          |  | 44  
|           | 
|SIGNATURES |  |                                                                                                                



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PART I



|ITEM 1. | DESCRIPTION OF BUSINESS
|------- | -----------------------



Special Cautionary Notice Regarding Forward-Looking Statements



This Report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and the
Securities Exchange Act of 1934. Various matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption Managements Discussion and Analysis of Financial Condition and
Results of Operations, may constitute forward-looking statements for purposes of the Securities Act and the Securities Exchange Act. These statements are based on many assumptions and estimates and are not guarantees of future performance and
may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of CNB Bancorp, Inc. (the Company or CNB) to be materially different from future results,
performance or achievements expressed or implied by such forward-looking statements. The words expect, anticipate, intend, plan, believe, seek, estimate, and similar
expressions are intended to identify such forward-looking statements. The Companys actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without
limitation:



| |  |  | The effects of future economic conditions;
| | - |  | ------------------------------------------



| |  |  | Governmental monetary and fiscal policies, as well as legislative and regulatory changes;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | The risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest-rate protection agreements,
as well as interest-rate risks;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The effects of competition from other financial institutions and financial service providers operating in the Companys market area and elsewhere, including institutions
operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, and computer and the Internet; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The failure of assumptions underlying the establishment of reserves for possible loan losses and estimations of values of collateral and various financial assets and liabilities.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All written or oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by these cautionary statements.



CNB Bancorp, Inc.



CNB
was incorporated as a Virginia corporation on November 12, 2001, to serve as a bank holding company that holds all of the outstanding capital stock of Citizens National Bank (the Bank), a nationally chartered bank located in Windsor,
Virginia. Other than its investment in the Bank, the Company has no other material asset, nor does it conduct any other business activity.



During its organization, the Companys operations, pre-opening expenses and capital costs from April 23, 2001 through the opening of the Bank were
funded by and conducted through CNB Bancorp, LLC (the LLC), a limited liability company formed by the Companys organizing directors. The Company closed its public offering on December 31, 2002. The offering raised $5.4 million, net
of offering expenses. Upon opening the Bank, the Company and the Bank used part of the offering proceeds to reimburse the LLC for operational and pre-opening expenses related to the Company and the Bank and the LLC was subsequently dissolved. The
amount of the pre-opening expenses paid by the LLC was $439,000 and represents the opening retained deficit balance on the consolidated statement of shareholders equity. The proceeds of the offering, net of offering expenses, are shown as the
beginning balances of common stock and additional paid-in capital on the consolidated statement of shareholders equity. The proceeds of the offering net of offering expenses and pre-opening expenses totaled $4.97 million and are shown as the
beginning cash balance on the consolidated statement of cash flows for the period ended December 31, 2003.



We have chosen this holding company structure because we believe it provides flexibility that would not otherwise be available to us. Subject to Federal
Reserve debt guidelines, through a holding company structure, we can assist the Bank in maintaining its required capital ratios by borrowing money and contributing the proceeds to the Bank as primary capital. Additionally, under provisions of the
Gramm-Leach-Bliley Act, a holding company may engage in activities that are financial in nature or incidental or complementary to a financial activity including some insurance transactions, real estate development activities and merchant banking
activities, which a bank may not do. Although we do not presently intend to engage in these types of activities, we will be able to do so with a proper notice or filing to the Federal Reserve if we believe that there is a need for these services in
our market area and that these activities could be profitable.



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Citizens National Bank



Citizens National Bank received final approval to become a national bank from the Office of the Comptroller of Currency (OCC) on April 28, 2003 and
began operations on April 29, 2003. CNB invested capital of $5.25 million in Citizens National Bank immediately prior to the Banks opening, acquiring 100% of the Banks stock. From this initial capital infusion from the Company, the Bank
reimbursed CNB Bancorp, LLC for its pre-opening expenses.



Market Area and Competition. Our primary service area consists of the 15-mile radius surrounding our main office location in the Town of Windsor, Virginia. This area includes all of the County of Isle of Wight, the Cities of Franklin
and Suffolk, and portions of Southampton, Surry and Sussex Counties.



Isle of Wight County and the adjacent City of Suffolk are growing marketplaces that we believe will support the expected growth of Citizens National Bank. The population of Isle of Wight County grew 18.7% from 1990 to 2000, increasing from
25,053 to 29,728 during such decade. Given its consistent economic base, which includes five industrial parks, we believe that Isle of Wight County is positioned to continue its growth trend during the next ten years.



As of December 31, 2004, our primary service area was serviced by 12
financial institutions with 29 banking offices, and there was only one other bank operating in the Town of Windsor. Almost all of the institutions operating within our primary service area are large national, regional or super-regional banks. With
the exception of two local banks, Farmers Bank and SuffolkFirst Bank, none of these financial institutions are headquartered in our primary service area.



The majority of our competitors have substantially greater resources and lending limits than Citizens National Bank has and provide other services, such
as extensive and established branch networks and trust services, which we do not expect to provide in the near future. As a result of these competitive factors, Citizens National Bank may have to pay higher interest rates to attract depositors or
extend credit with lower interest rates to attract borrowers.



Lending Policy. The Bank aggressively seeks creditworthy borrowers within its primary service area. As of December 31, 2004, the Banks loan portfolio was comprised of the following:



|                          |  |                          |  
|------------------------- |  | ------------------------ | -
|Loan Classification       |  | Percentage ofTotal Loans |  
|Real estate-related loans |  | 63.7                     | %
|                          | 
|Commercial loans          |  | 17.0                     | %
|                          | 
|Consumer loans            |  | 19.3                     | %



Loan Approval and
Review. The Banks loan approval policies provide for various levels of officer lending authority. When the total amount of loans to a single borrower exceeds an individual officers lending authority, an officer with a higher lending
limit or the Banks director loan committee determines whether to approve the loan request. As part of its lending policy, the Bank does not make loans to its directors or executive officers unless a majority of its disinterested board members
approves the loan and the terms of the loan are no more favorable than would be available to any other borrower similarly situated.



Lending Limits. The Banks lending activities are subject to a variety of lending limits imposed by federal law. Differing limits apply based
on the type of loan and the nature of the borrower, including the borrowers relationship to the Bank. In general, however, the Bank is able to loan any one borrower a maximum principal amount equal to either:



| |  |  | 15% of the Banks capital and surplus; or
| | - |  | -----------------------------------------



| |  |  | 25% of its capital and surplus if the excess over 15% is within federal guidelines, which provides an exception to the 15% limit for debt secured by readily marketable collateral,
as defined by OCC regulations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Bank complies
with the statutory lending limits, as described above. The Banks legal lending limits will increase or decrease as the Banks capital increases or decreases as a result of, among other reasons, its earnings or losses. The Bank may sell
loan participations to other financial institutions to meet the needs of customers requiring loans above these limits.



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Real Estate Loans. The Bank makes and holds real estate-related loans, consisting primarily of
mortgage loans, home equity lines of credit and non-farm, non-residential loans secured by real estate (typically owner-occupied commercial buildings). The Bank is involved in both the originating and servicing of its first and second mortgage
loans, and generally requires an aggregated loan-to-value ratio of no more than 80%. For construction loans, the Bank requires a first lien position on the land associated with the project with terms not exceeding one year. Loan disbursements on
construction loans require on-site inspections to assure the project is on budget and that the loan proceeds are not being diverted to another project. The loan-to-value ratios for construction loans are typically 80% of the lower of the as-built
appraised value or project cost, and a maximum of 90% if the loan is amortized. The Bank also offers home equity lines of credit, which equaled approximately 3.2% of the Banks total loans, as of December 31, 2004, and have interest rate terms
that are variable rather than fixed.



As of December 31, 2004,
approximately 32.1% of the Banks real estate-related loans had interest rate terms that are variable or carried a term of 12 months or less. Additionally, the terms of the Banks real estate loans generally do not exceed five years. Loans
for construction can present a high degree of risk to the lender and depend upon, among other things, the builders ability to sell the home to a buyer, the buyers ability to obtain permanent financing and the construction projects
ability to produce income in the interim.



Commercial
Loans. The Banks commercial lending is directed principally toward small to medium-size businesses whose demands for funds fall within the legal lending limits of the Bank. The Banks commercial loans are made to individual,
partnership or corporate borrowers, and are obtained for a variety of business purposes. Of the Banks commercial loans as of December 31, 2004, approximately 89.2% were adjustable-rate loans or mature within one year and 10.6% had maturities
extending beyond 12 months but less than 60 months. Risks associated with these loans can be significant and include, but are not limited to, fraud, bankruptcy, economic downturn, deteriorated or non-existing collateral and changes in interest
rates.



Consumer Loans. The Bank makes consumer
loans, consisting primarily of installment loans to individuals for personal, family and household purposes, including loans for automobiles, home improvements and investments. Almost all of the Banks consumer loans are fixed rate loans
generally with maturities ranging from 3 to 5 years. Risks associated with consumer loans include, but are not limited to, fraud, deteriorated or non-existing collateral, general economic downturn and customer financial problems.



Investments. In addition to its loan operations, the Bank makes
other investments primarily in obligations of the United States or obligations guaranteed as to principal and interest by the United States and other taxable securities. The Bank also may invest in certificates of deposits in other financial
institutions. The amount invested in such time deposits, as viewed on an institution by institution basis, would not exceed $100,000. Therefore, the amounts invested in certificates of deposit are fully insured by the FDIC. No investment held by the
Bank exceeds any applicable limitation imposed by law or regulation. Our asset and liability management committee reviews the investment portfolio on an ongoing basis to ascertain investment profitability and to verify compliance with the
Banks investment policies.



Deposits. The
Banks core deposits include checking accounts, money market accounts, a variety of certificates of deposit and IRA accounts. The Banks primary sources of deposits are residents of, and businesses and their employees located in Isle of
Wight County. The Bank has obtained its deposits primarily through personal solicitation by its officers and directors, direct mail solicitations and advertisements published in the local media. We plan to continue generating deposits by offering
competitively priced deposit services, including demand deposits, regular savings accounts, money market deposits, certificates of deposit, retirement accounts and other legally permitted deposit or fund transfer services.



Other Banking Services. In addition to its lending and deposit
products and services, the Bank offers mortgage brokering, debit cards, travelers checks, notary public services, wire services, safe deposit box rental, ATM services and other traditional bank services to its customers.



Asset and Liability Management. The Bank has established an asset and
liability management committee to manage its assets and liabilities. The goal of this committee is to maintain an optimum and stable net interest margin,



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a profitable after-tax return on assets and return on equity and adequate liquidity. The committee conducts these management functions within the framework
of written loan and investment policies that the Bank has adopted. The committee also attempts to maintain a balanced position between rate sensitive assets and rate sensitive liabilities. Specifically, the committee charts the Banks assets
and liabilities on a matrix by maturity and interest adjustment period and attempts to manage any gaps in maturity ranges.



Employees. As of December 31, 2004, the Bank has a total of 12 full time equivalent employees. CNB does not have any employees who are not also
employees of Citizens National Bank.



Supervision and
Regulation



Both the Company and the Bank are subject to
extensive state and federal banking regulations that impose restrictions on and provide for general regulatory oversight of their operations. These laws are generally intended to protect depositors and not shareholders. The following discussion
describes the material elements of the regulatory framework that applies to us.



The Company



The Company owns all of the capital stock of the Bank; therefore, it is a bank holding company under the Bank Holding Company Act of 1956. As a result,
the Company will be primarily subject to the supervision, examination, and reporting requirements of the Bank Holding Company Act and the regulations of the Federal Reserve. As a bank holding company registered under the Virginia Banking Act, the
Virginia Bureau of Financial Institutions, a division of the Virginia State Corporation Commission, will also regulate and monitor all significant aspects of the Companys operations.



Acquisitions of Banks.The Bank Holding Company Act requires every
bank holding company to obtain the Federal Reserves prior approval before:



| |  |  | Acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the banks voting shares;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Acquiring all or substantially all of the assets of any bank; or
| | - |  | ----------------------------------------------------------------



| |  |  | Merging or consolidating with any other bank holding company.
| | - |  | -------------------------------------------------------------



Additionally, the Bank Holding Company Act provides that the Federal Reserve may not approve any of these transactions if it would result in or tend to
create a monopoly or, substantially lessen competition or otherwise function as a restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be
served. The Federal Reserves consideration of financial resources generally focuses on capital adequacy, which is discussed below.



Under the Bank Holding Company Act, if adequately capitalized and adequately managed, the Company or any other bank holding company located in Virginia
may purchase a bank located outside of Virginia. Conversely, an adequately capitalized and adequately managed bank holding company located outside of Virginia may purchase a bank located inside Virginia. In each case, however, restrictions may be
placed on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits.



Change in Bank Control.Subject to various exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with
related regulations, require Federal Reserve approval prior to any person or company acquiring control of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of
voting securities of the bank holding company. Control is refutably presumed to exist if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either:



| |  |  | the bank holding company has registered securities under Section 12 of the Securities Exchange Act of 1934; or
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | no other person owns a greater percentage of that class of voting securities immediately after the transaction.
| | - |  | ---------------------------------------------------------------------------------------------------------------



Our common stock is registered under the Securities Exchange Act of 1934. The
regulations provide a procedure for challenging the refutable presumption of control.



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Permitted Activities. A bank holding company is generally permitted under the Bank Holding Company
Act to engage in or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in the following activities:



| |  |  | Banking or managing or controlling banks; and
| | - |  | ---------------------------------------------



| |  |  | Any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



Activities that the Federal Reserve has found to be so closely related to
banking as to be a proper incident to the business of banking include:



| |  |  | Factoring accounts receivable;
| | - |  | ------------------------------



| |  |  | Making, acquiring, brokering or servicing loans and usual related activities;
| | - |  | -----------------------------------------------------------------------------



| |  |  | Leasing personal or real property;
| | - |  | ----------------------------------



| |  |  | Operating a non-bank depository institution, such as a savings association;
| | - |  | ---------------------------------------------------------------------------



| |  |  | Trust company functions;
| | - |  | ------------------------



| |  |  | Financial and investment advisory activities;
| | - |  | ---------------------------------------------



| |  |  | Conducting discount securities brokerage activities;
| | - |  | ----------------------------------------------------



| |  |  | Underwriting and dealing in government obligations and money market instruments;
| | - |  | --------------------------------------------------------------------------------



| |  |  | Providing specified management consulting and counseling activities;
| | - |  | --------------------------------------------------------------------



| |  |  | Performing selected data processing services and support services;
| | - |  | ------------------------------------------------------------------



| |  |  | Acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Performing selected insurance underwriting activities.
| | - |  | ------------------------------------------------------



Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding companys continued ownership, activity or control constitutes a serious risk to the financial safety, soundness, or stability of it or any of
its bank subsidiaries.



In addition to the permissible bank
holding company activities listed above, a bank holding company may qualify and elect to become a financial holding company, permitting the bank holding company to engage in activities that are financial in nature or incidental or complementary to
financial activity. The Bank Holding Company Act expressly lists the following activities as financial in nature:



| |  |  | Lending, trust and other banking activities;
| | - |  | --------------------------------------------



| |  |  | Insuring, guaranteeing, or indemnifying against loss or harm, or providing and issuing annuities, and acting as principal, agent, or broker for these purposes, in any state;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Providing financial, investment, or advisory services;
| | - |  | ------------------------------------------------------



| |  |  | Issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | Underwriting, dealing in or making a market in securities;
| | - |  | ----------------------------------------------------------



| |  |  | Other activities that the Federal Reserve may determine to be so closely related to banking or managing or controlling banks as to be a proper incident to managing or controlling
banks;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Foreign activities permitted outside of the United States if the Federal Reserve has determined them to be usual in connection with banking operations abroad;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Merchant banking through securities or insurance affiliates; and
| | - |  | ----------------------------------------------------------------



| |  |  | Insurance company portfolio investments.
| | - |  | ----------------------------------------



To qualify to become a financial holding company, the Bank and any other depository institution subsidiary of the Company must be well capitalized and
well managed and must have a Community Reinvestment Act rating of at least satisfactory. Additionally, the Company must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve
with 30 days written notice prior to engaging in a permitted financial activity. While the Company meets the qualification standards applicable to financial holding companies, the Company has not yet elected to become a financial holding
company at this time.



Support of Subsidiary
Institutions. Under Federal Reserve policy, the Company is expected to act as a source of financial strength for the Bank and to commit resources to support the Bank. This support may be required at times when, without this Federal Reserve
policy, the Company might not be inclined to provide it. In addition, any capital



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loans made by the Company to the Bank will be repaid only after the Banks deposits and various other obligations are repaid in full. In the unlikely
event of the Companys bankruptcy, any commitment by it to a federal bank regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.



The Bank



The Bank is subject to extensive state and federal banking regulations that
impose restrictions on and provide for general regulatory oversight of our operations. These laws are generally intended to protect depositors and not shareholders. The following discussion describes the material elements of the regulatory framework
that applies to us. Since the Bank is chartered as a national bank, it is primarily subject to the supervision, examination and reporting requirements of the National Bank Act and the regulations of the Office of the Comptroller of the Currency. The
Office of the Comptroller of the Currency regularly examines the Banks operations and has the authority to approve or disapprove mergers, the establishment of branches and similar corporate actions. The Office of the Comptroller of the
Currency also has the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law. Additionally, the Banks deposits are insured by the FDIC to the maximum extent provided by law. The Bank
is also subject to numerous state and federal statutes and regulations that affect its business, activities and operations.



Branching.National banks are required by the National Bank Act to adhere to branch office banking laws applicable to state banks in the states in
which they are located. Under current Virginia law, the Bank may open branch offices throughout Virginia with the prior approval of the Office of the Comptroller of the Currency. In addition, with prior regulatory approval, the Bank will generally
be able to acquire existing banking operations in Virginia.Furthermore, federal legislation has been passed which permits interstate branching. These laws permit out-of-state acquisitions by bank holding companies, interstate branching by
banks if allowed by state law, and interstate merging by banks.



Prompt Corrective Action.The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a system of prompt corrective action to resolve the problems of undercapitalized financial institutions. Under this system, the
federal banking regulators have established five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) in which all institutions are placed. Federal banking
regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital
category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have specified
by regulation the relevant capital level for each category. At December 31, 2004, the Bank qualified for the well-capitalized category.



An institution that is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized is required to submit an acceptable
capital restoration plan to its appropriate federal banking agency. A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations. The controlling holding
companys obligation to fund a capital restoration plan is limited to the lesser of 5% of an undercapitalized subsidiarys assets at the time it became undercapitalized or the amount required to meet regulatory capital requirements. An
undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with
FDIC approval. The regulations also establish procedures for downgrading an institution to a lower capital category based on supervisory factors other than capital.



FDIC Insurance Assessments.The FDIC has adopted a risk-based assessment system for insured depository institutions
that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The system assigns an institution to one of three capital categories: (1) well capitalized; (2) adequately capitalized; and (3)
undercapitalized. These three categories are substantially similar to the prompt corrective action categories described above, with the undercapitalized category including institutions that are undercapitalized, significantly
undercapitalized, and critically undercapitalized for prompt corrective action purposes. The FDIC also assigns an institution to one of three supervisory subgroups based on a supervisory evaluation that the institutions primary federal
regulator provides to the FDIC and information that the FDIC determines to be relevant to the institutions financial condition and the risk posed to the deposit insurance funds. Assessments range from 0 to 27 cents per $100 of deposits,
depending on the institutions capital group and supervisory subgroup. In addition, the FDIC imposes assessments to help pay off the $780 million in annual interest payments on the $8 billion Financing Corporation bonds issued in the



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late 1980s as part of the government rescue of the thrift industry. This assessment rate is adjusted quarterly, and is set at 1.44 cents per $100 of deposits
for the first quarter of 2005.



The FDIC may terminate its
insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the
FDIC.



Community Reinvestment Act. The Community
Reinvestment Act requires that, in connection with examinations of financial institutions within their respective jurisdictions, the Federal Reserve, the FDIC, or the Office of the Comptroller of the Currency, shall evaluate the record of each
financial institution in meeting the credit needs of its local community, including low and moderate-income neighborhoods. These facts are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to
adequately meet these criteria could impose additional requirements and limitations on the Bank. Since our aggregate assets are not more than $250 million, under the Gramm-Leach-Bliley Act, we are generally subject to a Community Reinvestment Act
examination only once every 60 months if we receive an outstanding rating, once every 48 months if we receive a satisfactory rating and as needed if our rating is less than satisfactory.Additionally, we
must publicly disclose the terms of various Community Reinvestment Act-related agreements.



Other Regulations. Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. For example, under the Soldiers and
Sailors Civil Relief Act of 1940, a lender is generally prohibited from charging an annual interest rate in excess of 6% on any obligation for which the borrower is a person on active duty with the United States military.



The Banks loan operations are subject to federal laws applicable to
credit transactions, such as the:



| |  |  | federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution
is fulfilling its obligation to help meet the housing needs of the community it serves;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Soldiers and Sailors Civil Relief Act of 1940, governing the repayment terms of, and property rights underlying, secured obligations of persons in military service; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



The deposit operations of the Bank are subject to:



| |  |  | The Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative
subpoenas of financial records; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and
customers rights and liabilities arising from the use of automated teller machines and other electronic banking services.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Capital Adequacy



The Company and the Bank are required to comply with the capital adequacy standards established by the Federal Reserve, in the case of the Company, and
the Office of the Comptroller of the Currency, in the case of the Bank. The Federal Reserve has established a risk-based and a leverage measure of capital adequacy for bank holding companies. Since the Companys consolidated total assets are
less than $150 million, under the Federal Reserves capital guidelines, our capital adequacy is measured on a bank-only basis, as opposed to a consolidated basis. The Bank



9



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is also subject to risk-based and leverage capital requirements adopted by the Office of the Comptroller of the Currency, which are substantially similar to
those adopted by the Federal Reserve for bank holding companies.



The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items, such as letters of credit and unfunded loan commitments, are assigned to broad risk categories, each with appropriate risk weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance-sheet items.



The minimum guideline for the ratio of total capital to risk-weighted assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier 2 Capital. Tier 1 Capital generally consists of common stock,
minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock, and a limited amount of qualifying cumulative perpetual preferred stock, less goodwill and other specified intangible assets. Tier 1
Capital must equal at least 4% of risk-weighted assets. Tier 2 Capital generally consists of subordinated debt, other preferred stock, and a limited amount of loan loss reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1
Capital. At December 31, 2004, the consolidated ratio of total capital to risk-weighted assets was 25.9% and the consolidated ratio of Tier 1 Capital to risk-weighted assets was 24.9%.



In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and other specified intangible assets, of 3% for bank holding companies that meet specified criteria, including having the highest regulatory rating and
implementing the Federal Reserves risk-based capital measure for market risk. All other bank holding companies generally are required to maintain a leverage ratio of at least 4%. At December 31, 2004, the consolidated leverage ratio was 17.9%.
The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without reliance on intangible
assets. The Federal Reserve considers the leverage ratio and other indicators of capital strength in evaluating proposals for expansion or new activities.



Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business. As described above, significant additional restrictions can be imposed on FDIC-insured
depository institutions that fail to meet applicable capital requirements.



Payment of Dividends



The Company is a legal entity separate and distinct from the Bank. The principal sources of the Companys cash flow, including cash flow to pay dividends to its shareholders, are dividends that the Bank pays to its sole shareholder,
the Company. Statutory and regulatory limitations apply to the Banks payment of dividends to the Company as well as to the Companys payment of dividends to its shareholders.



The Bank is required by federal law to obtain prior approval of the Office of the Comptroller of the Currency for payments
of dividends if the total of all dividends declared by our board of directors in any year will exceed (1) the total of the Banks net profits for that year, plus (2) the Banks retained net profits of the preceding two years, less any
required transfers to surplus.



The payment of dividends by the
Company and the Bank may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. If, in the opinion of the Office of the Comptroller of the Currency, the Bank were engaged in or about to
engage in an unsafe or unsound practice, the Office of the Comptroller of the Currency could require, after notice and a hearing, that the Bank stop or refrain engaging in the practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institutions capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay
any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.



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##### Table of Contents

Restrictions on Transactions with Affiliates



The Company and the Bank are subject to the provisions of Section 23A of the
Federal Reserve Act. Section 23A places limits on the amount of:



| |  |  | a banks loans or extensions of credit to affiliates;
| | - |  | -----------------------------------------------------



| |  |  | a banks investment in affiliates;
| | - |  | ----------------------------------



| |  |  | assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | a banks guarantee, acceptance or letter of credit issued on behalf of an affiliate.
| | - |  | ------------------------------------------------------------------------------------



The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a banks capital
and surplus and, as to all affiliates combined, to 20% of a banks capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements. The Bank
must also comply with other provisions designed to avoid the taking of low-quality assets.



The Company and the Bank are also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibit an institution from engaging in the above transactions with affiliates unless
the transactions are on terms substantially the same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.



The Bank is also subject to restrictions on extensions of credit to its
executive officers, directors, principal shareholders and their related interests. These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable
transactions with third parties, and (2) must not involve more than the normal risk of repayment or present other unfavorable features.



Privacy



Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent
financial institutions from sharing nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of transactions requested by the consumer or when the financial institution is
jointly sponsoring a product or service with a nonaffiliated third party. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or
other marketing to consumers.



Consumer
Credit Reporting



On December 4, 2003, the President
signed the Fair and Accurate Credit Transactions Act (the FAIR Act), amending the federal Fair Credit Reporting Act (the FCRA). Certain amendments to the FCRA (the FCRA Amendments) became effective during the fourth quarter of 2004.



The FCRA Amendments include, among other things:



| |  |  | new requirements for financial institutions to develop policies and procedures to identify potential identity theft and, upon the request of a consumer, place a fraud alert in the
consumers credit file stating that the consumer may be the victim of identity theft or other fraud;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | for entities that furnish information to consumer reporting agencies (which would include the Bank), new requirements to implement procedures and policies regarding the accuracy and
integrity of the furnished information, and regarding the correction of previously furnished information that is later determined to be inaccurate; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a requirement for mortgage lenders to disclose credit scores to consumers.
| | - |  | --------------------------------------------------------------------------



The FCRA Amendments also will prohibit a business that receives consumer information from an affiliate from using that information for marketing purposes
unless the consumer is first provided a notice and an opportunity to direct the business not to use the information for such marketing purposes (the opt-out), subject to certain exceptions. We do not plan to share consumer information
among our affiliated companies for marketing purposes, except as may be allowed under exceptions to the notice and opt-out requirements. Because no affiliate of the Company is currently sharing consumer information with any other affiliate of the
Company for marketing purposes, the new limitations on sharing of information for marketing purposes will not have a significant impact on the Company.



11



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##### Table of Contents

Anti-Terrorism and Money Laundering Legislation



The Bank is subject to the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT), the Bank Secrecy Act, and rules and regulations of the Office of Foreign Assets Control (OFAC). These statures, rules and regulations impose requirements and
limitations on specified financial transactions and account relationships, intended to guard against money laundering and terrorism financing. The Bank has established a customer identification program under Section 326 of the USA PATRIOT Act and
the Bank Secrecy Act and has otherwise implemented procedures and policies to comply with those rules.



Proposed Legislation and Regulatory Action



New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures,
regulations and competitive relationships of financial institutions operating and doing business in the United States. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business
may be affected by any new regulation or statute.



Effect of Governmental Monetary Policies



Our
earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve Banks monetary policies have had, and are likely to continue to have, an important
impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve affect the levels of bank
loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are
subject. We cannot predict the nature or impact of future changes in monetary and fiscal policies.



|ITEM 2. | DESCRIPTION OF PROPERTIES
|------- | -------------------------



Banking operations began in the second quarter of 2003 at a temporary modular facility that was located on the site for our permanent office building,
located at 11407 Windsor Blvd., Windsor, Virginia. We leased the modular facility at a monthly rate of approximately $4,500 until the completion of the construction of our permanent facility. Construction of our permanent office building, with
approximately 7,000 square feet of finished office space with space for expansion, began in August, 2003 and was completed in March, 2004, at which time we began operations in the permanent office building.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------



None.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------



No matter was submitted to a vote of holders of the Companys securities during the fourth quarter of the fiscal year covered by this Report.



PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
|------- | ---------------------------------------------------------------------



In December 2002, the Company completed its initial public offering of its common stock. This offering was registered under
the Securities Act of 1933, and raised $5.4 million in net proceeds through the sale of 561,137 shares of common stock. Out of the net proceeds of the offering, $5.25 million was used to capitalize the Bank in exchange for 100% of its outstanding
common stock as required by the Banks primary regulator. No unregistered securities of the Company were sold or issued during the period covered by this Report.



There is currently no public trading market for the Companys common stock. To the Companys knowledge, the last
price at which our stock was sold was $12.50 per share on February 17, 2005. As of December 31, 2004, we had approximately 947 shareholders of record.



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To date, the Company has not paid cash dividends on its common stock. The Companys board of
directors currently intends to retain earnings to support future operations and therefore do not anticipate paying cash dividends in the foreseeable future. All of the Companys outstanding shares of common stock are entitled to share equally
in dividends from funds legally available when, and if, declared by the board of directors.



|ITEM 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
|------- | ----------------------------------------------------------



The following discussion provides information about the major components of the results of operations and financial condition, liquidity, and capital
resources of CNB. This discussion and analysis should be read in conjunction with the Companys Consolidated Financial Statements and Notes to Consolidated Financial Statements.



Overview



The Company is headquartered in Windsor, Virginia and conducts its primary operations through its wholly owned subsidiary, Citizens National Bank. The
Bank is a community bank serving the County of Isle of Wight, the Cities of Franklin and Suffolk, and portions of Southampton, Surry and Sussex Counties with one full service branch.



Like most financial institutions, our profitability depends largely upon net interest income, which is the difference
between the interest received on earning assets, such as loans and investment securities, and the interest paid on interest-bearing liabilities, principally deposits and borrowings. Our results of operations are also affected by our provision for
loan losses; non-interest expenses, such as salaries, employee benefits, and occupancy expenses; and non-interest income, such as mortgage loan fees and service charges on deposit accounts.



Economic conditions, competition and federal monetary and fiscal policies
also affect financial institutions. For example, 2004 was characterized by managed increases in interest rates by the Federal Reserve intended to stabilize the economy and stimulate industrial economic growth. Lending activities are also influenced
by regional and local economic factors, such as housing supply and demand, competition among lenders, customer preferences and levels of personal income and savings in our primary market area.



The Company began operations on April 29, 2003. As of December 31, 2004,
total assets were $21.4 million, consisting primarily of securities of $6.0 million, loans, net of allowance for loan losses, of $12.8 million and premises and equipment of $1.7 million. Comparatively, at December 31, 2003, total assets were $13.5
million, which consisted primarily of securities of $6.3 million, loans, net of allowance for loan losses, of $5.5 million and premises and equipment of $1.3 million. At December 31, 2004, total deposits were $17.6 million compared to total deposits
at December 31, 2003 of $9.0 million. Interest bearing deposits at December 31, 2004 and 2003 were $15.6 million and $7.9 million, respectively. For the year ended December 31, 2004, the Company had a net operating loss of $651,000 compared to a net
operating loss of $592,000 for the period from April 29, 2003 to December 31, 2003.



Critical Accounting Policies



The financial
condition and results of operations presented in the consolidated financial statements, accompanying notes to the consolidated financial statements and managements discussion and analysis are, to a large degree, dependent upon the accounting
policies of the Company. The selection and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change.



Presented below is a discussion of those accounting policies that management believes are the most important to the
portrayal and understanding of the Companys financial condition and results of operations. These critical accounting policies require managements most difficult, subjective and complex judgments about matters that are inherently
uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.



Allowance for Loan Losses



The Company monitors and maintains an allowance for loan losses to absorb an
estimate of probable losses inherent in the loan portfolio. The Company maintains policies and procedures that address the systems of controls over the following areas of maintenance in the allowance: the systematic methodology used to determine the
appropriate level of the allowance to provide assurance they are maintained in accordance with accounting principles generally



13



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accepted in the United States of America; the accounting policies for loan charge-offs and recoveries; the assessment and measurement of impairment in the
loan portfolio; and the loan grading system.



The Company
evaluates various loans individually for impairments required by SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan  Income Recognition and Disclosures. Loans
evaluated individually for impairment include non-performing loans, such as loans on non-accrual, loans past due by 90 days or more, restructured loans and other loans selected by management. The evaluations are based upon discounted expected cash
flows or collateral valuations. If the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of impairment.



For loans without individual measures of impairment, the Company makes estimates of losses for groups of loans as required
by SFAS No. 5, Accounting for Contingencies. Loans are grouped by similar characteristics, including the type of loan, the assigned loan grade and general collateral type. A loss rate reflecting the expected loss inherent in a group of loans is
derived based upon estimates of default rates for a given loan grade, the predominant collateral type for the group and the terms of the loan. The resulting estimate of losses for groups of loans are adjusted for relevant economic factors and other
conditions of the portfolio of loans and leases, including: borrower and industry concentrations; levels and trends in delinquencies, charge-offs and recoveries; changes in underwriting standards and risk selection; level of experience, ability and
depth of lending management; and national and local economic conditions.



The amount of estimated impairment for individually evaluated loans and groups of loans is added together for a total estimate of loans losses. This estimate of losses is compared to the allowance for loans losses of
the Company as of the evaluation date and, if the estimate of losses is greater than the allowance, an additional provision to the allowance would be made. If the estimate of losses is less than the allowance, the degree to which the allowance
exceeds the estimate is evaluated to determine whether the allowance falls outside a range of estimates. If the estimate of losses is below the range of reasonable estimates, the allowance would be reduced by way of a credit to the provision for
loan losses. The Company recognizes the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used, and therefore a reasonable range around the estimate of losses is derived and used to
ascertain whether the allowance is too high. If different assumptions or conditions were to prevail and it is determined that the allowance is not adequate to absorb the new estimate of probable losses, an additional provision for loan losses would
be made, which amount may be material to the Consolidated Financial Statements.



Accounting for Income Taxes



Deferred taxes
are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.



The Company has recorded a 100% deferred tax valuation allowance related to various temporary differences, principally
consisting of the provision for loan losses and its net operating loss carryforwards. Since the Company has only been in operation since April 29, 2003 and has not shown a profit since opening, it is managements opinion that it is prudent at
this time to only recognize the deferred tax asset to the extent that income tax benefits are realized. The Company has determined that since it does not have a proven earnings record, that it is more likely than not that some portion of the
deferred tax asset may not be realized.



Results of Operations



Net Income(Loss)



It is normal for new banks to experience operating losses in their formative
years through start up and operating expenses. For the year ended December 31, 2004, the Companys net loss from operations was $651,000, a ($1.16) loss per basic and diluted share. Eight months of operations resulted in net loss from operating
activities of $592,000 for the period ended December 31, 2003. This created a loss per basic and diluted share of ($1.06). Return on average assets (ROA) measures how effectively CNB employs its assets to produce net income. For the year ended
December 31, 2004, ROA was (3.43%). For the period from inception to December 31, 2003, ROA was (5.85%). Return on average equity (ROE), another measure of earnings performance, indicates the amount of net income earned in relation to the total
equity capital invested. ROE for the year ended December 31, 2004 was (16.13%) compared with (12.78%) for the eight month period ended December 31, 2003. Average equity to average assets was 21.28% and 45.80% at December 31, 2004 and 2003,
respectively.



14



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TABLE 1: Average Balances,
Interest Income and Expense, Yields and Rates



The following
table shows the average balance sheet for the year ended December 31, 2004 and the period ended December 31, 2003. In addition, the amount of interest earned on earning assets, with related yields and interest on interest bearing liabilities,
together with rates, is shown.



|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|------------------------------------------ |  | -------------- | ------ | - | ---------------------- | - | ---------- |  | ---- | -------------- |  | - | ---------------------- | - | -------------- | - | --- |  | ---- | -
|                                           |  | 2004           |        |   | 2003                   |  
|(Dollars in thousands)                     |  | AVERAGEBALANCE |        |   | INTERESTINCOME/EXPENSE |   | YIELD/RATE |  |      | AVERAGEBALANCE |  |   | INTERESTINCOME/EXPENSE |   | YIELD/RATE (1) |  
|Assets:                                    |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Securities, taxable                        |  | $              | 5,249  |   |                        | $ | 145        |  | 2.76 | %              |  | $ | 2,803                  |   |                | $ | 50  |  | 2.64 | %
|Loans                                      |  |                | 9,047  |   |                        |   | 606        |  | 6.70 | %              |  |   | 2,845                  |   |                |   | 123 |  | 6.39 | %
|Federal funds sold                         |  |                | 2,565  |   |                        |   | 27         |  | 1.05 | %              |  |   | 3,472                  |   |                |   | 24  |  | 1.02 | %
|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Total earnings assets                      |  |                | 16,861 |   |                        | $ | 778        |  | 4.61 | %              |  |   | 9,120                  |   |                | $ | 197 |  | 3.19 | %
|Less: Allowance for loan losses            |  |                | (91    | ) |                        |   |            |  |      |                |  |   | (19                    | ) |                |   |     |  |      |  
|Total non-earning assets                   |  |                | 2,200  |   |                        |   |            |  |      |                |  |   | 1,018                  |   |                |   |     |  |      |  
|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Total Assets                               |  | $              | 18,970 |   |                        |   |            |  |      |                |  | $ | 10,119                 |   |                |   |     |  |      |  
|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|                                           |  |                |        |   |                        |  
|Liabilities and shareholders equity:      |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Interest bearing deposits:                 |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Checking                                   |  | $              | 743    |   |                        | $ | 7          |  | 0.94 | %              |  | $ | 335$                   |   |                | $ | 2   |  | 0.88 | %
|Money market savings                       |  |                | 1,156  |   |                        |   | 16         |  | 1.38 | %              |  |   | 530                    |   |                |   | 4   |  | 1.12 | %
|Regular savings                            |  |                | 1,066  |   |                        |   | 12         |  | 1.13 | %              |  |   | 356                    |   |                |   | 3   |  | 1.25 | %
|Time Deposits:                             |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|$100,000 and over                          |  |                | 2,756  |   |                        |   | 84         |  | 3.05 | %              |  |   | 1,029                  |   |                |   | 21  |  | 3.02 | %
|Under $100,000                             |  |                | 7,302  |   |                        |   | 199        |  | 2.73 | %              |  |   | 2,389                  |   |                |   | 44  |  | 2.72 | %
|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Total interest bearing deposits            |  |                | 13,023 |   |                        | $ | 318        |  | 2.44 | %              |  |   | 4,639                  |   |                | $ | 74  |  | 2.36 | %
|Non-interest bearing liabilities:          |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Demand deposits                            |  |                | 1,840  |   |                        |   |            |  |      |                |  |   | 831                    |   |                |   |     |  |      |  
|Other liabilities                          |  |                | 70     |   |                        |   |            |  |      |                |  |   | 15                     |   |                |   |     |  |      |  
|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Total liabilities                          |  |                | 14,933 |   |                        |   |            |  |      |                |  |   | 5,485                  |   |                |   |     |  |      |  
|Shareholders equity                       |  |                | 4,037  |   |                        |   |            |  |      |                |  |   | 4,634                  |   |                |   |     |  |      |  
|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Total Liabilities and Shareholders equity |  | $              | 18,970 |   |                        |   |            |  |      |                |  | $ | 10,119                 |   |                |   |     |  |      |  
|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Net interest income                        |  |                |        |   |                        | $ | 460        |  |      |                |  |   |                        |   |                | $ | 123 |  |      |  
|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Interest rate spread                       |  |                |        |   |                        |   |            |  | 2.17 | %              |  |   |                        |   |                |   |     |  | 0.83 | %
|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Interest expense to average earning assets |  |                |        |   |                        |   |            |  | 1.89 | %              |  |   |                        |   |                |   |     |  | 1.20 | %
|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  
|Net interest margin                        |  |                |        |   |                        |   |            |  | 2.73 | %              |  |   |                        |   |                |   |     |  | 1.99 | %
|                                           |  |                |        |   |                        |   |            |  |      |                |  |   |                        |   |                |   |     |  |      |  



|(1) | The yields/rates have been computed and annualized based upon the commencement of operations on April 29, 2003.
|--- | ---------------------------------------------------------------------------------------------------------------



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The following table describes the impact on the interest income resulting from changes in average
balances and average rates for the periods indicated. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in
each.



TABLE 2: Rate and Volume Analysis



|                                |  |                          |      |                |        |    |  |   |    
|------------------------------- |  | ------------------------ | ---- | -------------- | ------ | -- |  | - | ---
|                                |  | Years ended December 31,
|                                |  | 2004 compared to 2003   
|                                |  | Increase(Decrease)       |      | Change Due To:
|                                |  |                          | Rate |                | Volume
|Interest income:                |  |                          |      |                |        |    |  |   |    
|Securities                      |  | $                        | 95   |                | $      | 5  |  | $ | 90 
|Loans                           |  |                          | 483  |                |        | 10 |  |   | 473
|Federal funds sold              |  |                          | 4    |                |        | 0  |  |   | 4  
|                                |  |                          |      |                |        |    |  |   |    
|Total interest income           |  |                          | 582  |                |        | 15 |  |   | 567
|                                |  |                          |      |                |        |    |  |   |    
|Interest expense:               |  |                          |      |                |        |    |  |   |    
|Interest bearing deposits:      |  |                          |      |                |        |    |  |   |    
|Checking                        |  |                          | 5    |                |        | 0  |  |   | 5  
|Money market savings            |  |                          | 12   |                |        | 2  |  |   | 10 
|Regular savings                 |  |                          | 10   |                |        | 0  |  |   | 10 
|Time Deposits:                  |  |                          |      |                |        |    |  |   |    
|$100,000 and over               |  |                          | 63   |                |        | 0  |  |   | 63 
|Under $ 100,000                 |  |                          | 155  |                |        | 0  |  |   | 155
|                                |  |                          |      |                |        |    |  |   |    
|Total interest bearing deposits |  |                          | 245  |                |        | 2  |  |   | 243
|                                |  |                          |      |                |        |    |  |   |    
|Net interest income             |  | $                        | 337  |                | $      | 13 |  | $ | 324
|                                |  |                          |      |                |        |    |  |   |    



Net Interest Income



Net interest income, CNBs primary source of consolidated earnings,
is the amount by which interest generated from earning assets exceeds the expense of funding those assets. Changes in volume and mix of interest earning assets and interest bearing liabilities, as well as their respective yields and rates, have a
significant impact on the level of net interest income. As the Bank did not begin its operations until April 29, 2003, it has had limited operations from which to generate revenues. Other factors affecting net interest income included paying higher
interest rates to attract depositors and extending credit with lower interest rates to attract borrowers. For the period from April 29, 2003 to December 31, 2003, interest income and interest expense were $197,000 and $69,000, respectively. For the
year ended December 31, 2004, interest income was $778,000, a $581,000, or 294.9%, increase over the interest income of $197,000 for the period ended December 31, 2003. Interest expense for the year ended December 31, 2004 was $318,000. The increase
in interest revenues and expenses were directly related to growth in loans and deposits and interest rate increases.



Non-Interest Income



Non-interest income has been and will continue to be an important factor for increasing profitability. Management recognizes this importance and continues
to review and consider areas where non-interest income can be increased. Non-interest income for the year ended December 31, 2004 was $150,000, compared to $28,000 for the period ended December 31, 2003. Fees generated from non-sufficient
fund/overdraft accounts represented $16,000 of income in other fees and commissions for the period ended December 31, 2003. During the fourth quarter of 2003, the Bank began brokering fixed rate mortgages, which provided $2,000 of other operating
income. Main sources of non-interest income for the year ended December 31, 2004 were $80,000 from non-sufficient fund/overdraft accounts, $22,000 from fixed rate mortgage brokerage fees, $14,000 from shares owned in a local title insurance agency,
and $12,000 from debit card and ATM activity.



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TABLE 3: Non-Interest Income



|                                    |  |                            |     |                              |   |   
|----------------------------------- |  | -------------------------- | --- | ---------------------------- | - | --
|(Dollars in thousands)              |  | Year EndedDecember 31,2004 |     | Period EndedDecember 31,2003
|Service charges on deposit accounts |  | $                          | 11  |                              | $ | 2 
|Other fees and commissions          |  |                            | 86  |                              |   | 17
|Other operating income              |  |                            | 53  |                              |   | 9 
|                                    |  |                            |     |                              |   |   
|Total non-interest income           |  | $                          | 150 |                              | $ | 28
|                                    |  |                            |     |                              |   |   



Non-Interest Expense



Improving operating efficiency is as important to
management as enhancing non-interest income. Higher non-interest expenses are expected during the first years of operation. Non-interest expenses shown below for the period ended December 31, 2003 were incurred during eight months of operation. For
2004 to 2003 comparative relevance, the amounts shown for the period ended December 31, 2003 must be annualized. Major components of other operating expenses for the year ended December 31, 2004 are ATM expense  $25,000, insurance 
$20,000, and regulatory assessments  $18,000. For the period ended December 31, 2003, major components of other operating expenses were training  $18,000 and supplies and stationary  $21,000.



TABLE 4: Non-Interest Expense



|                           |  |                             |       |                              |   |    
|-------------------------- |  | --------------------------- | ----- | ---------------------------- | - | ---
|(Dollars in thousands)     |  | Year EndedDecember 31, 2004 |       | Period EndedDecember 31,2003
|Personnel                  |  | $                           | 576   |                              | $ | 351
|Occupancy and equipment    |  |                             | 130   |                              |   | 87 
|Professional fees          |  |                             | 147   |                              |   | 49 
|Advertising                |  |                             | 33    |                              |   | 29 
|Computer services          |  |                             | 98    |                              |   | 51 
|Other operating expenses   |  |                             | 182   |                              |   | 125
|                           |  |                             |       |                              |   |    
|Total non-interest expense |  | $                           | 1,166 |                              | $ | 692
|                           |  |                             |       |                              |   |    



Summary of Loan Loss Experience



The allowance for loan losses is an estimate of the
amount that will be adequate to provide for potential losses in CNBs loan portfolio. Managements methodology in evaluating the adequacy of the allowance for loan losses considers potential specific losses, as well as the volume, growth
and composition of the loan portfolio. Once past loan loss experience has been established, it will also be included in the evaluation. General economic trends as well as any conditions affecting individual borrowers may also affect the level of
loan losses. The allowance is periodically examined by bank regulators for adequacy. Examiners take into account factors such as the methodology used to calculate the allowance and the size of allowance in comparison to peer financial institutions.



CNBs Loan Committee and Board of Directors review
problem loans monthly, including their effect on the allowance for loan losses. In managements opinion, the allowance for loan losses is adequate to absorb the current estimated risk of loss in the loan portfolio. CNBs management
continually evaluates the adequacy of the allowance for loan losses, and changes in the provision are based on the analyzed inherent risk of the loan portfolio. The allowance is increased by the provision for loan losses and reduced by loans charged
off, net of recoveries. The following table summarizes loans charged off, recoveries of loans previously charged off and additions to the reserve that have been charged to operating expense for the periods indicated. We have no lease financing or
foreign loans.



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TABLE 5: Allowance for Loan Losses



|                                           |  |                            |     |                              |   |   
|------------------------------------------ |  | -------------------------- | --- | ---------------------------- | - | --
|(Dollars in thousands)                     |  | Year EndedDecember 31,2004 |     | Period EndedDecember 31,2003
|Allowance, beginning of period             |  | $                          | 56  |                              | $ |  
|Provision for loan losses                  |  |                            | 95  |                              |   | 56
|                                           |  |                            |     |                              |   |   
|Total provision for loan losses            |  |                            | 151 |                              |   | 56
|Loans charged off                          |  |                            |    |                              |   |  
|Recoveries of loans previously charged off |  |                            |    |                              |   |  
|                                           |  |                            |     |                              |   |   
|Allowance, end of period                   |  | $                          | 151 |                              | $ | 56
|                                           |  |                            |     |                              |   |   



The allocation of the
allowance at December 31, 2004 and 2003 and the ratio of related outstanding loan balances to total loans are as follows:



TABLE 6: Allocation of Allowance for Loan Losses



|                          |  |                          |     |                                           |        |   |                          |   |                                           |  |        |  
|------------------------- |  | ------------------------ | --- | ----------------------------------------- | ------ | - | ------------------------ | - | ----------------------------------------- |  | ------ | -
|                          |  | 2004                     |     |                                           | 2003   |  
|(Dollars in thousands)    |  | Allowance forLoan Losses |     | Percent of Loansin Category toTotal Loans |        |   | Allowance forLoan Losses |   | Percent of Loansin Category toTotal Loans | 
|Commercial and industrial |  | $                        | 16  |                                           | 16.95  | % |                          | $ | 11                                        |  | 30.89  | %
|Real estate commercial    |  |                          | 41  |                                           | 32.32  |   |                          |   | 11                                        |  | 29.31  |  
|Real estate consumer      |  |                          | 21  |                                           | 31.42  |   |                          |   | 5                                         |  | 19.87  |  
|Consumer installment      |  |                          | 34  |                                           | 19.31  |   |                          |   | 9                                         |  | 19.93  |  
|Unallocated               |  |                          | 39  |                                           | N/A    |   |                          |   | 20                                        |  | N/A    |  
|                          |  |                          |     |                                           |        |   |                          |   |                                           |  |        |  
|Balance, December 31      |  | $                        | 151 |                                           | 100.00 | % |                          | $ | 56                                        |  | 100.00 | %
|                          |  |                          |     |                                           |        |   |                          |   |                                           |  |        |  



Financial Condition



Summary



A financial institutions primary sources of revenue are generated by its earning assets, while its major expenses are
produced by the funding of those assets with interest-bearing liabilities. Effective management of these sources and uses of funds is essential in attaining profitability while maintaining an acceptable level of risk. At December 31, 2004, the
Company had $21.4 million in total assets. Interest-earning assets were $19.2 million and interest-bearing liabilities were $15.6 million. At December 31, 2003, the Company had $13.5 million in total assets. Interest-earning assets and
interest-bearing liabilities were $12.0 million and $7.9 million, respectively.



Loan Portfolio



CNBs loan portfolio is
its largest and most profitable component of earning assets, totaling 67.6% of interest-earning assets at December 31, 2004 and 46.4% at December 31, 2003. The Company, through the bank, engages in a wide range of lending activities, which include
one-to-four family and multi-family residential mortgage loans, commercial real estate loans, construction loans, land acquisition and development loans, consumer loans, and commercial business loans. CNB continues to emphasize loan portfolio growth
and diversification as a means of increasing earnings while minimizing credit risk.



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TABLE 7: Loan Portfolio



|                              |  |              |        |      |   |      
|----------------------------- |  | ------------ | ------ | ---- | - | -----
|                              |  | December 31,
|(Dollars in thousands)        |  | 2004         |        | 2003
|Commercial and industrial     |  | $            | 1,991  |      | $ | 1,721
|Real estate construction      |  |              | 886    |      |   | 109  
|Real estate mortgage:         |  |              |        |      |   |      
|Residential (1-4 family)      |  |              | 2,767  |      |   | 809  
|Home equity lines             |  |              | 418    |      |   | 189  
|Non-farm, non-residential (1) |  |              | 4,187  |      |   | 1,630
|Agricultural                  |  |              | 205    |      |   | 3    
|Consumer installment          |  |              | 2,501  |      |   | 1,111
|                              |  |              |        |      |   |      
|Total loans                   |  | $            | 12,955 |      | $ | 5,572
|                              |  |              |        |      |   |      



|(1) | This category generally consists of commercial and industrial loans where real estate constitutes a source of collateral.
|--- | -------------------------------------------------------------------------------------------------------------------------



Non-farm, non-residential loans are typically owner-occupied commercial
buildings. At December 31, 2004, non-farm, non-residential loans were 32.3% of the total portfolio, compared to 29.3% at December 31, 2003. Commercial, industrial and agricultural loan portfolio consists of secured and unsecured loans to small
businesses, comprising 17.0% and 30.9% of the total portfolio at December 31, 2004 and 2003, respectively.



CNBs unfunded loan commitments totaled $2.1 million at December 31, 2004 and $909,000 at December 31, 2003.



The following table reflects the maturity distribution of selected loan
categories at December 31, 2004.



TABLE 8: Remaining Maturities
of Selected Loan Categories



|                       |  |                                       |       |                           |   |    
|---------------------- |  | ------------------------------------- | ----- | ------------------------- | - | ---
|(Dollars in thousands) |  | Commercial andIndustrial,Agricultural |       | Real Estate -Construction
|Variable Rate:         |  |                                       |       |                           |   |    
|Within 1 year          |  | $                                     | 1,578 |                           | $ | 732
|1 to 5 years           |  |                                       | 5     |                           |   |   
|After 5 years          |  |                                       |      |                           |   |   
|Fixed Rate:            |  |                                       |       |                           |   |    
|Within 1 year          |  |                                       | 194   |                           |   | 116
|1 to 5 years           |  |                                       | 415   |                           |   | 38 
|After 5 years          |  |                                       | 4     |                           |   |   
|                       |  |                                       |       |                           |   |    
|Total Maturities       |  | $                                     | 2,196 |                           | $ | 886
|                       |  |                                       |       |                           |   |    



Loans are placed on
non-accrual status when collection of principal and interest is doubtful, generally when a loan becomes 90 days past due. There are three negative implications for earnings when a loan is placed on non-accrual status. First, all interest accrued but
unpaid at the date that the loan is placed on non-accrual status is either deducted from interest income or written off as a loss. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid.
Finally, there may be actual losses that may require that additional provision for loan losses be charged against earnings. For real estate loans, upon foreclosure, the balance of the loan is transferred to Other Real Estate Owned (OREO)
and carried at the lower of the outstanding loan balance or the fair market value of the property based on current appraisals and other current market trends. If a write down of the OREO property is necessary at the time of foreclosure, the amount
is charged-off against the allowance for loan losses. A review of the recorded property value is performed in conjunction with normal loan reviews, and if market conditions indicate that the recorded value exceeds the fair market value, additional
write downs of the property value are charged directly to operations.



Nonperforming assets consist of non-accrual loans, loans restructured due to debtors financial difficulties, loans past due 90 days or more as to interest or principal and still accruing, and other real estate owned, which is real



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estate acquired through foreclosure and repossession. Non-accrual loans are those loans on which recognition of interest income has been discontinued.
Restructured loans generally allow for an extension of the original repayment period or a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. Loans, whether secured or unsecured, are
generally placed on non-accrual status when principal and/or interest is 90 days or more past due, or sooner if it is known or expected that the collection of all principal and/or interest is unlikely. Any loan past due 90 days or more, if not
classified as non-accrual based on a determination of collectibility, is classified as a past-due loan. Other real estate owned is initially recorded at the lower of cost or estimated market value at the date of acquisition. A provision for
estimated losses is recorded when a subsequent decline in value occurs.



At December 31, 2004, the Company had nonperforming assets in the form of one non-accrual loan of $46,000. The Company did not have any other loans classified for regulatory purposes as loss or doubtful, delinquent loans of 90 days or more,
or other real estate owned. At December 31, 2003, the Company did not have any nonperforming assets, loans classified for regulatory purposes as loss or doubtful, delinquent loans, or other real estate owned. There were no other loans classified for
regulatory purposes as substandard or special mention which (i) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources, or (ii) represent
material credits about which any information causes management to have serious doubts as to the ability of the borrowers to comply with the loan repayment terms. We have no loans in our portfolio to borrowers in foreign countries.



Loan concentrations exist when large amounts of money are loaned to multiple
borrowers who would be similarly impacted by economic or other conditions. The loan portfolio is concentrated in various commercial, real estate and consumer loans to individuals and entities located in our primary service area. Accordingly, the
ultimate collectibility of the loans is largely dependent upon economic conditions of our primary service area. Other than our geographic concentrations due to our physical location and the loan type concentrations as shown in the above table, we
have no other concentrations of loans that exceed 10% of our total loan portfolio as of December 31, 2004.



We have no other interest-bearing assets that would be required to be disclosed as nonperforming assets if they were loans.



Securities Portfolio



The investment portfolio plays a primary role in the management of interest rate sensitivity of the Company and generates
substantial interest income. In addition, the portfolio serves as a source of liquidity. Table 9 presents information pertaining to the composition of the securities portfolio. CNB manages its investment portfolio consistent with established
policies that include guidelines for maturity distribution, rate sensitivity, and liquidity needs. The investment portfolio consists of securities available for sale, which may be sold in response to established policies. These securities are
carried at estimated fair value, which was $6.0 million at December 31, 2004.



TABLE 9: Securities Available for Sale, Maturity Distribution and Average Yields



|                                                |  |               |       |           |   |                      |  |      |  
|----------------------------------------------- |  | ------------- | ----- | --------- | - | -------------------- |  | ---- | -
|(Dollars in thousands)                          |  | AmortizedCost |       | FairValue |   | WeightedAverageYield | 
|U.S. government agencies and corporations:      |  |               |       |           |   |                      |  |      |  
|Maturing within 1 year                          |  | $             | 600   |           | $ | 596                  |  | 2.10 | %
|Maturing within 1 to 5 years                    |  |               | 5,250 |           |   | 5,184                |  | 2.74 |  
|Maturing after 5 years                          |  |               |      |           |   |                     |  |     |  
|                                                |  |               |       |           |   |                      |  |      |  
|Total U.S. government agencies and corporations |  |               | 5,850 |           |   | 5,780                |  | 2.67 |  
|                                                |  |               |       |           |   |                      |  |      |  
|Other securities, restricted:                   |  |               |       |           |   |                      |  |      |  
|Maturing within 1 year                          |  |               |      |           |   |                     |  |     |  
|Maturing within 1 to 5 years                    |  |               |      |           |   |                     |  |     |  
|Maturing after 5 years                          |  |               | 176   |           |   | 176                  |  | 5.82 |  
|                                                |  |               |       |           |   |                      |  |      |  
|Total other securities, restricted              |  |               | 176   |           |   | 176                  |  | 5.82 |  
|                                                |  |               |       |           |   |                      |  |      |  
|Total securities:                               |  |               |       |           |   |                      |  |      |  
|Maturing within 1 year                          |  |               | 600   |           |   | 596                  |  | 2.10 |  
|Maturing within 1 to 5 years                    |  |               | 5,250 |           |   | 5,184                |  | 2.74 |  
|Maturing after 5 years                          |  |               | 176   |           |   | 176                  |  | 5.82 |  
|                                                |  |               |       |           |   |                      |  |      |  
|Total Maturities                                |  | $             | 6,026 |           | $ | 5,956                |  | 2.76 | %
|                                                |  |               |       |           |   |                      |  |      |  



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Deposits



Deposits are an important funding source and primary supply of CNBs growth. The Companys strategy has been to increase its core deposits at
the same time that it controls its cost of funds. CNBs deposit base is comprised of demand deposits, savings and money market accounts, time deposits and individual retirement accounts. These deposits are provided by individuals and businesses
located within the communities served.



Table 10 presents the
average deposit balances and average rates paid for the periods ended December 31, 2004 and 2003. Table 11 details maturities of certificates of deposit with balances of $100,000 or more at December 31, 2004.



TABLE 10: Average Deposits and Rates Paid



|                                |  |              |        |      |      |   |        |   |       |  |      |  
|------------------------------- |  | ------------ | ------ | ---- | ---- | - | ------ | - | ----- |  | ---- | -
|                                |  | December 31, |       
|                                |  | 2004         |        |      | 2003 |  
|(In thousands)                  |  | Amount       |        | Rate |      |   | Amount |   | Rate  | 
|Non-interest bearing deposits   |  | $            | 1,840  |      |      |   |        | $ | 831   |  |      |  
|Interest bearing accounts:      |  |              |        |      |      |   |        |   |       |  |      |  
|Interest checking               |  |              | 743    |      | 0.94 | % |        |   | 335   |  | 0.88 | %
|Regular savings                 |  |              | 1,066  |      | 1.13 |   |        |   | 356   |  | 1.25 |  
|Money market accounts           |  |              | 1,156  |      | 1.38 |   |        |   | 530   |  | 1.12 |  
|Time deposits:                  |  |              |        |      |      |   |        |   |       |  |      |  
|$ 100,000 and greater           |  |              | 2,756  |      | 3.05 |   |        |   | 1,029 |  | 3.02 |  
|Under $ 100,000                 |  |              | 7,302  |      | 2.73 |   |        |   | 2,389 |  | 2.72 |  
|                                |  |              |        |      |      |   |        |   |       |  |      |  
|Total interest bearing deposits |  |              | 13,023 |      | 2.44 | % |        |   | 4,639 |  | 2.36 | %
|                                |  |              |        |      |      |   |        |   |       |  |      |  
|Total                           |  | $            | 14,863 |      |      |   |        | $ | 5,470 |  |      |  
|                                |  |              |        |      |      |   |        |   |       |  |      |  



TABLE 11: Maturities of
Certificates of Deposits with Balances of $100,000 or More



|                       |  |                   |     |                   |   |                    |  |             |     |       |   |                         |  |   |       |  |       |  
|---------------------- |  | ----------------- | --- | ----------------- | - | ------------------ |  | ----------- | --- | ----- | - | ----------------------- |  | - | ----- |  | ----- | -
|(Dollars in thousands) |  | WithinThreeMonths |     | Three toSixMonths |   | Six toTwelveMonths |  | OverOneYear |     | Total |   | Percentof TotalDeposits | 
|At December 31, 2004   |  | $                 | 112 |                   | $ | 675                |  | $           | 526 |       | $ | 1,643                   |  | $ | 2,956 |  | 16.77 | %



Liquidity and Interest Rate
Sensitivity



Liquidity represents an institutions
ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks,
federal funds sold, short-term investments, securities classified as available for sale as well as loans and securities maturing within one year. As a result of CNBs management of liquid assets and the ability to generate liquidity through
liability funding, management believes CNB maintains overall liquidity sufficient to satisfy its depositors requirements and meet its customers credit needs.



Although maintaining and increasing deposits will serve as the primary source of liquidity, CNB maintains additional sources
of liquidity through a federal funds line with Community Bankers Bank. At December 31, 2004, cash, federal funds sold, securities available for sale, and loans maturing within one year were 34.9% of total deposits and liabilities.



The Companys primary component of market risk is interest rate
volatility. Fluctuations in interest rates will impact both the level of interest income and interest expense and the market value of the Companys interest earning assets and interest bearing liabilities. The primary technique for managing
interest rate risk exposure is management of the interest sensitivity gap. The interest sensitivity gap is defined as the difference between the amount of interest earning assets anticipated to mature or re-price within a specific time period and
the amount of interest bearing liabilities anticipated to mature or re-price within that same time period. During a period of rising interest rates, a positive gap implies that net interest income would be positively affected because the
yield of the Companys interest earning assets is likely to rise more quickly than the cost of its interest bearing liabilities. In a period of falling interest rates, the opposite effect on net income is likely to occur. Table 12 sets forth
the amounts of interest earning assets and interest bearing liabilities outstanding at December 31, 2004.



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TABLE 12: Interest Rate Sensitivity



|                                                                     |  |             |       |   |              |   |        |            |  |   |             |   |  |       |        |   |  |   |       
|-------------------------------------------------------------------- |  | ----------- | ----- | - | ------------ | - | ------ | ---------- |  | - | ----------- | - |  | ----- | ------ | - |  | - | ------
|(Dollars in thousands)                                               |  | 0 - 3Months |       |   | 3 - 12Months |   |        | 1 - 5Years |  |   | Over 5Years |   |  | Total
|Interest Earning Assets                                              |  |             |       |   |              |   |        |            |  |   |             |   |  |       |        |   |  |   |       
|Securities                                                           |  | $           |      |   |              | $ | 596    |            |  | $ | 5,184       |   |  | $     | 176    |   |  | $ | 5,956 
|Loans                                                                |  |             | 5,154 |   |              |   | 1,161  |            |  |   | 6,483       |   |  |       | 157    |   |  |   | 12,955
|Federal funds sold                                                   |  |             | 258   |   |              |   |       |            |  |   |            |   |  |       |       |   |  |   | 258   
|                                                                     |  |             |       |   |              |   |        |            |  |   |             |   |  |       |        |   |  |   |       
|Total                                                                |  | $           | 5,412 |   |              | $ | 1,757  |            |  | $ | 11,667      |   |  | $     | 333    |   |  | $ | 19,169
|Cumulative totals                                                    |  | $           | 5,412 |   |              | $ | 7,169  |            |  | $ | 18,836      |   |  | $     | 19,169 |   |  |   |       
|                                                                     |  |             |       |   |             
|Interest Bearing Liabilities                                         |  |             |       |   |              |   |        |            |  |   |             |   |  |       |        |   |  |   |       
|Interest checking (1)                                                |  | $           | 889   |   |              | $ |       |            |  | $ |            |   |  | $     |       |   |  | $ | 889   
|Savings (1)                                                          |  |             | 1,267 |   |              |   |       |            |  |   |            |   |  |       |       |   |  |   | 1,267 
|Money Market (1)                                                     |  |             | 1,514 |   |              |   |       |            |  |   |            |   |  |       |       |   |  |   | 1,514 
|Time Deposits                                                        |  |             | 796   |   |              |   | 5,057  |            |  |   | 6,037       |   |  |       |       |   |  |   | 11,890
|                                                                     |  |             |       |   |              |   |        |            |  |   |             |   |  |       |        |   |  |   |       
|Total                                                                |  | $           | 4,466 |   |              | $ | 5,057  |            |  | $ | 6,037       |   |  | $     |       |   |  | $ | 15,560
|Cumulative totals                                                    |  | $           | 4,466 |   |              | $ | 9,523  |            |  | $ | 15,560      |   |  | $     | 15,560 |   |  |   |       
|                                                                     |  |             |       |   |              |   |        |            |  |   |             |   |  |       |        |   |  |   |       
|Interest sensitivity gap                                             |  | $           | 946   |   |              | $ | (3,300 | )          |  | $ | 5,630       |   |  | $     | 333    |   |  | $ | 3,609 
|Cumulative interest sensitivity gap                                  |  | $           | 946   |   |              | $ | (2,354 | )          |  | $ | 3,276       |   |  | $     | 3,609  |   |  |   |       
|Cumulative interest sensitivity gap to total interest earning assets |  |             | 4.94  | % |              |   | -12.28 | %          |  |   | 17.09       | % |  |       | 18.83  | % |  |   |       



|(1) | Non-maturity, interest sensitive, deposits are classified as repriceable within 0-3 months, under the assumption that rates are subject to change weekly, at the discretion of
management.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Capital Resources



The assessment of capital adequacy depends on a number of factors such as
asset quality, liquidity, earnings performance, and changing competitive conditions and economic forces. Management reviews the adequacy of capital on an ongoing basis and seeks to maintain a structure that will assure an adequate level of capital
to support anticipated asset growth and to absorb potential losses.



At December 31, 2004, consolidated shareholders equity was $3.7 million or 17.3% of total assets. At December 31, 2003, consolidated shareholders equity was $4.3 million or 32.1% of total assets compared to $5.0 or 97% of total
assets at April 29, 2003 (date of inception). The Companys common stock had a tangible book value of $6.54 per share at December 31, 2004 and $7.74 per share at December 31, 2003.



TABLE 13: Capital Analysis



|                                       |  |              |        |   |      |   |        |  
|-------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                       |  | December 31, |       
|(In thousands)                         |  | 2004         |        |   | 2003 |  
|Tier 1 Capital:                        |  |              |        |   |      |   |        |  
|Common stock                           |  | $            | 6      |   |      | $ | 6      |  
|Capital surplus                        |  |              | 5,439  |   |      |   | 5,401  |  
|Retained earnings (deficit)            |  |              | (1,682 | ) |      |   | (1,031 | )
|                                       |  |              |        |   |      |   |        |  
|Total Tier 1 capital                   |  |              | 3,763  |   |      |   | 4,376  |  
|                                       |  |             
|Tier 2 Capital:                        |  |              |        |   |      |   |        |  
|Allowance for loan losses              |  |              | 151    |   |      |   | 56     |  
|                                       |  |              |        |   |      |   |        |  
|Total risk-based capital               |  | $            | 3,914  |   |      | $ | 4,432  |  
|                                       |  |              |        |   |      |   |        |  
|Risk weighted assets                   |  | $            | 15,110 |   |      | $ | 7,970  |  
|                                       |  |             
|CAPITAL RATIOS:                        |  |              |        |   |      |   |        |  
|Tier 1 risk-based capital ratio        |  |              | 24.90  | % |      |   | 54.91  | %
|Total risk-based capital ratio         |  |              | 25.90  | % |      |   | 55.61  | %
|Tier 1 capital to average total assets |  |              | 17.94  | % |      |   | 35.18  | %



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Off-Balance Sheet Arrangements



We are a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments consist of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are written conditional commitments issued by a bank to guarantee the performance of a customer to a third party. Commitments
generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. Our
exposure to credit loss in the event of non-performance by the other party to the instrument is represented by the contractual notional amount of the instrument.



Because certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. We use the same credit policies in making commitments to extend credit as we do for on-balance-sheet instruments. Collateral held for commitments to extend credit varies but may include accounts receivable,
inventory, property, plant, equipment, and income-producing commercial properties.



Our off-balance-sheet financial instruments whose contract amounts represented credit risk as of December 31, 2004 were unfulfilled loan commitments of $2.1 million. The Company had standby letters of credit as of
December 31, 2004 in the amount of $86,000.



No losses are
anticipated as a result of the foregoing commitments and we do not feel that they are reasonably likely to have a material effect on our consolidated financial condition.



|ITEM 7. | FINANCIAL STATEMENTS
|------- | --------------------



The following financial statements are included in this Item 7:



| |  |  | Consolidated Financial Statements:
| | - |  | ----------------------------------



| | 1. | Consolidated Balance Sheets dated as of December 31, 2004 and 2003.
| | -- | -------------------------------------------------------------------



| | 2. | Consolidated Statements of Operations for periods ended December 31, 2004 and 2003.
| | -- | -----------------------------------------------------------------------------------



| | 3. | Consolidated Statements of Changes in Shareholders Equity for periods ended December 31, 2004 and 2003.
| | -- | --------------------------------------------------------------------------------------------------------



| | 4. | Consolidated Statements of Cash Flows for periods ended December 31, 2004 and 2003.
| | -- | -----------------------------------------------------------------------------------



| | 5. | Notes to Consolidated Financial Statements.
| | -- | -------------------------------------------



| |  |  | Report of Independent Registered Public Accounting Firm
| | - |  | -------------------------------------------------------



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CNB BANCORP, INC.

CONSOLIDATED BALANCESHEETS



|                                                                                                                                                                  |  |              |        |   |      |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                                                                                                                                                                  |  | December 31, |       
|(Dollars in thousands, except share data)                                                                                                                         |  | 2004         |        |   | 2003 |  
|Assets                                                                                                                                                            |  |              |        |   |      |   |        |  
|Cash and due from banks                                                                                                                                           |  | $            | 491    |   |      | $ | 196    |  
|Federal funds sold                                                                                                                                                |  |              | 258    |   |      |   | 148    |  
|Securities available-for-sale, at fair value (amortized cost of $6,026 on December 31, 2004 and $6,312 on December 31, 2003)                                      |  |              | 5,956  |   |      |   | 6,280  |  
|Loans, net of allowance for loan losses of $151 on                                                                                                                |  |              |        |   |      |   |        |  
|December 31, 2004 and $56 on December 31, 2003                                                                                                                    |  |              | 12,804 |   |      |   | 5,516  |  
|Premises and equipment, net                                                                                                                                       |  |              | 1,738  |   |      |   | 1,299  |  
|Other assets                                                                                                                                                      |  |              | 134    |   |      |   | 89     |  
|                                                                                                                                                                  |  |              |        |   |      |   |        |  
|Total assets                                                                                                                                                      |  | $            | 21,381 |   |      | $ | 13,528 |  
|                                                                                                                                                                  |  |              |        |   |      |   |        |  
|Liabilities and Shareholders Equity                                                                                                                              |  |              |        |   |      |   |        |  
|Liabilities                                                                                                                                                       |  |              |        |   |      |   |        |  
|Non-interest bearing deposits                                                                                                                                     |  | $            | 2,065  |   |      | $ | 1,129  |  
|Interest bearing deposits                                                                                                                                         |  |              | 15,560 |   |      |   | 7,880  |  
|                                                                                                                                                                  |  |              |        |   |      |   |        |  
|Total deposits                                                                                                                                                    |  |              | 17,625 |   |      |   | 9,009  |  
|Accrued interest payable                                                                                                                                          |  |              | 35     |   |      |   | 16     |  
|Other liabilities                                                                                                                                                 |  |              | 28     |   |      |   | 159    |  
|                                                                                                                                                                  |  |              |        |   |      |   |        |  
|Total liabilities                                                                                                                                                 |  |              | 17,688 |   |      |   | 9,184  |  
|                                                                                                                                                                  |  |             
|Shareholders Equity                                                                                                                                              |  |              |        |   |      |   |        |  
|Common stock, $.01 par, 10,000,000 shares authorized, 564,937 issued and outstanding at December 31, 2004 and 561,137 issued and outstanding
at December 31, 2003 |  |              | 6      |   |      |   | 6      |  
|Additional paid-in capital                                                                                                                                        |  |              | 5,439  |   |      |   | 5,401  |  
|Retained earnings (deficit)                                                                                                                                       |  |              | (1,682 | ) |      |   | (1,031 | )
|Accumulated other comprehensive (loss)                                                                                                                            |  |              | (70    | ) |      |   | (32    | )
|                                                                                                                                                                  |  |              |        |   |      |   |        |  
|Total shareholders equity                                                                                                                                        |  |              | 3,693  |   |      |   | 4,344  |  
|                                                                                                                                                                  |  |              |        |   |      |   |        |  
|Total liabilities and shareholders equity                                                                                                                        |  | $            | 21,381 |   |      | $ | 13,528 |  
|                                                                                                                                                                  |  |              |        |   |      |   |        |  



See Notes to Consolidated Financial
Statements.



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CNB BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                       |  |                                     |         |   |                                                                  |   |         |  
|------------------------------------------------------ |  | ----------------------------------- | ------- | - | ---------------------------------------------------------------- | - | ------- | -
|(Dollars in thousands, except per share data)          |  | For the Year EndedDecember 31, 2004 |         |   | For the PeriodFrom April 29, 2003(Inception) toDecember 31, 2003 |  
|Interest and Dividend Income                           |  |                                     |         |   |                                                                  |   |         |  
|Loans, including fees                                  |  | $                                   | 606     |   |                                                                  | $ | 123     |  
|Investment securities, taxable                         |  |                                     | 145     |   |                                                                  |   | 50      |  
|Federal funds sold                                     |  |                                     | 27      |   |                                                                  |   | 24      |  
|                                                       |  |                                     |         |   |                                                                  |   |         |  
|Total Interest and Dividend Income                     |  |                                     | 778     |   |                                                                  |   | 197     |  
|                                                       |  |                                     |         |   |                                                                  |   |         |  
|Interest Expense,                                      |  |                                     |         |   |                                                                  |   |         |  
|Deposits                                               |  |                                     | 318     |   |                                                                  |   | 69      |  
|                                                       |  |                                     |         |   |                                                                  |   |         |  
|Total Interest Expense                                 |  |                                     | 318     |   |                                                                  |   | 69      |  
|                                                       |  |                                     |         |   |                                                                  |   |         |  
|Net Interest Income                                    |  |                                     | 460     |   |                                                                  |   | 128     |  
|Provision for Loan Losses                              |  |                                     | 95      |   |                                                                  |   | 56      |  
|                                                       |  |                                     |         |   |                                                                  |   |         |  
|Net Interest Income after Provision for Loan Losses    |  |                                     | 365     |   |                                                                  |   | 72      |  
|                                                       |  |                                    
|Non-Interest Income                                    |  |                                     |         |   |                                                                  |   |         |  
|Service charges on deposit accounts                    |  |                                     | 11      |   |                                                                  |   | 2       |  
|Other fees and commissions                             |  |                                     | 86      |   |                                                                  |   | 17      |  
|Income from investment in title company                |  |                                     | 14      |   |                                                                  |   | 4       |  
|Mortgage broker fees                                   |  |                                     | 22      |   |                                                                  |   | 1       |  
|Other income                                           |  |                                     | 17      |   |                                                                  |   | 4       |  
|                                                       |  |                                     |         |   |                                                                  |   |         |  
|Total Non-Interest Income                              |  |                                     | 150     |   |                                                                  |   | 28      |  
|                                                       |  |                                     |         |   |                                                                  |   |         |  
|Non-Interest Expense                                   |  |                                     |         |   |                                                                  |   |         |  
|Personnel                                              |  |                                     | 576     |   |                                                                  |   | 351     |  
|Occupancy and equipment                                |  |                                     | 130     |   |                                                                  |   | 87      |  
|Professional fees                                      |  |                                     | 147     |   |                                                                  |   | 49      |  
|Advertising                                            |  |                                     | 33      |   |                                                                  |   | 29      |  
|Computer services                                      |  |                                     | 98      |   |                                                                  |   | 51      |  
|Other                                                  |  |                                     | 182     |   |                                                                  |   | 125     |  
|                                                       |  |                                     |         |   |                                                                  |   |         |  
|Total Non-Interest Expense                             |  |                                     | 1,166   |   |                                                                  |   | 692     |  
|                                                       |  |                                     |         |   |                                                                  |   |         |  
|Net (Loss)                                             |  | $                                   | (651    | ) |                                                                  | $ | (592    | )
|                                                       |  |                                     |         |   |                                                                  |   |         |  
|Earnings (loss) per share, basic and diluted           |  | $                                   | (1.16   | ) |                                                                  | $ | (1.06   | )
|                                                       |  |                                     |         |   |                                                                  |   |         |  
|Weighted average shares outstanding, basic and diluted |  |                                     | 562,253 |   |                                                                  |   | 561,137 |  
|                                                       |  |                                     |         |   |                                                                  |   |         |  



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CNB BANCORP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

For the Year Ended December 31, 2004 and For the Period from April 29, 2003 (Inception) to December 31, 2003



|                                                                               |  |                      |  |             |   |                          |   |                           |  |   |                                      |   |  |                       |     |   |       |   |      |   |  |   |       |  
|------------------------------------------------------------------------------ |  | -------------------- |  | ----------- | - | ------------------------ | - | ------------------------- |  | - | ------------------------------------ | - |  | --------------------- | --- | - | ----- | - | ---- | - |  | - | ----- | -
|(Dollars in thousands)                                                         |  | Shares ofCommonStock |  | CommonStock |   | AdditionalPaid-inCapital |   | RetainedEarnings(Deficit) |  |   | AccumulatedOtherCompre-hensive(Loss) |   |  | Comprehen-sive (Loss) |     |   | Total |  
|Balance - December 31, 2003                                                    |  | 561,137              |  | $           | 6 |                          | $ | 5,401                     |  | $ | (1,031                               | ) |  | $                     | (32 | ) |       |   |      |   |  | $ | 4,344 |  
|Exercise of warrants                                                           |  | 3,000                |  |             |  |                          |   | 30                        |  |   |                                     |   |  |                       |    |   |       |   |      |   |  |   | 30    |  
|Exercise of stock options                                                      |  | 800                  |  |             |  |                          |   | 8                         |  |   |                                     |   |  |                       |    |   |       |   |      |   |  |   | 8     |  
|Comprehensive (loss):                                                          |  |                      |  |             |   |                          |   |                           |  |   |                                      |   |  |                       |     |   |       |   |      |   |  |   |       |  
|Net loss                                                                       |  |                     |  |             |  |                          |   |                          |  |   | (651                                 | ) |  |                       |    |   |       | $ | (651 | ) |  |   | (651  | )
|Other comprehensive (loss), unrealized (loss) on securities available for sale |  |                     |  |             |  |                          |   |                          |  |   |                                     |   |  |                       | (38 | ) |       |   | (38  | ) |  |   | (38   | )
|                                                                               |  |                      |  |             |   |                          |   |                           |  |   |                                      |   |  |                       |     |   |       |   |      |   |  |   |       |  
|Total comprehensive (loss)                                                     |  |                     |  |             |  |                          |   |                          |  |   |                                     |   |  |                       |    |   |       | $ | (689 | ) |  |   |      |  
|                                                                               |  |                      |  |             |   |                          |   |                           |  |   |                                      |   |  |                       |     |   |       |   |      |   |  |   |       |  
|Balance - December 31, 2004                                                    |  | 564,937              |  | $           | 6 |                          | $ | 5,439                     |  | $ | (1,682                               | ) |  | $                     | (70 | ) |       |   |      |   |  | $ | 3,693 |  
|                                                                               |  |                      |  |             |   |                          |   |                           |  |   |                                      |   |  |                       |     |   |       |   |      |   |  |   |       |  
|Balance - April 29, 2003                                                       |  | 561,137              |  | $           | 6 |                          | $ | 5,401                     |  | $ | (439                                 | ) |  | $                     |    |   |       |   |      |   |  | $ | 4,968 |  
|Comprehensive (loss):                                                          |  |                      |  |             |   |                          |   |                           |  |   |                                      |   |  |                       |     |   |       |   |      |   |  |   |       |  
|Net loss                                                                       |  |                     |  |             |  |                          |   |                          |  |   | (592                                 | ) |  |                       |    |   |       | $ | (592 | ) |  |   | (592  | )
|Other comprehensive (loss), unrealized (loss) on securities available for sale |  |                     |  |             |  |                          |   |                          |  |   |                                     |   |  |                       | (32 | ) |       |   | (32  | ) |  |   | (32   | )
|                                                                               |  |                      |  |             |   |                          |   |                           |  |   |                                      |   |  |                       |     |   |       |   |      |   |  |   |       |  
|Total comprehensive (loss)                                                     |  |                     |  |             |  |                          |   |                          |  |   |                                     |   |  |                       |    |   |       | $ | (624 | ) |  |   |      |  
|                                                                               |  |                      |  |             |   |                          |   |                           |  |   |                                      |   |  |                       |     |   |       |   |      |   |  |   |       |  
|Balance - December 31, 2003                                                    |  | 561,137              |  | $           | 6 |                          | $ | 5,401                     |  | $ | (1,031                               | ) |  | $                     | (32 | ) |       |   |      |   |  | $ | 4,344 |  
|                                                                               |  |                      |  |             |   |                          |   |                           |  |   |                                      |   |  |                       |     |   |       |   |      |   |  |   |       |  



See Notes to Consolidated Financial
Statements.



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CNB BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                         |  |                                     |        |   |                                                                  |   |         |  
|------------------------------------------------------------------------ |  | ----------------------------------- | ------ | - | ---------------------------------------------------------------- | - | ------- | -
|(Dollars in thousands)                                                   |  | For the Year EndedDecember 31, 2004 |        |   | For the Period fromApril 29, 2003(Inception) toDecember 31, 2003 |  
|Cash Flows From Operating Activities                                     |  |                                     |        |   |                                                                  |   |         |  
|Reconciliation of net (loss) to net cash (used in) operating activities: |  |                                     |        |   |                                                                  |   |         |  
|Net (loss)                                                               |  | $                                   | (651   | ) |                                                                  | $ | (592    | )
|Provision for loan losses                                                |  |                                     | 95     |   |                                                                  |   | 56      |  
|Depreciation and amortization                                            |  |                                     | 87     |   |                                                                  |   | 28      |  
|Changes in:                                                              |  |                                     |        |   |                                                                  |   |         |  
|Interest receivable                                                      |  |                                     | (47    | ) |                                                                  |   | (47     | )
|Other assets                                                             |  |                                     | (6     | ) |                                                                  |   | (48     | )
|Interest payable                                                         |  |                                     | 19     |   |                                                                  |   | 16      |  
|Other liabilities                                                        |  |                                     | (131   | ) |                                                                  |   | 159     |  
|                                                                         |  |                                     |        |   |                                                                  |   |         |  
|Net cash (used in) operating activities                                  |  |                                     | (634   | ) |                                                                  |   | (428    | )
|                                                                         |  |                                     |        |   |                                                                  |   |         |  
|Cash Flows From Investing Activities                                     |  |                                     |        |   |                                                                  |   |         |  
|Purchase of available-for-sale securities                                |  |                                     | (9,914 | ) |                                                                  |   | (13,662 | )
|Proceeds from calls and maturities of available-for-sale securities      |  |                                     | 10,200 |   |                                                                  |   | 7,350   |  
|Purchase of property and equipment                                       |  |                                     | (518   | ) |                                                                  |   | (1,321  | )
|Net increase in loans                                                    |  |                                     | (7,383 | ) |                                                                  |   | (5,572  | )
|                                                                         |  |                                     |        |   |                                                                  |   |         |  
|Net cash (used in) investing activities                                  |  |                                     | (7,615 | ) |                                                                  |   | (13,205 | )
|                                                                         |  |                                     |        |   |                                                                  |   |         |  
|Cash Flows From Financing Activities                                     |  |                                     |        |   |                                                                  |   |         |  
|Net increase in non-interest bearing deposits                            |  |                                     | 936    |   |                                                                  |   | 1,129   |  
|Net increase in interest bearing deposits                                |  |                                     | 7,680  |   |                                                                  |   | 7,880   |  
|Issuance of common stock                                                 |  |                                     | 38     |   |                                                                  |   |        |  
|                                                                         |  |                                     |        |   |                                                                  |   |         |  
|Net cash provided by financing activities                                |  |                                     | 8,654  |   |                                                                  |   | 9,009   |  
|                                                                         |  |                                     |        |   |                                                                  |   |         |  
|Net increase (decrease) in cash and cash equivalents                     |  | $                                   | 405    |   |                                                                  | $ | (4,624  | )
|Cash and Cash Equivalents                                                |  |                                     |        |   |                                                                  |   |         |  
|Beginning                                                                |  |                                     | 344    |   |                                                                  |   | 4,968   |  
|                                                                         |  |                                     |        |   |                                                                  |   |         |  
|Ending                                                                   |  | $                                   | 749    |   |                                                                  | $ | 344     |  
|                                                                         |  |                                     |        |   |                                                                  |   |         |  
|Supplemental Disclosures of Cash Flow Information                        |  |                                     |        |   |                                                                  |   |         |  
|Cash payments for interest                                               |  | $                                   | 299    |   |                                                                  | $ | 53      |  
|                                                                         |  |                                     |        |   |                                                                  |   |         |  
|Change in unrealized (loss) on available for sale securities             |  | $                                   | (38    | ) |                                                                  | $ | (32     | )
|                                                                         |  |                                     |        |   |                                                                  |   |         |  



See Notes to Consolidated Financial
Statements.



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CNB BANCORP, INC.



Notes to
Consolidated Financial Statements



NOTE 1: Organization and Significant
Accounting Policies



CNB Bancorp, Inc. (the
Company or CNB) was organized on November 12, 2001 to serve as a Virginia bank holding company for Citizens National Bank (the Bank). The Bank was organized as a national bank under the laws of the United States
of America to engage in a general banking business serving the community in and around Windsor, Virginia. The Company was in organization during the period from April 23, 2001 through April 28, 2003. The financial statements reflect the costs
associated with the period prior to the opening of the Bank as an accumulated deficit as of that date. These costs include salaries, legal and professional fees and other relevant expenditures. During this period, the Company had a net loss of
$439,000.



The Bank commenced regular operations on April 29,
2003 and is a member of the Federal Deposit Insurance Corporation. It is subject to the regulations of the Office of the Comptroller of the Currency and the State Corporation Commission of Virginia. Consequently, it undergoes periodic examinations
by these regulatory authorities.



In a common stock offering
ending on December 31, 2002, the Company sold 561,137 shares of its Common Stock par value $.01 per share, at $10 per share. Of the proceeds, $6,000 was credited to common stock and $5.4 million was credited to surplus.



The accounting and reporting policies of the Company and its subsidiary
conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The following is a summary of the more significant policies.



Principles of Consolidation



The consolidated financial statements of CNB Bancorp, Inc. and its
subsidiary include the accounts of all companies. All material intercompany balances and transactions have been eliminated.



Use of Estimates



In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is
required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of net deferred assets.



Cash and Cash Equivalents



For purposes of reporting cash flows, cash and cash equivalents included
cash on hand, amounts due from banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods.



Securities



Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at
amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded
from earnings and reported in other comprehensive income.



Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair market value of held to maturity and available for sale securities below their cost that are
deemed as other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the
financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for the period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses
on the sale of securities are recorded on the trade date and are determined on the basis of the cost of the specific securities sold using the specific identification method.



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Restricted Securities



The Company has elected to maintain an investment in the capital stock of certain correspondent banks. No ready market
exists for this stock, and it has no quoted market value. The Companys investment in these stocks is recorded at cost.



Restricted securities included Federal Reserve Bank and Community Bankers Bank stock.



Loans



The Companys subsidiary bank grants mortgages, commercial and consumer loans to customers. A substantial portion of the loan portfolio is
represented by mortgage loans throughout the Isle of Wight and Southampton counties of Virginia. The ability of debtors to honor their loan contracts is dependent upon the real estate and general economic conditions of this area.



Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances less the allowance for loan losses. Interest income is accrued on the unpaid principal balance.



The accrual of interest on mortgage and commercial loans is discontinued at
the time the loan is 90 days delinquent unless the credit is well-secured and in the process of collection. Personal loans are typically charged off no later than 180 days past due. In all cases, loans are placed on non-accrual or charged-off at an
earlier date if collection of principal or interest is considered doubtful.



All interest accrued but not collected for loans that are placed on non-accrual or charged off is reversed against interest income. The interest on these loans is accounted for the cash-basis or cost-recovery method,
until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.



Allowance for Loan Losses



The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibity of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.



The allowance for loan losses is evaluated on a regular basis
by management and is based upon managements periodic review of the collectibility of the loans in light of historical experience, once established, the nature and volume of the loan portfolio, adverse situations that may affect the
borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information
becomes available.



A loan is considered impaired when, based
on current information and events, it is probable that the Companys subsidiary bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered
by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including
the length of the delay, the reasons for the delay, the borrowers prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value
of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans
are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual consumer and residential loans for impairment disclosures.



Loan Fees and Costs



Loan origination and commitment fees and direct loan costs are being recognized as collected and incurred. The use of this method of recognition
does not produce results that are materially different from results which would have been produced if such costs and fees were deferred and amortized as an adjustment of the loan yield over the life of the related loan.



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Premises and Equipment



Land is carried at cost. Buildings and equipment are carried at cost less accumulated depreciation computed using a
straight-line method over the estimated useful lives of the assets. Estimated useful lives range from ten to forty years for buildings and from three to ten years for equipment, furniture, and fixtures. Maintenance and repairs are charged to expense
as incurred and major improvements are capitalized.



Foreclosed Property



Assets acquired through,
or in lieu of, loan foreclosure are held for sale. They are initially recorded at the lower of the Banks cost or the assets fair market value at the date of foreclosure, less estimated selling costs thus establishing a new cost basis.
Subsequent to foreclosure, valuations of the assets are periodically performed by management. Adjustments are made to the lower of the carrying amount or fair market value of the assets less selling costs. Revenue and expenses from operations and
valuation changes are included in net expenses from foreclosed assets. The Bank had no foreclosed assets during the periods ended December 31, 2004 and 2003.



Income Taxes



Deferred income tax assets and liabilities are determined using the balance sheet method. Under this method, the net deferred tax asset or liability is
determined based on the tax effects of the temporary difference between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.



Earnings per Share



Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential
common shares that may be issued by the Company relate solely to outstanding stock options and warrants, and are determined using the treasury stock method.



Advertising Costs



The Company follows the policy of charging the costs of advertising to expense as incurred. For the year ended December 31, 2004, the Company expensed
$33,000 for advertising costs. The Company expensed $29,000 for advertising costs for the period from April 29, 2003 through December 31, 2003.



Comprehensive Income



Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets
and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the consolidated balance sheet, such items, along with net income are components of comprehensive
income.



Stock-Based Compensation Plan



The 2003 Stock Incentive Plan was approved by shareholders on August 12,
2003, which authorized 84,170 shares of common stock to be used in the granting of incentive options to employees and directors. This is the first stock incentive plan adopted by the Company. Under the plan, the option price cannot be less than the
fair market value of the stock on the date granted. An options maximum term is ten years from the date of grant. Options granted under the plan may be subject to a graded vesting schedule.



The exercise price of stock options granted under this plan, both incentive
and non-qualified, cannot be less than the fair market value of common stock on the date that the option is granted. The maximum term options granted under this plan is ten years and options granted may be subject to a vesting schedule. The
incentive stock options granted during 2004 are subject to a five year vesting period whereby the grantees are entitled to exercise one-fifth of the options on the anniversary of the grant date over the next five years. In determining the pro forma
amounts below, the value of each grant is estimated at the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants during 2004, no dividend rate, risk-free interest rate of 4.21%, expected
life of 10 years, and expected volatility of 13.22%.



In
connection with the initial offering of the Company, 102,500 warrants were issued to the original directors to purchase common shares at a price of $10 per share. These warrants vest in 25% increments over a four year



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period. The warrants are valued at the grant date using the Black-Scholes options-pricing model with the following weighted-average assumptions for grants in
2003, no dividend rate, risk-free interest rate of 4.30%, expected life of 10 years, and no expected volatility.



The Company accounts for the stock option plan and warrants under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under the plan and warrants have an exercise price equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
compensation for the year ended December 31, 2004 and for the period from April 29, 2003 to December 31, 2003



|                                                                                               |  |      |       |   |      |   |       |  
|---------------------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|(Dollars in thousands, except per share data)                                                  |  | 2004 |       |   | 2003 |  
|Net income, as reported                                                                        |  | $    | (651  | ) |      | $ | (592  | )
|                                                                                               |  |     
|Total stock-based compensation expense determined under fair value based method for all awards |  |      | (73   | ) |      |   | (89   | )
|                                                                                               |  |      |       |   |      |   |       |  
|Pro forma net income                                                                           |  | $    | (724  | ) |      | $ | (681  | )
|                                                                                               |  |      |       |   |      |   |       |  
|Earnings (loss) per share                                                                      |  |      |       |   |      |   |       |  
|                                                                                               |  |      |       |   |      |   |       |  
|Basic and diluted - as reported                                                                |  | $    | (1.16 | ) |      | $ | (1.06 | )
|Basic and diluted - pro forma                                                                  |  | $    | (1.29 | ) |      | $ | (1.21 | )
|                                                                                               |  |      |       |   |      |   |       |  



Reclassifications



Certain reclassifications have been made to prior periods
to conform to current year presentation.



Recent Accounting
Pronouncements



In December 2003, the Accounting Standards
Executive Committee (AcSEC) of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer.The SOP
is effective for loans acquired in fiscal years beginning after December 15, 2004. The scope of the SOP applies to unhealthy problem loans that have been acquired, either individually in a portfolio, or in a business acquisition. The SOP
addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investors initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable,
at least in part, to credit quality. The SOP does not apply to loans originated by the Company. The Company intends to adopt the provisions of SOP 03-3 effective January 1, 2005, and does not expect the initial implementation to have a significant
effect on the Companys consolidated financial position or consolidated results of operations.



On March 9, 2004, the SEC Staff issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments(SAB 105). SAB 105 clarifies existing accounting practices relating to the valuation of issued loan commitments, including interest rate lock commitments (IRLC), subject to SFAS No. 149 and Derivative Implementation Group
Issue C13, Scope Exceptions: When a Loan Commitment is included in the Scope of Statement 133. Furthermore, SAB 105 disallows the inclusion of the values of a servicing component and other internally developed intangible assets in
the initial and subsequent IRLC valuation. The provisions of SAB 105 were effective for loan commitments entered into after March 31, 2004. The Company has adopted the provisions of SAB 105. Since the provisions of SAB 105 affect only the timing of
the recognition of mortgage banking income, management does not anticipate that this guidance will have a material adverse effect on either the Companys consolidated financial position or consolidated results of operations.



Emerging Issues Task Force Issue No. (EITF) 03-1 The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investmentswas issued and is effective March 31, 2004. The EITF 03-1 provides guidance for determining the meaning of other than-temporarily impaired and its
application to certain debt and equity securities within the scope of Statement of Financial Accounting Standards No. 115 Accounting for Certain Investments in Debt and Equity Securities(SFAS No. 115) and investments
accounted for under the cost method. The guidance requires that investments which have declined in value due to credit concerns or



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solely due to changes in interest rates must be recorded as other-than-temporarily impaired unless the Company can assert and demonstrate its intention to
hold the security for a period of time sufficient to allow for a recovery of fair value up to or beyond the cost of the investment which might mean maturity. This issue also requires disclosures assessing the ability and intent to hold investments
in instances in which an investor determines that an investment with a fair value less than cost is not other-than-temporarily impaired. On September 30, 2004, the Financial Accounting Standards Board decided to delay the effective date for the
measurement and recognition guidance contained in Issue 03-1. This delay does not suspend the requirement to recognize other-than-temporary impairments as required by existing authoritative literature. The disclosure guidance in Issue 03-1 was not
delayed.



EITF No. 03-16, Accounting for Investments
in Limited Liability Companies was ratified by the Board and is effective for reporting periods beginning after June 15, 2004.APB Opinion No. 18, The Equity Method of Accounting Investments in Common Stock,
prescribes the accounting for investments in common stock of corporations that are not consolidated. AICPA Accounting Interpretation 2, Investments in Partnerships Ventures,of Opinion 18, indicates that many of the
provisions of the Opinion would be appropriate in accounting for partnerships. In EITF Abstracts,Topic No. D-46, Accounting for Limited Partnership Investments,the SEC staff clarified its view that investments of
more than 3 to 5 percent are considered to be more than minor and, therefore, should be accounted for using the equity method. Limited liability companies (LLCs) have characteristics of both corporations and partnerships, but are dissimilar from
both in certain respects. Due to those similarities and differences, diversity in practice exists with respect to accounting for non-controlling investments in LLCs. The consensus reached was that an LLC should be viewed as similar to a corporation
or similar to a partnership for purposes of determining whether a non-controlling investment should be accounted for using the cost method or the equity method of accounting.



In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment.This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange
for goods or services that are based on the fair value of the entitys equity instruments or that may be settled by the issuance of those equity instruments. The Statement focuses primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions. The Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award  the requisite service period (usually the vesting period). The entity will initially
measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date.
Changes in fair value during the requisite service period will be recognized as compensation cost over that period. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted
for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an
amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. This Statement is effective for public companies that file as small business issuers as of the
beginning of the first interim or annual reporting period that begins after December 15, 2005. Under the transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the
requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under Statement 123 for either recognition or pro forma disclosures. For periods before the required effective date, entities may elect to
apply a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by Statement 123.



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NOTE 2: Securities



The amortized cost and fair value of securities available for sale as of December 31, 2004 and 2003 are as follows:



|                                     |  |                   |       |                      |   |                         |  |   |           |   |  |   |      
|------------------------------------ |  | ----------------- | ----- | -------------------- | - | ----------------------- |  | - | --------- | - |  | - | -----
|                                     |  | December 31, 2004
|(Dollars in thousands)               |  | AmortizedCost     |       | GrossUnrealizedGains |   | GrossUnrealized(Losses) |  |   | FairValue
|U.S. Government and federal agencies |  | $                 | 5,850 |                      | $ |                        |  | $ | (70       | ) |  | $ | 5,780
|Other securities, restricted         |  |                   | 176   |                      |   |                        |  |   |          |   |  |   | 176  
|                                     |  |                   |       |                      |   |                         |  |   |           |   |  |   |      
|                                     |  | $                 | 6,026 |                      | $ |                        |  | $ | (70       | ) |  | $ | 5,956
|                                     |  |                   |       |                      |   |                         |  |   |           |   |  |   |      
|                                     | 
|                                     |  | December 31, 2003
|(Dollars in thousands)               |  | AmortizedCost     |       | GrossUnrealizedGains |   | GrossUnrealized(Losses) |  |   | FairValue
|U.S. Government and federal agencies |  | $                 | 6,150 |                      | $ | 7                       |  | $ | (39       | ) |  | $ | 6,118
|Other securities, restricted         |  |                   | 162   |                      |   |                        |  |   |          |   |  |   | 162  
|                                     |  |                   |       |                      |   |                         |  |   |           |   |  |   |      
|                                     |  | $                 | 6,312 |                      | $ | 7                       |  | $ | (39       | ) |  | $ | 6,280
|                                     |  |                   |       |                      |   |                         |  |   |           |   |  |   |      



The amortized cost and
estimated fair value of securities at December 31, 2004, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to prepay obligations with or without call or
prepayment penalties.



|                                      |  |                   |       |           |   |      
|------------------------------------- |  | ----------------- | ----- | --------- | - | -----
|                                      |  | December 31, 2004
|(Dollars in thousands)                |  | AmortizedCost     |       | FairValue
|Due in one year or less               |  | $                 | 600   |           | $ | 596  
|Due after one year through five years |  |                   | 5,250 |           |   | 5,184
|Other securities, restricted          |  |                   | 176   |           |   | 176  
|                                      |  |                   |       |           |   |      
|                                      |  | $                 | 6,026 |           | $ | 5,956
|                                      |  |                   |       |           |   |      



Proceeds from
the maturities and the calls of securities available for sale in 2004 and 2003 were $10.2 million and $7.4 million, respectively. There were no realized gains or losses.



The primary purpose of the investment portfolio is to generate income and meet liquidity needs of the Company through
readily saleable financial instruments. The portfolio is made up of fixed rate bonds, whose prices move inversely with rates. At the end of any accounting period, the investment portfolio has unrealized gains and losses. The Company monitors the
portfolio, which is subject to liquidity needs, market rate changes, and credit risk changes, to see if adjustments are needed. The primary concern in a loss situation is the credit quality of the business behind the instrument. The primary cause of
impairments is the decline in the prices of the bonds as rates have risen. There are fourteen accounts in the portfolio that have unrealized losses at December 31, 2004. These losses are relative to the market rates and the timing of purchases and
are not a material concern.



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|                                     |  |                     |       |                  |                   |     |           |       |                  |     |  |           |     |                  |  |   |       |  |   |     |  
|------------------------------------ |  | ------------------- | ----- | ---------------- | ----------------- | --- | --------- | ----- | ---------------- | --- |  | --------- | --- | ---------------- |  | - | ----- |  | - | --- | -
|                                     |  | December 31, 2004   |      
|                                     |  | Less than 12 months |       |                  | 12 months or more |     |           | Total |                 
|(Dollars in thousands)               |  | FairValue           |       | UnrealizedLosses |                   |     | FairValue |       | UnrealizedLosses |     |  | FairValue |     | UnrealizedLosses | 
|U.S. Government and federal agencies |  | $                   | 5,292 |                  | $                 | (58 | )         |       | $                | 488 |  | $         | (12 | )                |  | $ | 5,780 |  | $ | (70 | )
|                                     |  |                     |       |                  |                   |     |           |       |                  |     |  |           |     |                  |  |   |       |  |   |     |  
|                                     | 
|                                     |  | December 31, 2003   |      
|                                     |  | Less than 12 months |       |                  | 12 months or more |     |           | Total |                 
|(Dollars in thousands)               |  | FairValue           |       | UnrealizedLosses |                   |     | FairValue |       | UnrealizedLosses |     |  | FairValue |     | UnrealizedLosses | 
|U.S. Government and federal agencies |  | $                   | 4,511 |                  | $                 | (39 | )         |       | $                |    |  | $         |    |                  |  | $ | 4,511 |  | $ | (39 | )
|                                     |  |                     |       |                  |                   |     |           |       |                  |     |  |           |     |                  |  |   |       |  |   |     |  



NOTE 3: Loans



The composition of loans is summarized as follows:



|                                  |  |              |        |      |   |      
|--------------------------------- |  | ------------ | ------ | ---- | - | -----
|                                  |  | December 31,
|(Dollars in thousands)            |  | 2004         |        | 2003
|Loans secured by real estate:     |  |              |        |      |   |      
|Construction                      |  | $            | 886    |      | $ | 109  
|Secured by 1-4 family residential |  |              | 3,185  |      |   | 998  
|Non-farm, non-residential         |  |              | 4,187  |      |   | 1,630
|Agricultural                      |  |              | 205    |      |   | 3    
|Commercial and industrial loans   |  |              | 1,991  |      |   | 1,721
|Loans to individuals              |  |              | 2,501  |      |   | 1,111
|                                  |  |              |        |      |   |      
|Total loans                       |  |              | 12,955 |      |   | 5,572
|Less: Allowance for loan losses   |  |              | 151    |      |   | 56   
|                                  |  |              |        |      |   |      
|Net loans                         |  | $            | 12,804 |      | $ | 5,516
|                                  |  |              |        |      |   |      



NOTE 4: Allowance for Loan Losses



Changes in the allowance for loan losses are as follows:



|                                                |  |                            |     |                              |   |   
|----------------------------------------------- |  | -------------------------- | --- | ---------------------------- | - | --
|                                                |  | December 31,              
|(Dollars in thousands)                          |  | 2004                       |     | 2003                        
|Balance, beginning                              |  | $                          | 56  |                              | $ |  
|Provision charged to operating expense          |  |                            | 95  |                              |   | 56
|                                                |  |                            |     |                              |   |   
|Balance, ending                                 |  | $                          | 151 |                              | $ | 56
|                                                |  |                            |     |                              |   |   
|                                                | 
|                                                |  | December 31,              
|(Dollars in thousands)                          |  | 2004                       |     | 2003                        
|Total impaired loans                            |  | $                          | 46  |                              | $ |  
|Allowance for impaired loans                    |  |                            | 12  |                              |   |  
|Non-accrual loans                               |  |                            | 46  |                              |   |  
|Loans 90 days past-due and still accruing       |  |                            |    |                              |   |  
|                                                |  |                           
|(Dollars in thousands)                          |  | Year endedDecember 31,2004 |     | Period endedDecember 31,2003
|Average balance of impaired loans               |  | $                          | 47  |                              | $ |  
|Interest income recognized on impaired loans    |  |                            | 2   |                              |   |  
|Cash-basis interest included in interest income |  |                            | 2   |                              |   |  



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NOTE 5: Premises and Equipment



Premises and equipment as of December 31, 2004 and 2003 consists of the following:



|                                  |  |      |       |      |   |      
|--------------------------------- |  | ---- | ----- | ---- | - | -----
|(Dollars in thousands)            |  | 2004 |       | 2003
|Land                              |  | $    | 301   |      | $ | 301  
|Building                          |  |      | 1,244 |      |   |     
|Furniture, fixtures and equipment |  |      | 275   |      |   | 154  
|Automobile                        |  |      | 19    |      |   |     
|Construction in progress          |  |      |      |      |   | 866  
|                                  |  |      |       |      |   |      
|                                  |  |      | 1,839 |      |   | 1,321
|Less accumulated depreciation     |  |      | 101   |      |   | 22   
|                                  |  |      |       |      |   |      
|                                  |  | $    | 1,738 |      | $ | 1,299
|                                  |  |      |       |      |   |      



Depreciation expense
was $79,000 and $22,000 for the year ended December 31, 2004 and the period from April 29, 2003 to December 31, 2003, respectively.



At December 31, 2003, the Company had two lease agreements for the operations office and the temporary banking facility. The monthly rental payments
totaled $4,800. Total rent expense from April 29, 2003 to December 31, 2003 was $38,400. The leases were renewable on a monthly basis, and were both terminated during March, 2004.



NOTE 6: Deposits



The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2004 was $2.9 million and $1.7 million at December 31, 2003. At
December 31, 2004, the scheduled maturities of time deposits are as follows:



|                       |  |   |       
|---------------------- |  | - | ------
|(Dollars in thousands) |  |  
|2005                   |  | $ | 5,853 
|2006                   |  |   | 2,269 
|2007                   |  |   | 1,111 
|2008                   |  |   | 1,718 
|2009                   |  |   | 939   
|                       |  |   |       
|                       |  | $ | 11,890
|                       |  |   |       



Overdrawn deposit
accounts totaling $13,000 at December 31, 2004 and $4,000 at December 31, 2003 were reclassified from deposits to loans.



NOTE 7: Earnings per Share



At December 31, 2004, the weighted average number of shares outstanding for calculating basic and diluted earnings (loss) per share was 562,388. Basic and
diluted earnings (loss) per share was $(1.16) for the year ended December 31, 2004. Stock options outstanding of 1,000 shares and warrants outstanding of 90,500 shares were considered anti-dilutive, therefore, had no impact.



At December 31, 2003, the weighted average number of shares outstanding for
calculating basic and diluted earnings (loss) per share was 561,137. The Company had not granted stock options and all 102,500 warrants outstanding were considered anti-dilutive, therefore, basic and diluted earnings (loss) per share was $(1.06) for
the period ended December 31, 2003.



NOTE 8: Warrants



In connection with the initial offering of the Company, 102,500 warrants
were issued to the original directors to purchase common shares. As of December 31, 2004, there were 90,500 warrants at an exercise price of $10 issued and outstanding. During 2004, 3,000 vested warrants were exercised and 9,000 outstanding warrants
were terminated. All of remaining warrants are held by the organizing directors of the Company and vest in 25% increments over a four year period. The first increment vested on January 1, 2004.



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|                                                               |  |         |   |      |                              |       |        |         |                              |   |       |  | 
|-------------------------------------------------------------- |  | ------- | - | ---- | ---------------------------- | ----- | ------ | ------- | ---------------------------- | - | ----- |  | 
|                                                               |  | 2004    |   | 2003
|                                                               |  | Shares  |   |      | WeightedAverageExercisePrice |       | Shares |         | WeightedAverageExercisePrice
|Outstanding at the beginning of year                           |  | 102,500 |   |      | $                            | 10.00 |        |        |                              | $ |     
|Granted                                                        |  |        |   |      |                              |      |        | 102,500 |                              |   | 10.00
|Exercised                                                      |  | (3,000  | ) |      |                              | 10.00 |        |        |                              |   |     
|Forfeited                                                      |  | (9,000  | ) |      |                              | 10.00 |        |        |                              |   |     
|                                                               |  |         |   |      |                              |       |        |         |                              |   |      
|Outstanding at end of year                                     |  | 90,500  |   |      | $                            | 10.00 |        | 102,500 |                              | $ | 10.00
|                                                               |  |         |   |      |                              |       |        |         |                              |   |      
|Options exercisable at end of year                             |  | 22,625  |   |      |                              |       |        |        |                              |   |      
|                                                               |  |         |   |     
|Weighted average fair value of options granted during the year |  |         |   |      | $                            |      |        |         |                              | $ | 3.47 



|               |       |                      |        |                                                      |     |                                |   |                    |  |                                |  |   |      
|-------------- | ----- | -------------------- | ------ | ---------------------------------------------------- | --- | ------------------------------ | - | ------------------ |  | ------------------------------ |  | - | -----
|               |       |                     
|               |       | Warrants Outstanding |        | Warrants Exercisable                                
|Exercise Price |       | Number Outstanding   |        | Weighted AverageRemaining ContractualLife (in years) |     | Weighted AverageExercise Price |   | Number Exercisable |  | Weighted AverageExercise Price
|$              | 10.00 |                      | 90,500 |                                                      | 8.0 |                                | $ | 10.00              |  | 22,625                         |  | $ | 10.00



NOTE 9: Income Taxes



The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2004 and 2003 are presented below:



|                                      |  |      |      |   |      |   |      |  
|------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|(Dollars in thousands)                |  | 2004 |      |   | 2003 |  
|Deferred tax assets                   |  |      |      |   |      |   |      |  
|Pre-opening expenses                  |  | $    | 110  |   |      | $ | 144  |  
|Allowance for loan losses             |  |      | 44   |   |      |   | 19   |  
|Net operating loss                    |  |      | 472  |   |      |   | 217  |  
|                                      |  |      |      |   |      |   |      |  
|Deferred tax assets                   |  |      | 626  |   |      |   | 380  |  
|                                      |  |     
|Deferred tax liabilities              |  |      |      |   |      |   |      |  
|Fixed assets, net                     |  |      | (39  | ) |      |   | (18  | )
|                                      |  |      |      |   |      |   |      |  
|Less: Valuation allowance             |  |      | (587 | ) |      |   | (362 | )
|                                      |  |      |      |   |      |   |      |  
|Net deferred tax assets/(liabilities) |  | $    |     |   |      | $ |     |  
|                                      |  |      |      |   |      |   |      |  



The provision for
income taxes charged to operations for the period ended December 31, 2004 and 2003, consists of the following:



|                              |  |      |      |   |      |   |      |  
|----------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|(Dollars in thousands)        |  | 2004 |      |   | 2003 |  
|Current tax expense           |  | $    |     |   |      | $ |     |  
|Deferred tax (benefit)        |  |      | (225 | ) |      |   | (332 | )
|Change in valuation allowance |  |      | 225  |   |      |   | 332  |  
|                              |  |      |      |   |      |   |      |  
|                              |  | $    |     |   |      | $ |     |  
|                              |  |      |      |   |      |   |      |  



Under the provisions
of the Internal Revenue Code, the Company has approximately $1,389,000 of net operating loss carryforwards which can be offset against future taxable income. The carryforwards expire through December 31, 2024. The full realization of the tax
benefits associated with the carryforwards depends predominately upon the recognition of ordinary income during the carryforward period.



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NOTE 10: Employee Benefit Plans



The Company has a 401(k) Profit Sharing Plan covering employees who are at least 18 years of age. Employees may contribute
compensation subject to certain limits based on federal tax laws. The Bank makes discretionary matching contributions equal to 50 percent of an employees compensation contributed to the Plan, up to 12 percent of the employees
compensation. Employer contributions vest to the employee over a five-year period.



For the year ended December 31, 2004, expense incurred related to this retirement plan was $16,000. For the period from April 29, 2003 to December 31, 2003, expense attributable to this plan amounted to $13,000.



NOTE 11: Related Party Transactions



Loans to directors and officers totaled $1,772,000 and $1,220,000 at
December 31, 2004 and 2003, respectively. New advances and repayments equaled $1,616,000 and $1,064,000 during 2004, respectively.



NOTE 12: Stock Option Plan



The Company sponsors a stock option plan, which allows employees and directors to increase their personal financial interest in the Company. This plan
provides the ability to grant equity-based incentives in the form of either incentive or nonqualified options. The plan authorizes the issuance of up to 84,170 shares of common stock, subject to adjustment for certain recapitalizations.



|                                                               |  |         |   |  |                              |      
|-------------------------------------------------------------- |  | ------- | - |  | ---------------------------- | -----
|                                                               |  | 2004   
|                                                               |  | Shares  |   |  | WeightedAverageExercisePrice
|Outstanding at the beginning of year                           |  |        |   |  | $                            |     
|Granted                                                        |  | 29,057  |   |  |                              | 10.09
|Exercised                                                      |  | (800    | ) |  |                              | 10.00
|Forfeited                                                      |  | (27,257 | ) |  |                              | 10.00
|                                                               |  |         |   |  |                              |      
|Outstanding at end of year                                     |  | 1,000   |   |  | $                            | 12.50
|                                                               |  |         |   |  |                              |      
|                                                               |  |        
|Options exercisable at end of year                             |  |        |   |  |                              |      
|                                                               |  |        
|Weighted average fair value of options granted during the year |  |         |   |  | $                            | 5.96 



The following table
summarizes options outstanding at December 31, 2004.



|               |       |                     |       |                                                     |     |                                |   |                   |  |                                |  |   |  
|-------------- | ----- | ------------------- | ----- | --------------------------------------------------- | --- | ------------------------------ | - | ----------------- |  | ------------------------------ |  | - | -
|               |       |                    
|               |       | Options Outstanding |       | Options Exercisable                                
|Exercise Price |       | Number Outstanding  |       | Weighted AverageRemainingContractualLife (in years) |     | Weighted AverageExercise Price |   | NumberExercisable |  | Weighted AverageExercise Price
|$              | 12.50 |                     | 1,000 |                                                     | 9.5 |                                | $ | 12.50             |  |                               |  | $ | 



NOTE 13: Regulatory Requirements
and Restrictions



The Company (on a consolidated basis)
and the Bank are subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the Companys and Banks financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank
must meet specific capital guidelines that involve quantitative measures of the Companys and the Banks assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.



Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (as set forth in the following table) of total and Tier 1 Capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 2004 and 2003, that the Company and the Bank meets all capital adequacy



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requirements to which they are subject. As of December 31, 2004, the most recent notification from the Office of the Comptroller of the Currency categorized
the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the
following table. There are no conditions or events since the notification that management believes have changed the Banks category. The Companys and Banks actual capital amounts (in thousands) and ratios as of December 31, 2004 and
2003 are also presented in the table.



|                                         |  |        |       |       |                           |   |        |                                                                      |       |  |      |        |  |       |       |  |       |  
|---------------------------------------- |  | ------ | ----- | ----- | ------------------------- | - | ------ | -------------------------------------------------------------------- | ----- |  | ---- | ------ |  | ----- | ----- |  | ----- | -
|                                         |  | Actual |       |       | MinimumCapitalRequirement |   |        | MinimumTo Be WellCapitalized UnderPrompt CorrectiveAction Provisions |      
|(Dollars in thousands)                   |  | Amount |       | Ratio |                           |   | Amount |                                                                      | Ratio |  |      | Amount |  | Ratio |      
|As of December 31, 2004:                 |  |        |       |       |                           |   |        |                                                                      |       |  |      |        |  |       |       |  |       |  
|Total Capital ( to Risk-Weighted Assets) |  |        |       |       |                           |   |        |                                                                      |       |  |      |        |  |       |       |  |       |  
|Consolidated                             |  | $      | 3,914 |       | 25.90                     | % |        | $                                                                    | 1,209 |  | 8.00 | %      |  |       | N/A   |  | N/A   |  
|Bank                                     |  | $      | 3,785 |       | 25.05                     | % |        | $                                                                    | 1,209 |  | 8.00 | %      |  | $     | 1,511 |  | 10.00 | %
|Tier 1 Capital (to Risk-Weighted Assets) |  |        |       |       |                           |   |        |                                                                      |       |  |      |        |  |       |       |  |       |  
|Consolidated                             |  | $      | 3,763 |       | 24.90                     | % |        | $                                                                    | 604   |  | 4.00 | %      |  |       | N/A   |  | N/A   |  
|Bank                                     |  | $      | 3,634 |       | 24.05                     | % |        | $                                                                    | 604   |  | 4.00 | %      |  | $     | 907   |  | 6.00  | %
|Tier 1 Capital (to Average Assets)       |  |        |       |       |                           |   |        |                                                                      |       |  |      |        |  |       |       |  |       |  
|Consolidated                             |  | $      | 3,763 |       | 17.94                     | % |        | $                                                                    | 839   |  | 4.00 | %      |  |       | N/A   |  | N/A   |  
|Bank                                     |  | $      | 3,634 |       | 17.33                     | % |        | $                                                                    | 839   |  | 4.00 | %      |  | $     | 1,049 |  | 5.00  | %
|                                         |  |        |       |       |                           |  
|As of December 31, 2003:                 |  |        |       |       |                           |   |        |                                                                      |       |  |      |        |  |       |       |  |       |  
|Total Capital ( to Risk-Weighted Assets) |  |        |       |       |                           |   |        |                                                                      |       |  |      |        |  |       |       |  |       |  
|Consolidated                             |  | $      | 4,432 |       | 55.61                     | % |        | $                                                                    | 638   |  | 8.00 | %      |  |       | N/A   |  | N/A   |  
|Bank                                     |  | $      | 4,264 |       | 53.50                     | % |        | $                                                                    | 638   |  | 8.00 | %      |  | $     | 797   |  | 10.00 | %
|Tier 1 Capital (to Risk-Weighted Assets) |  |        |       |       |                           |   |        |                                                                      |       |  |      |        |  |       |       |  |       |  
|Consolidated                             |  | $      | 4,376 |       | 54.91                     | % |        | $                                                                    | 319   |  | 4.00 | %      |  |       | N/A   |  | N/A   |  
|Bank                                     |  | $      | 4,208 |       | 52.80                     | % |        | $                                                                    | 319   |  | 4.00 | %      |  | $     | 478   |  | 6.00  | %
|Tier 1 Capital (to Average Assets)       |  |        |       |       |                           |   |        |                                                                      |       |  |      |        |  |       |       |  |       |  
|Consolidated                             |  | $      | 4,376 |       | 35.18                     | % |        | $                                                                    | 498   |  | 4.00 | %      |  |       | N/A   |  | N/A   |  
|Bank                                     |  | $      | 4,208 |       | 33.83                     | % |        | $                                                                    | 498   |  | 4.00 | %      |  | $     | 622   |  | 5.00  | %



NOTE 14: Financial Instruments with
Off-Balance-Sheet Risk and Credit Risk



The Company is a
party to credit related financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and commercial lines of credit.
Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The Companys exposure to credit loss is represented by the contractual amount of
these commitments. The same credit policies are used in making commitments as for on-balance-sheet instruments.



As of December 31, 2004, reserves of $3,000 were required as deposits with Community Bankers Bank.



Unfunded commitments under lines of credit are commitments for possible
future extensions of credit to existing customers. Those lines of credit may not be drawn upon to the total extent to which the Company is committed. At December 31, 2004 and 2003, the Company had unfunded commitments under lines of credit of $2.1
million and $909,000, respectively.



Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company
evaluates each customers credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on managements credit evaluation of the counterparty. Collateral
held varies but may include accounts receivable,



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inventory, property and equipment, and income-producing commercial properties. At December 31, 2004, the Company did not have any commitments to extend
credit.



Commercial and standby letters of credit are
conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have
expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral supporting those commitments, if deemed
necessary. At December 31, 2004, the Bank had commercial or standby letters of credit of $86,000.



The Company had approximately $68,000 in deposits in financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation
(FDIC) at December 31, 2004.



NOTE 15: Fair Value of Financial Instruments
and Interest Rate Risk



The following methods and
assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:



Cash and Short-Term Investments.For those short-term instruments, the carrying amount is a reasonable estimate of fair value.



Securities.For securities, excluding restricted securities, fair
values are based on quoted market prices or dealer quotes. The carrying value of restricted securities approximates fair value based on the redemption provision of each issuer.



Loans.For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are
based on carrying values. The fair values of other loans were estimated using discounted cash flow analyses, using interest rates currently being offered.



Accrued Interest.The carrying amounts of accrued interest approximate fair values.



Deposits.The fair value of demand deposits, savings accounts, and certain money market deposits is the amount
payable on demand at the reporting date. For all other deposits, the fair value is determined using the discounted cash flow method. The discount rate was equal to the rate currently offered on similar products.



Unused Portions of Lines of Credit.The fair value of unused loan
commitments is estimated considering the remaining terms of the agreement and the difference between the current levels of interest rate and the committed rate. The fair value of the unused portions of lines of credit is deemed immaterial.



The estimated fair values, and related carrying
amounts, of the Companys financial instruments are as follows:



|                                |  |                 |        |                     |   |                 |  |                     |       |  |   |      
|------------------------------- |  | --------------- | ------ | ------------------- | - | --------------- |  | ------------------- | ----- |  | - | -----
|                                |  | December 31,   
|                                |  | 2004            |        | 2003               
|(Dollars in thousands)          |  | Carrying Amount |        | Estimated FairValue |   | Carrying Amount |  | Estimated FairValue
|Financial assets:               |  |                 |        |                     |   |                 |  |                     |       |  |   |      
|Cash and short-term investments |  | $               | 749    |                     | $ | 749             |  | $                   | 344   |  | $ | 344  
|Securities                      |  |                 | 5,956  |                     |   | 5,956           |  |                     | 6,280 |  |   | 6,280
|Loans, net                      |  |                 | 12,804 |                     |   | 12,816          |  |                     | 5,516 |  |   | 5,491
|Accrued interest receivable     |  |                 | 94     |                     |   | 94              |  |                     | 47    |  |   | 47   
|                                |  |                 |        |                    
|Financial liabilities:          |  |                 |        |                     |   |                 |  |                     |       |  |   |      
|Non-interest bearing deposits   |  |                 | 2,065  |                     |   | 2,065           |  |                     | 1,129 |  |   | 1,129
|Interest bearing deposits       |  |                 | 15,560 |                     |   | 15,527          |  |                     | 7,880 |  |   | 7,945
|Accrued interest payable        |  |                 | 35     |                     |   | 35              |  |                     | 16    |  |   | 16   



The Company assumes
interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Companys financial instruments will change when interest rate levels change, and that change
may be either favorable or unfavorable to the Company. Management attempts to match



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maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less
likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less
likely to do so in a falling rate environment. Management monitors rate and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that
mitigate the Companys overall interest rate risk.



NOTE 16: Other
Expenses



The Company had the following other expenses as of the dates
indicated.



|                              |  |                                    |     |                                      |   |    
|----------------------------- |  | ---------------------------------- | --- | ------------------------------------ | - | ---
|(Dollars in thousands)        |  | For the yearendedDecember 31, 2004 |     | For the periodendedDecember 31, 2003
|ATM expense                   |  | $                                  | 25  |                                      | $ | 15 
|Insurance                     |  |                                    | 20  |                                      |   | 14 
|Correspondent service charges |  |                                    | 10  |                                      |   | 4  
|Regulatory assessments        |  |                                    | 18  |                                      |   | 8  
|Supplies and stationary       |  |                                    | 13  |                                      |   | 21 
|Taxes                         |  |                                    | 12  |                                      |   |   
|Other                         |  |                                    | 84  |                                      |   | 63 
|                              |  |                                    |     |                                      |   |    
|Total Other                   |  | $                                  | 182 |                                      | $ | 125
|                              |  |                                    |     |                                      |   |    



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NOTE 17: Parent Company Condensed
Financial Information



Financial information for the
parent company is as follows (dollars in thousands):



|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|--------------------------------------------------------------------------------- |  | --------------------------------- | ----- | - | --------------------------------------------------------------- | - | ----- | -
|                                                                                  |  | December 31,                      |      
|                                                                                  |  | 2004                              |       |   | 2003                                                            |  
|Balance Sheet                                                                     |  |                                   |       |   |                                                                 |   |       |  
|Assets                                                                            |  |                                   |       |   |                                                                 |   |       |  
|Cash                                                                              |  | $                                 | 141   |   |                                                                 | $ | 176   |  
|Investments in subsidiary                                                         |  |                                   | 3,564 |   |                                                                 |   | 4,176 |  
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|Total Assets                                                                      |  | $                                 | 3,705 |   |                                                                 | $ | 4,352 |  
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|Liabilities and shareholders equity                                              |  |                                   |       |   |                                                                 |   |       |  
|Other liabilities                                                                 |  | $                                 | 12    |   |                                                                 | $ | 8     |  
|Shareholders equity                                                              |  |                                   | 3,693 |   |                                                                 |   | 4,344 |  
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|Total liabilities and shareholders equity                                        |  | $                                 | 3,705 |   |                                                                 | $ | 4,352 |  
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|                                                                                  |  |                                  
|                                                                                  |  | For the yearendedDecember 31,2004 |       |   | For the periodfrom April 29,2003 (Inception)to December 31,2003 |  
|Statement of Operations                                                           |  |                                   |       |   |                                                                 |   |       |  
|Equity in undistributed net (loss) of subsidiary                                  |  | $                                 | (574  | ) |                                                                 | $ | (554  | )
|Other expenses                                                                    |  |                                   | (77   | ) |                                                                 |   | (38   | )
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|Net (loss)                                                                        |  | $                                 | (651  | ) |                                                                 | $ | (592  | )
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|                                                                                  |  |                                  
|                                                                                  |  | For the yearendedDecember 31,2004 |       |   | For the periodfrom April 29,2003 (Inception)to December 31,2003 |  
|Statement of Cash Flows                                                           |  |                                   |       |   |                                                                 |   |       |  
|Operating activities:                                                             |  |                                   |       |   |                                                                 |   |       |  
|Net (loss)                                                                        |  | $                                 | (651  | ) |                                                                 | $ | (592  | )
|Adjustments to reconcile net (loss) to net cash provided by operating activities: |  |                                   |       |   |                                                                 |   |       |  
|Equity in undistributed (loss) of subsidiary                                      |  |                                   | 574   |   |                                                                 |   | 554   |  
|Increase in other liabilities                                                     |  |                                   | 4     |   |                                                                 |   | 8     |  
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|Net cash (used in) operating activities                                           |  |                                   | (73   | ) |                                                                 |   | (30   | )
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|Financing activities:                                                             |  |                                   |       |   |                                                                 |   |       |  
|Issuance of common stock                                                          |  |                                   | 38    |   |                                                                 |   |      |  
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|Net cash provided by financing activities                                         |  |                                   | 38    |   |                                                                 |   |      |  
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|Net (decrease) in cash                                                            |  |                                   | (35   | ) |                                                                 |   | (30   | )
|Cash at beginning of year                                                         |  |                                   | 176   |   |                                                                 |   | 206   |  
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  
|Cash at end of year                                                               |  | $                                 | 141   |   |                                                                 | $ | 176   |  
|                                                                                  |  |                                   |       |   |                                                                 |   |       |  



41



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LOGO



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors

CNB Bancorp, Inc.

Windsor,
Virginia



We have audited the consolidated balance sheets of CNB Bancorp, Inc.
and subsidiary as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in shareholders equity and cash flows for the year ended December 31, 2004 and the period from April 29, 2003 (Inception) through
December 31, 2003. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CNB Bancorp, Inc. and subsidiary as of December 31, 2004 and 2003 and the results of their
operations and their cash flows for the year ended December 31, 2004 and the period from April 29, 2003 (Inception) through December 31, 2003, in conformity with U.S. generally accepted accounting principles.



LOGO



Winchester, Virginia

January 7, 2005



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|ITEM 8. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------



None.



|ITEM 8A. | Controls and Procedures
|-------- | -----------------------



As of the end of the period covered by this report, our management, including our Chief Executive Officer and Chief Financial Officer, reviewed and
evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-15. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiary) that is required to be included in our periodic filings with the Securities and Exchange
Commission. There have been no significant changes in our internal controls or, to managements knowledge, in other factors that could significantly affect those internal controls subsequent to the date we carried out our evaluation, and there
has been no corrective actions with respect to significant deficiencies or material weaknesses.



|ITEM 8B. | OTHER INFORMATION
|-------- | -----------------



None.



PART III



|ITEM 9. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
|------- | ---------------------------------------------------------------------------------------------------------------



The information with respect to the Directors of the Company is contained on
pages 2 through 4 of the 2005 Proxy Statement under the caption, Election of Directors, and is incorporated herein by reference. The information regarding the Section 16(a) reporting requirements of the Directors and Executive Officers
is contained on page 9 of the 2005 Proxy Statement under the caption, Section 16(a) Beneficial Ownership Reporting Compliance, and is incorporated herein by reference. The information concerning Executive Officers of the Corporation is
contained on pages 5 and 6 of the 2005 Proxy Statement under the caption, Executive Officers, and is incorporated herein by reference.



|ITEM 10. | EXECUTIVE COMPENSATION
|-------- | ----------------------



The information contained on pages 4 and 5 of the 2005 Proxy Statement under the caption, Executive Officers, and is incorporated herein by
reference. The information regarding Director compensation contained on page 6 of the 2005 Proxy Statement under the caption, Director Compensation, is incorporated herein by reference.



|ITEM 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------



The information contained on pages 8 and 9 of the 2005 Proxy Statement under the caption, Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters, is incorporated herein by reference.



|ITEM 12. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------



The information contained on page 9 of the 2005 Proxy Statement under the caption, Relationships and Related Transactions, is incorporated
herein by reference.



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|ITEM 13. | EXHIBITS
|-------- | --------



|(a) | Exhibits
|--- | --------



|               |  |                                                                                                                                           
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Exhibit                                                                                                                                   
|               | 
|3.1            |  | Articles of Incorporation.(1)                                                                                                             
|               | 
|3.2            |  | Bylaws.(1)                                                                                                                                
|               | 
|4.1            |  | See Articles of Incorporation at Exhibit 3.1 hereto and Bylaws at Exhibit 3.2 hereto.                                                     
|               | 
|10.1           |  | Lease Agreement by and between Windsor Office Group and Citizens National Bank (in organization) dated June 1, 2001 (temporary office).(1)
|               | 
|10.2           |  | Form of Escrow Agreement by and between CNB Bancorp, Inc. and Community Bankers Bank.(1)                                                 
|               | 
|10.3           |  | Form of Employment Agreement by and among Citizens National Bank (in organization), CNB Bancorp, Inc. and Douglas A. Chesson.(1)          
|               | 
|10.4           |  | Form of CNB Bancorp, Inc. Organizing Director Warrant Agreement.(1)                                                                       
|               | 
|10.5           |  | Operating Agreement of CNB Bancorp, LLC.(1)                                                                                               
|               | 
|10.6           |  | Form of Organizing Director Contribution Agreement.(1)                                                                                    
|               | 
|10.7           |  | Employment Agreement by and among Citizens National Bank, CNB Bancorp, Inc. and Jerry R. Bryant.(2)                                       
|               | 
|10.8           |  | CNB Bancorp, Inc. 2003 Stock Incentive Plan.(2)                                                                                           
|               | 
|14.1           |  | Code of Ethics.(2)                                                                                                                        
|               | 
|21.1           |  | Subsidiaries of CNB Bancorp, Inc.(2)                                                                                                      
|               | 
|24.1           |  | Power of Attorney (appears on the signature pages to this Annual Report on Form 10-KSB).                                                  
|               | 
|31.1           |  | Certification of Chief Executive Officer                                                                                                  
|               | 
|31.2           |  | Certification of Chief Financial Officer                                                                                                  
|               | 
|32.1           |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                   

---

|(1) | Incorporated herein by reference to exhibit of same number in the Companys Registration
Statement on Form SB-2, as amended.
|--- | ----------------------------------------------------------------------------------------------------------------------------



|(2) | Incorporated herein by reference to exhibit of same number in the Companys annual
report on Form 10-KSB filed March 25, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------



The information contained on page 10 of the 2005 Proxy Statement under the caption, Principal Accountant Fees and Services, is incorporated
herein by reference.



44



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##### Table of Contents



SIGNATURES



In accordance with
Section 13 or 15(d) of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.



CNB BANCORP, INC.



|                     |  |                                      
|-------------------- |  | -------------------------------------
|                     | 
|By:                  |  | /s/ Robert E. Spencer, Jr.           
|                     |  | Robert E. Spencer, Jr.               
|                     |  | President and Chief Executive Officer
|                    
|Date: March 22, 2005



POWER OF ATTORNEY



KNOW ALL MEN BY THESE PRESENTS, that each person
whose signature appears on the signature page to this Report constitutes and appoints Robert E. Spencer, Jr. as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or
her name, place, and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits hereto, and other documents in connection herewith with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.



Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                                                 |  |                                                                            |  |               
|------------------------------------------------ |  | -------------------------------------------------------------------------- |  | --------------
|Signature                                        |  | Title                                                                      |  | Date          
|                                                 |  |                                                                           
|/s/ Robert E. Spencer, Jr.Robert E. Spencer, Jr. |  | Director, President, Chief Executive Officer (principal executive officer) |  | March 22, 2005
|                                                 |  |                                                                           
|/s/ J. Larry DardenJ. Larry Darden               |  | Director                                                                   |  | March 22, 2005
|                                                 |  |                                                                           
|/s/ James E. LaineJames E. Laine                 |  | Director                                                                   |  | March 22, 2005
|                                                 |  |                                                                           
|/s/ G. Stewart TylerG. Stewart Tyler             |  | Director                                                                   |  | March 22, 2005
|                                                 |  |                                                                           
|/s/ Michael G. SmithMichael G. Smith             |  | Director                                                                   |  | March 22, 2005



45



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##### Table of Contents

|                                                     |  |                                                                      |  |               
|---------------------------------------------------- |  | -------------------------------------------------------------------- |  | --------------
|Signature                                            |  | Title                                                                |  | Date          
|                                                     |  |                                                                     
|/s/ Judy D. BrownJudy D. Brown                       |  | Director                                                             |  | March 22, 2005
|                                                     |  |                                                                     
|/s/ Harold F. DemskoHarold F. Demsko                 |  | Director                                                             |  | March 22, 2005
|                                                     |  |                                                                     
|/s/ Brenton D. BurgessBrenton D. Burgess             |  | Director                                                             |  | March 22, 2005
|                                                     |  |                                                                     
|/s/ Clem E. DaltonClem E. Dalton                     |  | Director                                                             |  | March 22, 2005
|                                                     |  |                                                                     
|/s/ Gene WorrellGene Worrell                         |  | Director                                                             |  | March 22, 2005
|                                                     |  |                                                                     
|/s/ Allen E. BrownAllen E. Brown                     |  | Director                                                             |  | March 22, 2005
|                                                     |  |                                                                     
|/s/ Marcia Collins PattersonMarcia Collins Patterson |  | Director                                                             |  | March 22, 2005
|                                                     |  |                                                                     
|/s/ Gerald D. ScheimbergGerald D. Scheimberg         |  | Director                                                             |  | March 22, 2005
|                                                     |  |                                                                     
|/s/ Susan Worrell OConnellSusan Worrell OConnell   |  | Director                                                             |  | March 22, 2005
|                                                     |  |                                                                     
|/s/ Elizabeth T. BealeElizabeth T. Beale             |  | Chief Financial Officer (principal accounting and financial officer) |  | March 22, 2005



46



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##### Table of Contents



EXHIBIT INDEX



|              |  |                                                                                                                                           
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                               
|              | 
|3.1           |  | Articles of Incorporation.(1)                                                                                                             
|              | 
|3.2           |  | Bylaws.(1)                                                                                                                                
|              | 
|4.1           |  | See Articles of Incorporation at Exhibit 3.1 hereto and Bylaws at Exhibit 3.2 hereto.                                                     
|              | 
|10.1          |  | Lease Agreement by and between Windsor Office Group and Citizens National Bank (in organization) dated June 1, 2001 (temporary office).(1)
|              | 
|10.2          |  | Form of Escrow Agreement by and between CNB Bancorp, Inc. and Community Bankers Bank.(1)                                                 
|              | 
|10.3          |  | Form of Employment Agreement by and among Citizens National Bank (in organization), CNB Bancorp, Inc. and Douglas A. Chesson.(1)          
|              | 
|10.4          |  | Form of CNB Bancorp, Inc. Organizing Director Warrant Agreement.(1)                                                                       
|              | 
|10.5          |  | Operating Agreement of CNB Bancorp, LLC.(1)                                                                                               
|              | 
|10.6          |  | Form of Organizing Director Contribution Agreement.(1)                                                                                    
|              | 
|10.7          |  | Employment Agreement by and among Citizens National Bank, CNB Bancorp, Inc. and Jerry R. Bryant(2)                                        
|              | 
|10.8          |  | CNB Bancorp, Inc.2003 Stock Incentive Plan.(2)                                                                                            
|              | 
|10.9          |  | Employment Agreement by and among Citizens National Bank, CNB Bancorp, Inc. and Elizabeth T. Beale                                        
|              | 
|10.10         |  | Employment Agreement by and among Citizens National Bank, CNB Bancorp, Inc. and Judy D. Brown                                             
|              | 
|14.1          |  | Code of Ethics.(2)                                                                                                                        
|              | 
|21.1          |  | Subsidiaries of the Company.(2)                                                                                                           
|              | 
|24.1          |  | Power of Attorney (appears on the signature pages to this Annual Report on Form 10-KSB).                                                  
|              | 
|31.1          |  | Certification of Chief Executive Officer                                                                                                  
|              | 
|31.2          |  | Certification of Chief Financial Officer                                                                                                  
|              | 
|32.1          |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                   

---

|(1) | Incorporated herein by reference to exhibit of same number in the Companys Registration Statement on Form SB-2, as amended.
|--- | ----------------------------------------------------------------------------------------------------------------------------



|(2) | Incorporated herein by reference to exhibit of same number in the Companys annual Form 10-KSB filed March 25, 2004.
|--- | --------------------------------------------------------------------------------------------------------------------



47