U.S. Securities And Exchange Commission
                           Washington, D.C.  20549

                                  Form 10-KSB
(Mark One)
_X_	Annual Report under Section 13 or 15(d) of the Securities Exchange Act 
    of 1934 (Fee required) For the fiscal year ended December 31, 1997
                                        or
___ Transition Report under Section 13 or 15(d) of the Securities Exchange 
    Act of 1934 (No fee required) For the transition period  from ________
    to _______

       Commission file no. 33-69326

                              	CNB HOLDINGS, INC.
                        ________________________________	
                 (Name of small business issuer in its charter)

               Virginia                             54-1663340
               ________                             __________
        (State or other jurisdiction               (IRS Employer
     of incorporation or organization)           Identification No.)

          900 Memorial Drive
          Pulaski, Virginia                            24301
    	
          _________________                            _____
	 (Address of principal executive offices)          	(Zip Code)

                                (540) 994-0831
                                ______________
               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, par value $5.00 per share
           _______________________________________
        								        Title of Class

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 is not 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]

The issuer's revenues for its most recent fiscal year were $2,606,442.

The aggregate market value of the voting stock as of March 16, 1998, held by 
non-affiliates of the registrant computed by reference to the price at which 
the stock was sold, or the average bid and asked prices of such stock, as of 
a specified date within the last 60 days  was $8,337,591.

926,399 shares of the Issuer's common stock were issued and outstanding as 
of March 16, 1998.

Transitional Small Business Disclosure Format. (Check one):  Yes___  No _X_

                     	DOCUMENTS INCORPORATED BY REFERENCE
The annual report to security holders for fiscal year ended December 31, 1997
is incorporated by reference into Form 10-KSB Part II, Items 7 and 8, and 
Part III, Item 13.   The issuer's Proxy Statement dated February 26,1998 is 
incorporated by reference into Form 10-KSB Part III, Items 9, 10, 11 and 12.

<page1>

                                     PART I
                                     ______

ITEM 1. DESCRIPTION OF BUSINESS
_______________________________

GENERAL

CNB Holdings, Inc.  (the "Company") was incorporated as a Virginia stock 
corporation on April 29, 1993, primarily to own and control all of the 
capital stock of Community National Bank (the "Bank").  The Company 
presently  engages in no business other than owning and managing the Bank.
The Bank is a national banking association which engages in a commercial 
banking business from its main office in Pulaski, Virginia.  The Bank's 
deposits are insured by the Federal Deposit Insurance Corporation (the 
"FDIC"), and it is a member of the Federal Reserve System.

In July 1994, the Company completed its initial public offering of 437,225 
shares of its common stock, $5.00 par value per share (the "Common Stock"), 
at a price of $10.00 per share, pursuant to its Prospectus dated November 16,
1993.  The Company received final approval of its application to charter the
Bank from the Office of Comptroller of the Currency (the "OCC") and final 
approval of its application for deposit insurance for the bank from the 
Federal Deposit Insurance Corporation ("FDIC") on August 29, 1994.
On August 29, 1994, the Bank opened for business.

During 1997, the Board of Directors approved a 25% stock dividend for
shareholders of record as of May 1, 1997.  Also during 1997, the Company
filed for and received approval from the SEC for a secondary stock offering
of up to 380,000 shares of its common stock, $5.00 par value per share (the
"Common Stock"), at a price of $9.00 per share, pursuant to its Prospectus
dated December 11, 1997.  All 380,000 shares were sold during the first quarter
of 1998.  Net proceeds were approximately $3.2 million and will be used
for general purposes and to fund future growth.

LOCATION AND SERVICE AREA

The Bank's primary service area is Pulaski County and includes portions of 
Giles, Montgomery and Wythe Counties and the City of Radford, Virginia.  The 
Bank conducts a general commercial banking business in its service area, 
emphasizing the banking needs of small-to-medium sized businesses, pro-
fessional concerns and individuals.  The Bank operates from its main office 
at 900 Memorial Drive, Pulaski, Virginia, which is at the corner of Memorial
Drive and Lee Highway (U.S. Route 11).  See "Item 2.  Description of Property"
below.  The Bank draws most of its customer deposits and conducts most of its
lending transactions from within its primary service area.  The Bank is the 
only locally owned and operated commercial bank in Pulaski County.

Pulaski County is located in the New River Valley area of Southwest Virginia.
Pulaski, the county seat, is approximately 53 miles southwest of Roanoke, 90 
miles northeast of the Tri-Cities, Tennessee (Johnson City, Kingsport and 
Bristol), and 150 miles north of Charlotte, North Carolina.  Pulaski County 
had a population of 34,500 in 1994 and a median family income of $28,057 in 
1989.  Virginia Polytechnic Institute and State University ("Virginia Tech"),
a four-year, comprehensive land grant university with over 22,000 students,
is located approximately 15 miles from Pulaski County.

The principal components of the economy of Pulaski County are manufacturing 
(which accounts for the largest share of all economic activity), agriculture,
and tourism.  Manufacturing employment is concentrated in the automotive, 
furniture and textile industries.  The largest industrial employers in the 
county include Volvo-GM Heavy Trucks (2,000 employees),  Pulaski Furniture 
(1,500 employees),  Renfro Corporation (a textile manufacturer with 1,200 
employees) and Jefferson Mills, Inc. (350 employees).  Agricultural 
production, consisting primarily of beef cattle and dairy farming, 
contributes over $12 million per year to the county's economy.  Claytor Lake 
State Park, located in the county, attracts over 800,000 visitors each year, 
offering swimming, boating, fishing, hiking and other outdoor sports.

<page2>

BANKING SERVICES

The Bank offers a full range of deposit services that are typically available
in most banks and savings and loan associations, including checking accounts,
NOW accounts, savings accounts and other time deposits of various types, 
ranging from daily money market accounts to longer-term certificates of 
deposit.  The transaction accounts and time certificates are tailored to the 
Bank's principal market area at rates competitive to those offered in the 
area.  In addition, the Bank offers certain retirement account services, such
as Individual Retirement Accounts (IRAs). All deposits accounts are insured 
by the FDIC up to the maximum amount allowed by law (generally, $100,000 per 
depositor subject to aggregation rules).  The Bank solicits these accounts 
from individuals, businesses, associations, organizations, and governmental 
entities.  

The Bank also offers a full range of short-to-medium term commercial and 
personal loans.  Commercial loans include  both secured and unsecured loans
for working capital (including inventory and receivables), business expansion 
(including acquisition of real estate and improvements), and purchase of 
equipment and machinery.  Consumer loans include secured and unsecured loans 
for financing automobiles, home improvements, education and personal 
investments.   The Bank also makes real estate construction and acquisition
loans and originates and holds fixed and variable rate mortgage loans.  
The Bank's lending activities are subject to a variety of lending limits 
imposed by federal law.  While differing limits apply in certain circumstances
based on the type of loan or the nature of the borrower (including borrowers' 
relationship to the Bank), in general the Bank is subject to  a loan-to-one 
borrower limit of an amount equal to 15% of the Bank's unimpaired capital and
surplus, or 25% of the unimpaired capital and surplus if the excess over 15%
is approved by the board of directors of the Bank and is fully secured by
readily marketable collateral.  The Bank may not make loans to any director,
officer, employee or 10% shareholder of the Company or the Bank unless the
loan is approved by the Board of Directors of the Bank and is made on terms
not more favorable than would be available to a person not affiliated with
the Bank.

Other bank services include cash management services, travelers checks,
direct deposit of payroll and social security checks, and automated drafts
for various accounts.  The Bank is associated with Most Plus & VISA shared
networks of automated teller machines and debit card retail locations that
Bank customer may use throughout Virginia and other regions.  The Bank also
offers VISA credit card services.

The Bank does not plan to exercise trust powers during its initial years of  
operation.  The Bank may in the future offer a full-service trust department,
but cannot do so without the prior approval of the OCC.

COMPETITION

The banking business is highly competitive.  The Bank competes as a financial
intermediary with other commercial banks, savings and loan associations, 
credit unions and money market funds operating in Pulaski County and else-
where, most of which are larger and have greater resources than the Bank.  
As of March 16, 1998, there were seven commercial banks operating a total of 
eleven offices in Pulaski County, Virginia.  The Bank is the only one of these 
institutions that is locally owned and operated. First Virginia Bank is an
in-state bank with three offices in Pulaski County, but is headquartered in
Northern Virginia.  Crestar Bank and Signet Bank with one office each
in the county, are statewide banks which are based in Richmond. First Union
Bank, a Charlotte, North Carolina based regional bank has acquired Signet Bank
and began operating the Pulaski County branch on March 20, 1998.  NationsBank,
with 2 offices in Pulaski County, is an affiliate bank of southeast regional
bank holding company also headquartered in Charlotte, North Carolina.  First
Citizens Bank, a regional bank with offices in North Carolina and Virginia,
headquartered in Raleigh, began operating a branch in Pulaski County in the
first quarter of 1998.  First National Bank of Christiansburg, a community bank
which is headquartered in nearby Montgomery County, operates a branch in
Pulaski County.
<page3>

In addition to the commercial banks described above, First American Bank,
a federally chartered savings association, operates two branches in Pulaski
County.  Two credit unions also operate in the county.  In addition, the
Bank is subject to aggressive competition from a wide variety of financial
service companies offering an expansive array of financial products and
services.

The Company believes that the community focus of the Bank, with its emphasis
on service to small businesses, individuals, and professional concerns, gives
it an advantage in some segments of this market.

EMPLOYEES

The Bank presently has 25 full-time employees and 9 part-time employees for a
total of 30 full-time equivalents.  The Company does not have any employees
other than its officers, none of whom receive any remuneration for their
services to the Company.

SUPERVISION AND REGULATION

The Company and the Bank are subject to state and federal banking laws and
regulations.  These impose specific requirements and restrictions and provide
for general regulatory oversight with respect to virtually all aspects of
operations.  These laws and regulations are generally intended to protect
depositors, not shareholders.  To the extent that the following summary
describes statutory or regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions.  Any
change in applicable laws or regulations may have a material effect on the
business and prospects of the Company.  Beginning with the enactment of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
and following with the Federal Deposit Insurance Corporation Improvement Act
("FDICIA"), enacted in 1991, numerous additional regulator requirements have 
been placed on the banking industry in the past five years, and additional
changes have been proposed.  The operations of the Company and the Bank may
be affected by legislative changes and the policies of various regulatory
authorities.  The Company is unable to predict the nature or the extent of 
the effect on its business and earnings that  fiscal or monetary policies, 
economic control, or new federal or state legislation may have in the future.

Federal Bank Holding Company Regulation

The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956 (the "BHCA"),  Under the BHCA, the Company is subject to
periodic examination by the Board of Governors of the Federal Reserve System
(the "Federal Reserve") and is required to file periodic reports of it 
operations and such information as the Federal Reserve may require.  Company 
and Bank activities are limited  to banking, managing  or controlling banks, 
furnishing  services to or performing services  for its subsidiaries, or 
engaging in any other activity that the Federal Reserve determines to be so
closely related to banking or managing or controlling banks as to be a proper 
incident thereto.

Investments, Control, and Activities.  With certain limited exceptions, the 
BHCA requires every bank holding company to obtain the prior approval of the 
Federal Reserve before (i) acquiring substantially all the assets of any 
bank, (ii) acquiring direct or indirect ownership or control of any voting 
shares of any bank if after such an acquisition it would own  or control more
than 5% of the voting shares of such bank (unless it already owns or controls 
the majority of such shares), or (iii) merging or consolidating with another
bank holding company.

<page4>

In addition, and subject to certain exceptions, the BHCA and the Change in 
Bank Control Act, together with regulations thereunder, require Federal 
Reserve approval (or, depending on the circumstances, no notice of 
disapproval) prior to any person or company acquiring "control" of a bank 
holding company, such as the 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.  In the case of the Company, under 
Federal Reserve regulations control will be rebuttably presumed to exist if 
a person acquires at least 10% of the outstanding shares of any class of 
voting securities once the Company's Common Stock is registered  under the 
Securities Exchange Act of 1934 (the "Exchange Act").  The Company registered
the Common Stock under the Exchange Act by April 30, 1995.  The regulations 
provide a procedure for challenge of the rebuttable control presumption.

Under the BHCA, the Company is generally prohibited from engaging in, or 
acquiring direct or indirect control of more than 5% of the voting shares of
any company engaged in, nonbanking activities, unless the Federal Reserve,
by order or regulation, has found those activities to be so closely related
to banking or managing or controlling banks as to be a proper incident 
thereto.  Some of the activities that the Federal Reserve has determined by
regulation to be proper incidents to the business of banking include making
or servicing loans and certain types of leases, engaging in certain 
insurance and discount brokerage activities, performing certain data 
processing services, acting in certain circumstances as a fiduciary or 
investment or financial advisor, owning savings associations, and making 
investments in certain corporations or projects designed primarily to 
promote community welfare.

Source of Strength; Cross-Guarantee.  In accordance with Federal Reserve 
policy, the Company is expected to act as a source of financial strength to 
the Bank and to commit resources to support the Bank in circumstances in 
which the Company might not otherwise do so.  Under the BHCA, the Federal 
Reserve may require a bank holding company to terminate any activity or  
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary 
of a bank) upon the Federal Reserve's determination that such activity or
control constitutes a serious risk to the financial soundness or stability
of any subsidiary depository institution of the bank holding company.  
Further, federal bank regulatory authorities have additional discretion to 
require a bank holding company to divest itself of any bank or nonbank 
subsidiary if the agency determines that divestiture may aid the depository 
institution's financial condition.  The Bank may be required to indemnify, or
cross-guarantee, the FDIC against losses it incurs with respect to any other 
bank which the Company controls, which in effect makes the Company's equity 
investments in healthy bank subsidiaries available to the FDIC to assist any
failing or failed bank subsidiary of the Company.

Virginia Bank Holding Company Regulation

All Virginia bank holding companies must register with the Virginia State 
Corporation Commission (the "Virginia Commission") under  Title 6.1 of the 
Code of Virginia (the "Virginia Act").  A registered bank holding company 
must provide the Virginia Commission with information with respect to the 
financial condition, operations, management, and intercompany relationships 
of the holding company and its subsidiaries.  The Virginia Commission may 
also require such other information as is necessary to keep itself informed
about whether the provisions of Virginia law and the regulations and orders
issued thereunder by the Virginia Commission have been complied with, and 
may make examinations of any bank holding company and its subsidiaries.

<page5>


Under the Virginia Act, it is unlawful without prior approval of the Virginia
Commission for any company to acquire 25% or more of the voting securities of
any bank and for any Virginia bank holding company to acquire direct to 
indirect ownership or control of more than 5% of the voting securities of 
any bank or other  bank holding company.  In addition, the Virginia Act 
allows regional interstate banking by permitting banking organizations in 
certain Southeastern states to acquire Virginia banking organizations if
Virginia banking associations are allowed to acquire banking organizations 
in their states and the Virginia banking organization to be acquired has been
in existence and continuously operated as a bank for a period of two years.  
As a result of this reciprocal banking provisions, banking organizations in 
other states, most significantly North Carolina, have entered the Virginia 
market through acquisitions of Virginia institutions.  Those acquisitions are 
subject to federal and Virginia approval.  Recent legislation has broadened
these statutes to permit nationwide reciprocal bank acquisitions.  See "The
Bank-Branching" below.

THE BANK

General.  The Company is the holding company for the bank, which is a national
banking association.  The Office of Comptroller of the Currency (the "OCC") 
is the primary regulator for the Bank.  The OCC regulates or monitors all areas
of the Bank's operations, including security devices and procedures, adequacy
of capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, issuances of securities, payment of dividends, interest rates payable 
on deposits, interest rates or fees chargeable on loans, establishment of 
branches, corporate reorganizations, maintenance of books and records, and
adequacy of staff training to carry on safe lending and deposit gathering 
practices.  The Bank must maintain certain capital ratios and is subject to
limitations on aggregate investments in real estate, bank premises, and
furniture and fixtures.

Under FDICIA, all insured institutions must undergo regular on-site 
examinations by their appropriate banking agency.  The cost of examinations 
of insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate.  Insured institutions are required to submit annual reports
to the Federal Deposit Insurance Corporation ("FDIC") and the appropriate agency
(and state supervisor when applicable).  FDICIA also directs the FDIC to 
develop with other appropriate agencies a method for insured depository 
institutions to provide supplemental disclosure of the estimated fair market
value of assets and liabilities, to the extent feasible and practicable, in
any balance sheet, financial statement, report of condition or any other
report of any insured depository institution.  FDICIA also requires the
Federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding
companies relating, among other things, to: (i) internal controls, in-
formation systems and audit systems; (ii) loan documentation; (iii) credit
underwriting;  (iv) interest rate risk exposure;  and (v) asset quality.

Transactions With Affiliates and Insiders.  The Bank is subject to the 
provisions on Section 23A of the Federal Reserve Act, which place limits on 
the amount of loans or extensions of credit to, or investments in, or certain
other transactions with, affiliates and on the amount of advances to third 
parties collateralized by the securities or obligations of affiliates.  In 
addition, most of these loans and certain other transactions must be secured
in prescribed amounts.  The Bank is also subject to the provisions of Section 
23B of the Federal Reserve Act that, amoung other things, prohibit an 
institution from engaging in certain transactions with certain affiliates 
unless the transactions are on terms substantially the same, or at least as 
favorable to such institution or its subsidiaries, as those prevailing at 
the time for comparable transactions with non-affiliated companies.  The Bank
is subject to certain restrictions on extensions of credit to executive 
officers, directors, certain principal shareholders and their related 
interests.  Such extensions of credit (i) 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 (ii) must
not involve more than the normal risk of repayment or present other
unfavorable features.

<page6>

Branching.  The Bank is permitted to branch freely within the state of 
Virginia.  The Virginia Act permits statewide branching for Virginia state 
banks.  As  a national bank located in Virginia, these state branch banking 
laws also apply to the Bank.  On September 29, 1994, the federal Interstate 
Banking Efficiency Act (the "Interstate Act), which expands the ability of
banks to compete interstate, was enacted.  The Interstate Act permits nation-
wide interstate acquisitions of banks by bank holding companies beginning
September 29, 1995, and permits nationwide interstate mergers of banks
beginning June 1, 1997.  States can legislatively opt not to permit inter-
state banks mergers or can legislatively opt to permit interstate bank
merges before the June 1, 1997, effective date.  The Virginia General
Assembly has adopted legislation which opts to permit nationwide inter-
state bank mergers effective July 1, 1995.


Community Reinvestment Act.  The Community Reinvestment Act (the "CRA")
requires that, in connection with examinations of financial institutions
within their respective jurisdictions, the federal regulators of financial
institutions to evaluate the record of the financial institutions in meeting
the credit needs of their local communities, including low and moderate 
income neighborhoods, consistent with the safe and sound operation of those
institutions.  These factors are also considered in evaluating mergers, 
acquisitions, and applications to open a branch or facility.  The Bank has
not yet received a CRA evaluation.


Other Regulations.  Interest and certain other charges collected or contracted
by the Bank are subject to state usury laws and certain federal laws con-
cerning interest rates.  The Bank's loan operations are also subject to 
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act governing disclosures of credit terms to consumer
borrowed, the 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, the Equal Credit 
Opportunity Act prohibiting discrimination on the basis of race, creed, or 
other prohibited factors in extending credit, the Fair Credit Reporting Act 
of 1978 governing the use and provision of information to credit reporting
agencies, the Fair Debt Collection Act governing the manner in which consumer
debts may be collected by collection agencies, and the rules and regulations
of the various federal agencies charged with the responsibility of 
implementing such federal laws.  The deposit operations of the Bank also are 
subject to Truth-In-Savings Act, which requires detailed disclosure of the 
yield and terms of deposit products, the Right to Financial Privacy Act, 
which imposes a duty to maintain confidentiality of consumer financial 
records and prescribes procedures for complying with administrative subpoena 
of financial records, and the Electronic Funds Transfer Act and Regulation
E issued by the Federal Reserve Board to implement that act, which governs 
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.

Deposit Insurance

The deposits of the Bank are currently insured to a maximum of $100,000 per 
depositor, subject to certain aggregation rules.  The  FDIC establishes rates
 for the payment of premiums by federally insured banks and thrifts for  
deposit insurance.  Separate insurance funds (BIF and SAIF) are maintained 
for commercial banks and thrifts, with insurance premiums from the industry 
used to offset losses from insurance payouts when banks and thrifts fail.  
Due to the lower rate of failures in recent years, the fees 
nks and thrifts pay BIF and SAIF have decreased.  The FDIC has adopted a 
risk-based deposit insurance premium system for all insured depository 
institutions, including the Bank, which requires that a depository 
institution pay to BIF or SAIF from $.00 to $.27 per $100 of insured 
deposits depending on its capital levels and risk profile, as determined 
by its primary federal regulator on a semiannual basis. The current 
assessment rate per $100 of insured deposits of the Bank is $.00, or a 
minimum of $2,000 annually.  

<page7>

Dividends

The principal source of the Company's cash revenues comes from dividends 
received from the Bank.  The amount of dividends that may be paid by the 
Bank to the Company depends on the Bank's earnings and capital position 
and is limited by federal law, regulations and policies.  As a national 
bank, the Bank may  not pay dividends  from its paid-in-capital.  All
dividends must be paid out of undivided profits then on hand, after de-
ducting expenses, including reserves from losses and bad debts.  In
addition, a national bank is prohibited from declaring a dividend on its
shares of common stock until its surplus equals its stated capital,
unless there has been transferred to surplus no less than one-tenth of
the bank's net profits of the preceding two consecutive half-year periods
(in the case of an annual dividend).  The approval of the OCC is required
if the total of all dividends declared by a national bank in any
calendar year exceeds the total if its net profits for that year combined
with its retained net profits for the preceding two years, less any 
required transfers to surplus.  Under FDICIA, the Bank may not pay a
dividend if, after paying the dividend, the Bank would be undercapitalized.
See "Capital Regulations" below.

Capital Regulations

The federal bank regulatory authorities have adopted risk-based capital 
guidelines for banks and bank holding companies that are designed to make 
regulatory capital requirements more sensitive to differences in risk 
profile among banks and bank holding companies, account for off-balance 
sheet exposure, and minimize disincentives for holding liquid assets.  The 
resulting capital ratios represent qualifying capital as a percentage of 
total risk-weighted assets and off-balance sheet items.  The guidelines are
minimums, and the federal regulators have noted that banks and bank holding
companies contemplating significant expansion programs should not allow 
expansion to diminish their capital ratios and should maintain ratios well 
in excess of the minimums.  The current guidelines require all federally 
regulated banks and bank holding companies to maintain a minimum risk-based 
total capital ratio equal to 8%, of which at least 4% must be Tier 1 capital.
Tier 1 capital includes common shareholders' equity, qualifying perpetual 
preferred stock, and minority interests in  equity accounts of consolidated 
subsidiaries, but excludes goodwill and most other intangibles and excludes
the allowance for loan and lease losses.  Tier 2 capital includes the excess
of any preferred stock not included in Tier 1 capital, mandatory convertible
securities, hybrid capital instruments, subordinated debt and intermediate
term-preferred stock, and general reserves for loan and lease losses up to
1.25% of risk-weighted assets.

Under these guidelines, banks' and bank holding companies' assets are given
risk-weights of 0%, 20%, 50% or 100%.  In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply.  These
computations result in the total risk-weighted assets.  Most loans are
assigned to the 100% risk category, except for first mortgage loans fully
secured by residential property and, under certain circumstances, residential
construction loans, both of which carry a 50% rating.  Most investment
securities are assigned to the 20% category, except for municipal or state
revenue bonds, which have a 50% rating, and direct obligations of or 
obligations guaranteed by the United States Treasury of United States
Government agencies, which have a 0% rating.

The federal bank regulator authorities have also implemented a leverage ratio,
which is Tier 1 capital as a percentage of average total assets less 
intangibles, to be used as a supplement to the risk-based guidelines.  The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank or bank holding company may leverage its
equity capital base.  The minimum required leverage ratio for top-rated
institutions is 3%, but most institutions are required to maintain an
additional cushion of at least 100 to 200 basis points.

<page8>

These guidelines apply on a consolidated basis to bank holding companies with
total consolidated assets of $150 million or more.  For bank holding companies
with less than $150 million in total consolidated assets (such as the 
Company), the guidelines will be applied on a bank only basis unless the
bank holding company is engaged in a nonbanking activity involving
significant leverage or has a significant amount of debt outstanding that 
is held by the general public.

FDICIA established a new capital-based regulatory scheme designed to promote 
early intervention  for troubled banks and requires the FDIC to choose the 
least expensive resolution of  bank failures.  The new capital based 
regulatory framework contains five categories of compliance with regulatory 
capital requirements, including "well capitalized,"  "adequately capitalized,"
"undercapitalized," "significantly undercapitalized,"  and "critically 
undercapitalized."  To qualify as "well capitalized" institution, a bank
must have a leverage ratio of no less the 5%, a Tier 1 risk-based ratio of
no less than 6%, and a total risk-based  capital ratio of no less than 10%, 
and the bank must not be under any  order or directive from the appropriate 
regulatory agency to meet and maintain a specific capital level.  As of 
December 31, 1996, the Bank qualified as "well-capitalized."  See "Item 6.  
Management's Discussion and Analysis or Plan of Operation."

Under the FDICIA regulations, the applicable agency can treat an institution
as if it were in the next lower category of the agency determines (after 
notice and an opportunity for hearing) that the institution is in an unsafe 
or unsound condition or is engaging in an unsafe or unsound practice.  The 
degree of regulatory scrutiny of a financial institution will increase, and 
the permissible activities of the institution will decrease, as it moves 
downward through the capital categories.  Institutions that fall into one of
the other three undercapitalized categories may be required to (i)submit a
capital restoration plan; (ii) raise additional capital; (iii) restrict their
growth, deposit interest rates, and other activities;(iv) improve their
management; (v) eliminate management fees; or (vi) divest themselves of all 
or part of their operations.  Bank holding companies controlling financial 
institutions can be called upon to boost the institutions' capital and to 
partially guarantee the institutions' performance under their capital 
restoration plans.

These capital guidelines can affect the Company in several ways.  Rapid 
growth, poor loan portfolio performance, or poor earnings performance, or a 
combination of these factors, could change the Company's capital position in 
a relatively short period of time, making additional capital infusion 
necessary.

FDICIA requires the federal banking regulators to revise the risk-based 
capital standards to provide for explicit consideration of interest-rate 
risk, concentration of credit risk, and the risks of non-traditional 
activities.  It is uncertain what affect these regulations, when 
implemented, would have on the Company and the Bank.
     
Recent Legislative Developments

From time to time, various bills are introduced in the United States Congress
with respect to the regulation of financial institutions.  Certain of these 
proposals, if  adopted, could significantly change the regulation of banks 
and the financial services industry.  The Company cannot predict whether any 
of these proposals will be adopted or, if adopted, how these proposals would 
affect the Company.

<page9>

ITEM 2.	DESCRIPTION OF PROPERTY.

Company and Bank main offices are located on a 4.9 acre plot at 900 Memorial 
Drive in Pulaski.  The Bank opened for business on August 29, 1994, in a 
temporary modular building on the site and  utilized the temporary facility 
for 16 months  while the permanent Bank facility was constructed.  The Bank 
began construction on the permanent facility on March 28, 1995.  Construction
was completed on December 1, 1995.  The cost  of the building was $933,000.
The furniture, fixtures and equipment for the facility cost $143,000.  The
permanent facility is a two-story brick building and contains approximately
10,500 square feet.  It features five inside teller windows, three drive-up
lanes, a drive-up night depository and a drive up automated teller machine.

The main office site was purchased from a partnership 100% owned by Jack W. 
Bowling, a director of the Company, and five members of his immediate family
in an exchange transaction for 25,000 shares of common stock.  See "Item 12.
Certain Relationships and Related Transactions."

The second branch office of the Bank, which opened October 4, 1997, is located
at One Main Street, Pulaski, Virginia at the site of a regional bank's former
branch office.  It is a full-service branch, with three inside teller windows,
a drive-up lane, a night depository, an automated teller machine, and safety
deposit boxes.  The property is subject to a lease which terminates on July 31,
1999, and the Bank has a right of first refusal to continue leasing the property
after that date on terms mutually agreeable between the parties.  The owner of
that property is a limited liability company in which Mr. James L. Webb, a
director of the Company and the Bank, is an investor.  See "Certain
Relationships and Related Transactions."  The Bank believes that it is leasing
that property at or below applicable market rates.  The Bank also recently
installed a stand-alone automated teller machine on the campus of the New River
Community College in Dublin, Virginia.

During 1997 the Bank purchased a former bank office of NationsBank at 202
Washington Avenue in downtown Pulaski, for $187,000.  This three story building
has approximately 20,000 square feet and will house the Bank's operations
department.  In addition, there are opportunities for leasing part of the
building to third parties, and the Bank plans to move its downtown branch into
that building in the future.

In the normal course of business, the Bank invests in debt securities
collateralized by real estate mortgages on residential properties. The Bank's
policies regarding investment in mortgage-backed securities are subject to 
change by the Board of Directors with out a vote of stockholders.  The Bank 
also originates and holds real estate mortgages.  These are secured by first 
and second deeds of trust on residential and commercial properties. 

ITEM 3.  LEGAL PRCEEDINGS.

Neither the Company nor the Bank is a party to, nor is any of their property 
the subject of, any material pending legal proceedings incidental to the 
business of the Company or the Bank.

ITEM 4.  SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.

No matter was submitted to a vote of security holders during the fourth 
quarter of the fiscal year covered by this report.

                                  PART II
                                  _______

ITEM 5.	MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's articles of incorporation authorize it to issue up to 10,000,000
shares of common stock, par value $5.00 per share (the "Common Stock"), of 
which 926,399 were issued and outstanding as of March 16, 1998.  There is no 
established public trading market in the common stock, and one is not expected
to develop in the near future.   The Company's common stock trades thinly, 
primarily on the local market.  However, three stock brokerage firms, Davenport
& Company, Scott & Stringfellow and Wheat First Securities, have been approved
by the Company as market makers.  As of March 16, 1998, there are approximately
654 stockholders of record.

The Company has never paid a dividend.  It is anticipated that earnings will 
be retained for several years to expand the Bank's capital base to support 
deposit growth and that no dividends will be paid on the Company's stock for
the next five years.  Dividends might not be paid for several years thereafter
even if the Company achieves profitable operations.

<page10>
	
Moreover, the National Banking Act limits dividend payments by national banks,
such as the Bank, which in turn could limit the Company's ability to pay 
dividends.  The Bank may only pay dividends out of its net profits then on 
hand, after deducting expenses, including losses and bad debts.  In addition,
the Bank is prohibited from declaring a dividend on its shares of common 
stock until its surplus equals its stated capital, unless there has been  
transferred to this surplus no less than one-tenth of the Bank's net profits
of the preceding two consecutive half-year periods (in the case of an annual
dividend).  The approval of the OCC will be required if the total of all 
dividends declared in any calendar year by the Bank exceeds the Banks' net 
profits to date, as defined, for that year combined with its retained net 
profits for the preceding two years less any required transfers to surplus.
At December 31, 1997, the Bank was not yet cumulatively profitable, but is
expected to considerably reduce its operating loss in 1998.  The OCC also 
has the authority under federal law to enjoin a national bank engaging in 
what in its opinion constitutes an unsafe or unsound practice in conducing
its business, including the payment of a dividend under certain circumstances.


ITEM 6.	MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Management's Discussion and Analysis is herein incorporated by reference to 
the Company's 1997 Annual Report to Stockholders, pages 24 through 39.


ITEM 7.	FINANCIAL STATEMENTS. 

The following consolidated financial statements of the registrant and the 
Independent Auditors' Report set forth on pages 2 through 23 of the Company's
1997 Annual Reports to Stockholders are incorporated herein by reference:
	
     1. Independent Auditor's Report
     2. Consolidated Balance Sheets as of December 31, 1997 and 1996
     3. Consolidated Statements of Operations for the years and period
        ended December 31, 1997, 1996, and 1995
     4. Consolidated Statements of Stockholders' Equity for the years
        and period ended December 31, 1997, 1996, and 1995
     5. Consolidated Statements of Cash Flows for the years and period
        ended December 31, 1997, 1996, and 1995
     6. Notes to Consolidated Financial Statements 


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

There were no changes in accountants during the year and there were no 
disagreements on accounting and financial disclosure.


                                    PART III
                                    ________

ITEM 9.	DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
        COMPLIANCE WITH SECTION 16 (a) OF EXCHANGE ACT.
	
Executive Officers of the Company as of December 31, 1997 are listed on page
2 of the Company's Proxy statement dated February 26, 1998 and is incorporated
herein by reference.   Information with respect to the directors of the 
Company is set out under the caption "Election of Directors" on page 3 of 
The Company's Proxy statement dated February 26, 1998 which information is 
incorporated herein by reference.

<page11>

The disclosure required by item 405 of regulation S-K is set out under the 
caption "Compliance with Section 16 of the Securities Exchange Act" on 
page 7 of the Company's Proxy Statement dated February 26, 1998, which 
information is incorporated herein by reference.


ITEM 10.  EXECUTIVE COMPENSATION.

The information set forth under "Executive and Board Compensation" on pages
5 through 6 of the Company's Proxy Statement dated February 26, 1998, is 
incorporated herein by reference.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
	
The information set forth under "Voting" on page 1, "Security Ownership of 
Certain Beneficial Owners and Management" on pages 2 and 3  and under 
"Election of Directors" on pages 3 and 4 of the Company's Proxy Statement 
dated February 26, 1998, is incorporated herein by reference.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
		
The information contained under "Certain  Relationships and Related Trans-
actions" on page 4 of the Company's Proxy statement dated February 26, 1998,
is incorporated herein by reference.


                                     PART IV
                                     _______

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

The following documents are filed as part of the report:

1. Financial Statements:

The following financial statements are incorporated in this report by 
reference to the indicated pages of the 1996 Annual Report to Stockholder
<TABLE>
<CAPTION>
                                                   1997 Annual Report to
                                                  Stockholders page number
                                                  ________________________
<S>                                                         <C>
Independent Auditor's Report                                  2
Consolidated Balance Sheets-December 31, 1997 and 1996        3
Consolidated Statements of Operations - Years ended
 December 31, 1997, 1996 and 1995                             4
Consolidated Statements of Stockholders' Equity - Years
 ended December 31, 1997, 1996 and 1995                       5
Consolidated Statements of Cash Flows - Years ended
 December  31, 1997, 1996 and 1995                            6
Notes to Consolidated Financial Statements                 7-23
Management's Discussion and Analysis                      24-39
</TABLE>
 

2. Financial Statement Schedules

All schedules are omitted as the required information is inapplicable or the
information is presented in the Consolidated Financial Statements or related
notes.

<page12>



3.	Exhibits:

The exhibits filed as part of this report and exhibits incorporated herein by
reference to other documents are listed in the Index to Exhibits to this 
Annual Report on Form 10-K.

 3.1 Amended and Restated Articles of Incorporation (incorporated by 
     reference to Exhibit 3.1 to the Company's Registration Statement 
     No. 33-69326 on Form S-1).

 3.2 By-laws (incorporated by reference to Exhibit 3.2 to the Company's 
     Registration Statement No. 33-69326 on Form S-1).

 4.1 Provisions in the Company's Articles of Incorporation and By-laws 
     defining the rights of  holders of the Company's Common Stock 
     (incorporated by reference to Exhibit 4.1 to the Company's 
     Registration Statement No. 33-69326 on Form S-1).

10.1 Employment Agreement dated June 21, 1993, by and between Wayne L. 
     Carpenter and the Company incorporated by reference to Exhibit 3.2 
     to the Company's Registration Statement No. 33-69326 on Form S-1).

10.2 Construction Agreement dated February 2, 1995, by and between the 
     Bank and Turn-Key Financial Builders, Inc. (incorporated by reference
     to Exhibit 10.2 to the Company's 1995 Form 10-KSB).

10.3 Security Equipment Purchase Agreement dated February 15, 1995, by 
     and between the Bank and Security Corporation (incorporated by 
     reference to Exhibit 10.3 to the Company's 1995 Form 10-KSB).

10.4 CNB Holdings, Inc. 1995 Stock Option Plan (incorporated by reference 
     to Exhibit 10.4 to the Company's 1995 Form 10-KSB).

12.1 1997 Report to Stockholders.

21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 
     10.4 to the Company's 1995 Form 10-KSB).

22.1 1997 Proxy Statement.


<page13>
 
                                   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 HOLDINGS, INC.


Date:   March 27, 1998               By: s/Wayne L. Carpenter
                                        _____________________
                                        Wayne L. Carpenter
                                        Chief Financial Officer

In accordance with the Exchange Act, this report has to be signed below by 
the following persons on behalf of the registrant and in the capacities and 
on the dates indicated.

       Signature                      Title                 Date
       _________                      _____                 ____


s/Sybil S. Atkinson
_________________________            Director          March 27, 1998
Sybil S. Atkinson

s/Jack W. Bowling
_________________________            Director          March 27, 1998
Jack W. Bowling

s/Jackson M. Bruce
_________________________            Director          March 27, 1998
Jackson M. Bruce

                                  Director, Chief 
                                  Financial Officer
                               (principal financial
s/Wayne L. Carpenter              and accounting
_________________________             officer)         March 27, 1998
Wayne L. Carpenter


s/Randolph V. Chrisley
_________________________            Director          March 27, 1998
Randolph V. Chrisley
                                     Chairman,
                                   President and
s/Hiawatha Nicely, Jr.            Chief Executive
_________________________             Officer          March 27, 1998
Hiawatha Nicely, Jr.

s/A. Carole Pratt
_________________________            Director          March 27, 1998
A. Carole Pratt

s/David W. Ratcliff, Jr.
_________________________            Director          March 27, 1998
David W. Ratcliff, Jr.

s/Nathanial R. Tuck
_________________________            Director          March 27, 1998
Nathaniel R. Tuck

s/James L. Webb, Jr.
_________________________            Director          March 27, 1998
James L. Webb, Jr.

s/J. David Wine
_________________________            Director          March 27, 1998
J. David Wine



<page14>


                                INDEX TO EXHIBITS
                                            
                                                          PAGE NO. IN
EXHIBIT NO.                DESCRIPTION                 EQUENTIAL SYSTEM
___________  ________________________________________  _________________
   3.1       Amended and Restated Articles of 
             Incorporation (incorporated by reference 
             to Exhibit 3.1 to the Company's Registration 
             Statement No. 33-69326 on Form S-1).


   3.2       By-laws (incorporated by reference to Exhibit 
             3.2 to the Company's Registration Statement No.
             33-69326 on Form S-1).

   4.1       Provisions in the Company's Articles of 
             Incorporation and By-laws defining the rights  
             of holders of the Company's Common Stock 
             (incorporated by reference to Exhibit 4.1 to 
             the Company's Registration Statement No. 
             33-69326 on Form S-1).

  10.1       Employment Agreement dated June 21, 1993, by  
             and between Wayne L. Carpenter and the Company 
             incorporated by reference to Exhibit 3.2 to 
             the Company's Registration Statement No. 
             33-69326 on Form S-1).

  10.2       Construction Agreement dated February 2, 1995, 
             by and between the Bank and Turn-Key Financial 
             Builders, Inc. (incorporated by reference to 
             Exhibit 10.2 to the Company's 1995 Form 10-KSB).

  10.3       Security Equipment Purchase Agreement dated 
             February 15, 1995, by and between the Bank and 
             Security Corporation (incorporated by reference 
             to Exhibit 10.3 to the Company's 1995 Form 10-KSB).

  10.4       CNB Holdings, Inc. 1995 Stock Option Plan 
             (incorporated by reference to Exhibit 10.4 to the 
             Company's 1995 Form 10-KSB).

  12.1       1997 Report to Stockholders.

  21.1       Subsidiaries of the Company (incorporated by 
             reference to Exhibit 10.4 to the Company's 1995 
             Form 10-KSB).

  22.1       1997 Proxy Statement.

				
<page15>

________________________________________________________________________________

1997 Annual Report
________________________________________________________________________________



Table of Contents

Letter to Stockholders                                          1

Independent Auditor's Report                                    2

Consolidated Balance Sheets                                     3

Consolidated Statements of Operations                           4

Consolidated Statements of Stockholders' Equity                 5

Consolidated Statements of Cash Flows                           6

Notes to Consolidated Financial Statements                      7

Management's Discussion and Analysis                           24

Board of Directors and Officers                                40

Stockholder Information                                        41

<PAGE>
                                    
                                
                        CNB Holdings, Inc.
                       900 Memorial Drive
                      Post Office Box 1060
                     Pulaski, Virginia 24301

February 19, 1998



CNB Holdings, Inc.
Shareholders


Dear Shareholder:

     You are cordially invited to attend the annual shareholders meeting of
CNB Holdings Inc., to be held Thursday April 9, 1998 at 10:00a.m., local time
at New River Community College's, Edwards Hall, room 206, Dublin, Virginia at
which time you will be asked to consider and vote on the nominees for election
as directors to serve until 2001.  Additionally we will review the results of
1997 and the future growth plans for CNB Holdings Inc., along with other 
business as may properly come before the meeting.

     CNB Holdings Inc., and Community National Bank has been successful in
receiving approval and opening the first branch in downtown Pulaski, Virginia
during 1997.  The SEC approved a secondary stock offering of 380,000 shares
of the company common stock.  CNB Holdings Inc., purchased a 20,000 square
foot building from Nationsbank for expansion of operations facilities and
branch.

     1998 will offer CNB Holdings Inc., and it's banking operations new
opportunities for continued growth.  The company is well positioned we believe
to take advantage of these opportunities as we move to the new millenium.



Hiawatha Nicely, Jr.                        Wayne L. Carpenter
Chairman, President, CEO                    Chairman, President, CEO    
CNB Holdings, Inc.                          Community National Bank 
     
<PAGE>1

                 Larrowe, Cardwell & Company, LC
                       Post Office Box 760
                      Galax, Virginia 24333



                  Independent Auditor's Report


Board of Directors and Stockholders
CNB Holdings, Inc.
Pulaski, Virginia

We  have audited the consolidated balance sheets of CNB Holdings,
Inc. and subsidiary (Community National Bank) as of December  31,
1997  and  1996  and  the  related  consolidated  statements   of
operations, stockholders' equity and cash flows for each  of  the
three  years  in  the  period ended  December  31,  1997.   These
consolidated financial statements are the responsibility  of  the
Company's  management.   Our  responsibility  is  to  express  an
opinion on these consolidated financial statements based  on  our
audits.

We  conducted  our  audits in accordance with generally  accepted
auditing  standards.  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 Holdings, Inc. and subsidiary as of December  31,
1997 and 1996, and the results of their operations and their cash
flows  for  each of the three years in the period ended  December
31,  1997,  in  conformity  with  generally  accepted  accounting
principles.




Larrowe, Cardwell & Company, LC
Pulaski, Virginia
January 16, 1998, except for Note 10, as
 to which the date is February 10, 1998

<PAGE>2

Consolidated Balance Sheets
December 31, 1997 and 1996
________________________________________________________________________________
<TABLE>
<CAPTION>
                                             1997        1996
                                             ____        ____
</CAPTION>
<S>
Assets                                   <C>          <C>
  Cash and due from banks                $ 2,290,840  $ 1,188,999
  Federal funds sold                       1,021,000      402,000
   Investment securities available
     for sale                             11,736,737   11,312,764
  Loans, net of allowance for
    loan losses of $270,000 in 1997
    and $155,000 in 1996                  22,395,227   12,722,865
  Property and equipment, net              1,853,855    1,408,596
  Accrued income                             241,318      261,548
  Other asset                                244,089      120,551
                                         ___________  ___________
        Total assets                     $39,783,066  $27,417,323
                                         ___________  ___________
Liabilities
  Demand deposits                        $ 3,581,386  $ 2,629,100
  Interest-bearing demand deposits        11,192,361    8,266,172
  Savings deposits                         3,770,237    2,339,408
  Large denomination time deposits         4,442,410    3,079,169
  Other time deposits                     13,607,494    7,726,853
                                         ___________  ___________
        Total deposits                    36,593,888   24,040,702
                                         
  Accrued interest payable                    55,448       36,612
  Other liabilities                           23,111       16,488
                                         ___________  ___________
        Total liabilities                 36,672,447   24,093,802
                                         ___________  ___________
  Commitments and contingencies

Stockholders' equity:
  Preferred stock, $1 par value;
    1,000,000 shares authorized;
    none outstanding                               -            -
  Common stock, $5 par value;
    10,000,000 shares authorized;
    546,399 and 437,225 shares
    outstanding in 1997 and 1996,
    respectively                           2,731,995    2,186,125
  Surplus                                  1,609,748    2,156,782
  Retained deficit                        (1,209,973)    (962,723)
  Unrealized depreciation on
  investment securities available
  for sale                                   (21,151)     (56,663)
                                         ___________  ___________
     Total stockholders' equity            3,110,619    3,323,521
                                         ___________  ___________
     Total liabilities and
       stockholders' equity              $39,783,066  $27,417,323
                                         ___________  ___________
</TABLE> 

See Notes to Consolidated Financial Statements
<PAGE>3

Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
________________________________________________________________________________
<TABLE>
<CAPTION>
                                      1997        1996       1995
                                      ____        ____       ____
</CAPTION>
<S>                               <C>         <C>         <C>
Interest income:
    Loans and fees on loans       $1,668,116  $  926,222  $  377,130
    Federal funds sold                40,131      70,412      56,610
    Taxable investment securities    745,596     578,359     377,641
                                  __________  __________  __________
     Total interest income         2,453,843   1,574,993     811,381
                                  __________  __________  __________
Interest expense:
    Deposits                       1,353,521     853,867     346,213
    Federal funds purchased           17,166           -           -
                                  __________  __________  __________
     Total interest expense        1,370,687     853,867     346,213
                                  __________  __________  __________
     Net interest income           1,083,156     721,126     465,168

Provision for loan losses            185,943     103,947      68,089
                                  __________  __________  __________
     Net interest income after
       provision for loan losses     897,213     617,179     397,079
                                  __________  __________  __________

Noninterest income:
    Service charges on deposit
      accounts                       112,405      92,806      40,886
    Net realized gains on sales
      of securities                    2,662      16,550      10,432
    Other income                      37,532      17,190       8,570
                                  __________  __________  __________
     Total noninterest income        152,599     126,546      59,888

Noninterest expense:
    Salaries and employee benefits   584,633     387,712     328,559
    Occupancy expense                 79,983      76,543      67,469
    Equipment expense                 92,028      62,109      39,776
    Other expense                    540,418     403,006     352,745
                                  __________  __________  __________
     Total noninterest expense     1,297,062     929,370     788,549
                                  __________  __________  __________
     Net loss                     $ (247,250) $ (185,645) $ (331,582)
                                  __________  __________  __________
Basic earnings per share          $     (.45) $     (.34) $     (.61)
                                  __________  __________  __________
Diluted earnings per share        $     (.45) $     (.34) $     (.61)
                                  __________  __________  __________
Weighted average shares outstanding  546,453     546,531     546,303
                                  __________  __________  __________
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>4

Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
________________________________________________________________________________
<TABLE>
<CAPTION>
                                                         Accumulated
                                                            Other
                      Common Stock            Retained    Comprehen-
               _____________________________  Earnings   sive Income
                 Shares   Amount   Surplus    (Deficit)     (Loss)      Total
               ______    ______    _______    _________     ______      _____  
</CAPTION>
<S>            <C>     <C>        <C>        <C>          <C>       <C>       
Dec. 31, 1994  437,042 $2,185,210 $2,155,867 $  (445,496) $(47,769) $3,847,812

Comprehensive
 income                   
Net loss             -          -          -    (331,582)        -    (331,582)
Net change
 in unrealized
 depreciation
 on investment
 securities
 available for
 sale                -          -          -           -   106,572     106,572
Total                                                               __________
 comprehensive
 income                                                               (225,010)
               _______ __________ __________ ___________  ________  __________
 Dec. 31, 1995 437,042  2,185,210  2,155,867    (777,078)   58,803   3,622,802

Comprehensive
 income
Net loss             -          -          -    (185,645)        -    (185,645)
Net change in
 unrealized
 depreciation
 on investment
 securities
 available for
 sale                -          -          -           -  (115,466)   (115,466)
Total                                                               __________
 comprehensive
  income                                                              (301,111)

Common stock
 issued            183        915        915           -         -       1,830
               _______ __________ __________ ___________  ________  __________
Dec. 31, 1996  437,225  2,186,125  2,156,782    (962,723)  (56,663)  3,323,521

Comprehensive
 income
Net loss             -          -          -    (247,250)        -    (247,250)
Net change in
 unrealized
 depreciation
 on investment
 securities
 available for
 sale                -          -          -           -    35,512      35,512
Total                                                               __________
 comprehensive
 income                                                               (211,738)

Stock dividend 109,306    546,530   (546,530)          -         -           -
Redemption of
fractional
 shares           (132)      (660)      (504)          -         -      (1,164)
               _______ __________ __________ ___________  ________  __________
Dec. 31, 1997  546,399 $2,731,995 $1,609,748 $(1,209,973) $(21,151) $3,110,619
               _______ __________ __________ ___________  ________  __________
</TABLE>

See Notes to Consolidated Financial Statements
<PAGE> 5

Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
________________________________________________________________________________
<TABLE>
<CAPTION>

                                           1997          1996         1995
                                           ____          ____         ____
</CAPTION>
<S>                                  <C>           <C>           <C>
Cash flows from operating activities:
  Net loss                           $   (247,250) $   (185,645) $   (331,582)
  Adjustments to reconcile net loss
    to net cash used by operations:
     Depreciation and amortization        105,660       128,833        65,629
     Provision for loan losses            185,943       103,947        68,089
     Net realized gains on securities      (2,662)      (16,550)      (10,432)
     Accretion of discount on
       securities, net                    (44,809)      (10,637)      (20,588)
     Changes in assets and liabilities:
       Accrued income                      20,230      (145,449)      (55,054)
       Other assets                       (19,739)      (15,806)        3,124
       Accrued interest payable            18,836        12,414        17,623
       Other liabilities                    6,623          (930)       12,263
    Net cash used by operating       ____________  ____________  ____________
      activities                           22,832      (129,823)     (250,928)
                                     ____________  ____________  ____________
Cash flows from investing activities:
  Net (increase) decrease in
    federal funds sold                   (619,000)      292,000       184,000
  Purchases of investment securities  (16,010,481)  (15,818,430)   (4,455,033)
  Sales of investment securities        4,276,997     8,977,234     2,015,393
  Maturities of investment securities  11,392,494       905,416     1,500,000
  Net increase in loans                (9,916,792)   (6,136,861)   (5,538,966)
  Purchases of property and equipment    (528,763)     (148,022)     (917,126)
    Net cash used in investing       ____________  ____________  ____________
      activities                      (11,405,545)  (11,928,663)   (7,211,732)
                                     ____________  ____________  ____________
Cash flows from financing activities:
  Net increase in demand, NOW, and
    savings deposits                    5,309,304     8,447,530     2,972,125
  Net increase in time deposits         7,243,882     3,656,477     5,243,323
  Stock issuance costs                    (67,468)            -             -
  Redemption of fractional shares          (1,164)            -             -
 Net cash provided by financing      ____________  ____________  ____________
   activities                          12,484,554    12,104,007     8,215,448
 Net increase in cash and cash
   equivalents                          1,101,841        45,521       752,788

Cash and cash equivalents, beginning    1,188,999     1,143,478       390,690
                                     ____________  ____________  ____________
Cash and cash equivalents, ending    $  2,290,840  $  1,188,999  $  1,143,478
                                     ____________  ____________  ____________
Supplemental disclosure of cash
  flow information:
  Interest paid                      $  1,351,851  $    841,453  $    328,590
                                     ____________  ____________  ____________
  Income taxes paid                  $          -  $          -  $        209
                                     ____________  ____________  ____________
Supplemental disclosure of noncash
  investing activities:
  Other real estate acquired in
    settlement of loans              $     58,487  $          -  $          -
                                     ____________  ____________  ____________

</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>6

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note  1.    Organization  and Summary of  Significant  Accounting
Policies

Organization

CNB  Holdings,  Inc.  (the Company) is  a  bank  holding  company
incorporated  under the laws of Virginia on April 29,  1993.   On
August 29, 1994, the Company's wholly owned subsidiary, Community
National  Bank (the Bank), was chartered under the  laws  of  the
United  States  and  the  Bank opened for  business  in  Pulaski,
Virginia.   As an FDIC insured National Banking Association,  the
Bank operates two banking offices and is subject to regulation by
the Comptroller of the Currency.  The Company is regulated by the
Federal Reserve.

The accounting and reporting policies of the Company and the Bank
follow  generally  accepted  accounting  principles  and  general
practices within the financial services industry.  Following is a
summary of the more significant policies.

Principles of consolidation

The consolidated financial statements include the accounts of the
Company  and the Bank.  All significant intercompany transactions
and balances have been eliminated in consolidation.

Use of estimates

The  preparation  of  financial  statements  in  conformity  with
generally  accepted accounting principles requires management  to
make  estimates and assumptions that affect the reported  amounts
of assets and liabilities and disclosure of contingent assets and
liabilities  at  the  date of the financial  statements  and  the
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 relate to the determination of the  allowance
for  loan  losses.  In connection with the determination  of  the
allowance   for  loan  losses,  management  obtains   independent
appraisals for significant properties.

Substantially all of the Bank's loan portfolio consists of  loans
in the New River Valley area of Southwest Virginia.  Accordingly,
the  ultimate  collectibility of a  substantial  portion  of  the
Bank's  loan portfolio and the recovery of a substantial  portion
of  the carrying amount of foreclosed real estate are susceptible
to  changes in local market conditions.  The regional economy  is
diverse,  but  influenced  to  an  extent  by  the  manufacturing
segment.

While management uses available information to recognize loan and
foreclosed real estate losses, future additions to the allowances
may  be  necessary based on changes in local economic conditions.
In  addition,  regulatory agencies, as a part  of  their  routine
examination  process, periodically review the  Bank's  allowances
for  loan  and  foreclosed real estate losses. Such agencies  may
require  the Bank to recognize additions to the allowances  based
on  their judgments about information available to them the  time
for  their  examinations.   Because  of  these  factors,  it   is
reasonably  possible that the allowances for loan and  foreclosed
real estate losses may change materially in the near term.

Cash and cash equivalents

For  purposes  presenting in the consolidated statement  of  cash
flows,  cash  and cash equivalents are defined as  those  amounts
included in the balance sheet caption "cash and due from banks".

Trading securities

The  Bank  does  not  hold securities for short-term  resale  and
therefore does not maintain a trading securities portfolio.

Securities held to maturity

Bonds,  notes and debentures for which the Bank has the  positive
intent  and  ability to hold to maturity are  reported  at  cost,
adjusted  for  premiums  and discounts  that  are  recognized  in
interest  income  using the interest method over  the  period  to
maturity  or to call dates.  Currently the Bank has no securities
held to maturity.
<PAGE>7

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note  1.    Organization  and Summary of  Significant  Accounting
Policies, continued

Securities available for sale

Available-for-sale  securities are reported  at  fair  value  and
consist   of   bonds,  notes,  debentures,  and  certain   equity
securities  not classified as trading securities or  as  held-to-
maturity securities.

Unrealized   holding   gains  and  losses  on  available-for-sale
securities  are reported as a net amount in a separate  component
of  stockholders' equity.  Realized gains and losses on the  sale
of   available-for-sale  securities  are  determined  using   the
specific-identification  method.   Premiums  and  discounts   are
recognized in interest income using the interest method over  the
period to maturity or to call dates.

Declines  in  the  fair value of individual held-to-maturity  and
available-for-sale  securities below cost  that  are  other  than
temporary   are  reflected  as  write-downs  of  the  individuals
securities  to fair value.  Related write-downs are  included  in
earnings as realized losses.

Loans receivable and allowance for loan losses

Loans are reported at their outstanding balance principal reduced
by  an allowance for loan losses and adjusted for net unamortized
origination fees and costs.

Loan  origination fees and certain direct origination  costs  are
capitalized and recognized as an adjustment of the yield  of  the
related   loan.    Discounts  and  premiums  on   any   purchased
residential real estate loans are amortized to income  using  the
interest   method  over  the  remaining  period  to   contractual
maturity,  adjusted for anticipated prepayments.   Discounts  and
premiums on any purchased consumer loans are recognized over  the
expected  lives  of the loans using methods that approximate  the
interest method.

Interest is accrued and credited to income based on the principal
amount outstanding.  The accrual of interest on impaired loans is
discontinued when, in management's opinion, the borrower  may  be
unable  to  meet  payments  as they become  due.   When  interest
accrual is discontinued, all unpaid accrued interest is reversed.
Interest  income is subsequently recognized only  to  the  extent
cash payments are received.

The  allowance for loan losses is increased by charges to  income
and  decreased  by  charge-offs, net of recoveries.  Management's
periodic evaluation of the adequacy of the allowance is based  on
the Bank's past loan loss experience, known and inherent risks in
the  portfolio, adverse situations that may affect the borrower's
ability   to   repay,  the  estimated  value  of  any  underlying
collateral, and current economic conditions.

Property and equipment

Land  is  carried at cost. Bank premises, furniture and equipment
are  carried  at cost, less accumulated depreciation computed  by
the  straight-line  method  over the following  estimated  useful
lives:
                                              Years
     Buildings and land improvements         20 to 40
     Furniture and equipment                  5 to 10

Foreclosed properties

Real  estate  properties acquired through or  in  lieu  of,  loan
foreclosure  are  to be sold and are initially recorded  at  fair
value  less  anticipated cost to sell at the date of  foreclosure
establishing a new cost basis. After foreclosure, valuations  are
periodically  performed  by management and  the  real  estate  is
carried  at the lower of carrying amount or fair value less  cost
to  sell. Revenue and expenses from operations and changes in the
valuation  allowance  are  included in loss  on  foreclosed  real
estate. The historical average holding period for such properties
is less than 12 months.
<PAGE>8

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note  1.    Organization  and Summary of  Significant  Accounting
Policies, continued

Organization and stock issuance costs

Costs  incurred for the organization of the Company and the  Bank
were  capitalized and are being amortized over five years.  Costs
incurred  in  connection  with  the  Company's  stock  offerings,
consisting   principally  of  registration,  direct   sales   and
promotional  costs, are deferred and offset against the  proceeds
of the stock sales as a charge to surplus.

Stock-based compensation

The Company accounts for its stock-based compensation plans using
the  accounting prescribed by Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees.  The Company is
not required to adopt the fair value based recognition provisions
prescribed   under  SFAS  No.  123,  Accounting  for  Stock-Based
Compensation  (issued  in October 1995), but  complies  with  the
disclosure requirements set forth in the Statement, which include
disclosing pro forma net income as if the fair value based method
of accounting has been applied.

Income taxes

Provision  for  income tax is based on amounts  reported  in  the
statements of operations (after exclusion for non-taxable  income
and  non-deductible expenses) and consists of taxes currently due
plus  deferred taxes on temporary differences in the  recognition
of  income  and expense for tax and financial statement purposes.
Deferred tax assets and liabilities are included in the financial
statements  at  currently enacted income tax rates applicable  to
the  period in which the deferred tax assets and liabilities  are
expected  to be realized or settled.  As changes in tax  laws  or
rates  are  enacted,  deferred tax  assets  and  liabilities  are
adjusted  through the provision for income taxes.   Deferred  tax
assets,  net of a valuation allowance if deemed appropriate,  are
recognized  for  operating losses that are  available  to  offset
future taxable income.

Basic earnings per share

Basic earnings per share is computed by dividing income available
to  common shareholders by the weighted average number of  common
shares  outstanding  during the period, after giving  retroactive
effect to stock splits and dividends.

Diluted earnings per share

The  computation of diluted earnings per share is similar to  the
computation  of  basic  earnings  per  share  except   that   the
denominator  is  increased to include the  number  of  additional
common  shares  that  would  have been outstanding  if  potential
dilutive common shares had been issued. The numerator is adjusted
for  any  changes  in income or loss that would result  from  the
assumed conversion of those potential common shares.

Comprehensive income

Annual  comprehensive income reflects the change in the Company's
equity during the year arising from transactions and events other
than  investments  by  and  distributions  to  stockholders.   It
consists  of net income plus certain other changes in assets  and
liabilities   that  are  reported  as  separate   components   of
stockholders' equity rather than as income or expense.

Financial instruments

Any  derivative financial instruments held or issued by the  Bank
are held or issued for purposes other than trading.

In the ordinary course of business the Bank has entered into off-
balance-sheet financial instruments consisting of commitments  to
extend  credit  and commercial standby letters of  credit.   Such
financial  instruments are recorded in the  financial  statements
when they are funded or related fees are incurred or received.

The  Bank  does not utilize interest-rate exchange agreements  or
interest rate futures contracts.
<PAGE>9

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note  1.    Organization  and Summary of  Significant  Accounting
Policies, continued

Fair value of financial instruments

Statement  of Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments, requires disclosure of
fair  value  information about financial instruments, whether  or
not  recognized  in  the balance sheet.  In  cases  where  quoted
market  prices  are  not  available, fair  values  are  based  on
estimates  using  present  value or other  valuation  techniques.
Those  techniques are significantly affected by  the  assumptions
used,  including the discount rate and estimates of  future  cash
flows.   In that regard, the derived fair value estimates  cannot
be  substantiated by comparison to independent  markets  and,  in
many cases, could not be realized in immediate settlement of  the
instruments.   Statement  No.  107  excludes  certain   financial
instruments and all nonfinancial instruments from its  disclosure
requirements.   Accordingly,  the aggregate  fair  value  amounts
presented do not represent the underlying value of the Company.

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

Cash  and cash equivalents: The carrying amounts reported in  the
balance  sheet  for  cash and cash equivalents approximate  those
assets' fair values.

Interest-bearing  deposits  with  banks:  Fair  values  for  time
deposits are estimated using a discounted cash flow analysis that
applies interest rates currently being offered on certificates to
a  schedule  of aggregated contractual maturities  on  such  time
deposits.

Available-for-sale and held-to-maturity securities:  Fair  values
for securities, excluding restricted equity securities, are based
on  quoted  market  prices, where available.   If  quoted  market
prices  are not available, fair values are based on quoted market
prices  of  comparable  instruments.   The  carrying  values   of
restricted equity securities approximate fair values.

Loans receivable: For variable-rate loans that reprice frequently
and  with  no significant change in credit risk, fair values  are
based  on carrying amounts.  The fair values for other loans  are
estimated using discounted cash flow analysis, based on  interest
rates  currently  being offered for loans with similar  terms  to
borrowers  of similar credit quality.  Loan fair value  estimates
include  judgments regarding future expected loss experience  and
risk  characteristics.   Fair  values  for  impaired  loans   are
estimated  using  discounted  cash flow  analysis  or  underlying
collateral  values,  where applicable.  The  carrying  amount  of
accrued interest receivable approximates its fair value.

Deposit  liabilities: The fair values disclosed  for  demand  and
savings  deposits are, by definition, equal to the amount payable
on   demand   at  the  reporting  date.   The  fair  values   for
certificates  of  deposit are estimated using a  discounted  cash
flow  calculation  that  applies interest rates  currently  being
offered  on  certificates to a schedule of aggregated contractual
maturities on such time deposits.  The carrying amount of accrued
interest payable approximates fair value.

Other  liabilities: For fixed-rate loan commitments,  fair  value
considers the difference between current levels of interest rates
and   the   committed  rates.   The  carrying  amount  of   other
liabilities approximates fair value.

Reclassification

Certain  reclassifications have been made  to  the  prior  years'
financial statements to place them on a comparable basis with the
current   presentation.   Net  loss  and   stockholders'   equity
previously reported was not affected by these reclassifications.

Note 2.   Restricted Cash

To  comply  with  banking regulations, the Bank  is  required  to
maintain certain average cash reserve balances. The daily average
cash  reserve  requirement  was approximately  $157,000  for  the
period including December 31, 1997.
<PAGE>10

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 3.  Securities

Debt   and  equity  securities  have  been  classified   in   the
consolidated balance sheets according to management's intent.
The  carrying  amount  of securities and their  approximate  fair
values at December 31, follow:
<TABLE>
<CAPTION>
                           Amortized  Unrealized Unrealized      Fair
                             Cost        Gains     Losses        Value
                             ____        _____     ______        _____
</CAPTION>
<S>                       <C>           <C>       <C>       <C>
1997
Available for sale:
  U. S. Treasury
    securities            $  1,699,515  $  7,360  $     62  $  1,706,813
  U. S. Government
    agency securities        9,711,569     3,932    35,313     9,680,188
  State and local
    government securities      198,056     2,930         -       200,986
  Restricted equity
    securities                 148,750         -         -       148,750
                          ____________  ________  ________  ____________
                          $ 11,757,890  $ 14,222  $ 35,375  $ 11,736,737
                          ____________  ________  ________  ____________
1996
Available for sale:
  U. S. Treasury
    securities            $  3,992,931  $ 20,987  $  1,265  $  4,012,653
    agency securities        6,659,085     1,614    82,055     6,578,644
  State and local
    government securities      197,316     4,056         -       201,372
  Mortgage-backed
    securities                 383,045         -         -       383,045
  Restricted equity
    securities                 137,050         -         -       137,050
                          ____________  ________  ________  ____________
                          $ 11,369,427  $ 26,657  $ 83,320  $ 11,312,764
                          ____________  ________  ________  ____________
</TABLE>

Investment  securities  with amortized costs  of  $8,334,288  and
$7,182,341  and  market values of $8,320,478  and  $7,115,039  at
December  31,  1997  and  1996,  respectively,  were  pledged  as
collateral on public deposits or for other banking purposes.

Gross realized gains and losses for the years ended December  31,
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
                                       1997      1996      1995
                                       ____      ____      ____
</CAPTION>
<S>                                 <C>       <C>       <C>
Realized gains                      $   8,593 $  33,265 $  11,832
Realized losses                        (5,931)  (16,715)   (1,400)
                                    _________ _________ _________
                                    $   2,662 $  16,550 $  10,432
                                    _________ _________ _________
</TABLE>

The  amortized cost and approximate market value at December  31,
1997  of  investment securities by scheduled maturity  are  shown
below.
<TABLE>
<CAPTION>
                                            Available for Sale
                                        __________________________
                                           Amortized       Fair
                                             Cost          Value
                                             ____          _____
</CAPTION>
<S>                                     <C>           <C>
Due in one year or less                 $  6,813,740  $  6,807,482
Due in one year through five years         2,652,832     2,655,096
Due after five years                       2,142,568     2,125,409
Restricted equity securities                 148,750       148,750
                                        ____________  ____________
                                        $ 11,757,890  $ 11,736,737
                                        ____________  ____________
</TABLE>
<PAGE>11

Notes to Consolidated Financial Statements
________________________________________________________________________________


Note 4.  Loans Receivable

The  major components of loans in the consolidated balance sheets
at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
                                                 1997         1996
                                                 ____         ____
</CAPTION>
<S>                                         <C>          <C>
Commercial                                  $  8,408,795 $  4,343,525
Real estate:
 Construction and land development               635,269      235,000
 Farmland                                              -            -
 Residential, 1-4 families                     8,231,523    4,675,681
 Residential, multifamily                              -            -
 Nonfarm, nonresidential                         147,738      101,804
Agricultural                                     100,000        7,638
Consumer:
 Credit cards                                    185,879      135,174
 Other consumer                                4,207,357    2,564,454
States and political subdivisions                257,942      343,057
Other                                            556,206      507,293
                                            ____________ ____________
                                              22,730,709   12,913,626

Net deferred loan fees                           (65,482)     (35,761)
Allowance for loan losses                       (270,000)    (155,000)
                                            ____________ ____________
                                            $ 22,395,227 $ 12,722,865
                                            ____________ ____________
</TABLE>

Nonperforming assets at December 31, 1997 and 1996  are  detailed
as follows:
<TABLE>
<CAPTION>
                                                 1997      1996
                                                 ____      ____
</CAPTION>
<S>                                           <C>        <C>
Nonaccrual loans                              $       -  $  17,459
Restructured loans                                    -          -
Loans past due 90 days or more                        -     52,258
                                              _________  _________
     Total nonperforming loans                        -     69,717

Foreclosed, repossessed and idled properties     35,850          -
                                              _________  _________
     Total nonperforming assets               $  35,850  $  69,717
                                              _________  _________
</TABLE>
<PAGE>12

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 4.  Loans Receivable, continued

Gross  interest income that would have been recognized  for  each
year  if  the  nonaccrual loans and restructured loans  had  been
current  in  accordance with their original terms  and  had  been
outstanding  throughout the period or since  origination,  or  if
held  part of the period, is detailed below.  Applicable interest
income that was actually collected and included in net income for
each year is also summarized below:
<TABLE>
<CAPTION>
                                       1997      1996     1995
                                       ____      ____     ____
</CAPTION>
<S>                                 <C>       <C>       <C>
Nonaccrual loans:
 Interest income, original terms    $       - $   4,789 $       -
                                    _________ _________ _________

 Interest income, recognized        $       - $   2,784 $       -
                                    _________ _________ _________
</TABLE>

The  Bank  has  no  restructured loans  during  the  years  ended
December 31, 1997, 1996 or 1995.

An  allowance determined in accordance with SFAS No. 114 and  No.
118  is  provided  for all impaired loans.   The  total  recorded
investment in impaired loans and the related allowance  for  loan
losses at December 31, the average annual recorded investment  in
impaired  loans and interest income recognized on impaired  loans
for the year (all approximate) are summarized below:
<TABLE>
<CAPTION>
                                       1997     1996     1995
                                       ____     ____     ____
</CAPTION>
<S>                                 <C>       <C>       <C>
Recorded investment at
  December 31,                      $      -  $ 18,533  $      -
                                    ________  ________  ________

Allowance for loan losses           $      -  $  1,074  $      -
                                    ________  ________  ________
Average recorded investment
  for the year                      $      -  $  3,658  $      -
                                    ________  ________  ________
Interest income recognized
  for the year                      $      -  $  2,784  $      -
                                    ________  ________  ________
</TABLE>

The  Bank  is not committed to lend additional funds  to  debtors
whose loans have been modified.

Note 5.  Allowance for Loan Losses

An  analysis of the changes in the allowance for loan losses  are
as follows:
<TABLE>
<CAPTION>
                                1997       1996      1995
                                ____       ____      ____
</CAPTION>
<S>                         <C>        <C>        <C>
Balance, beginning          $ 155,000  $  81,202  $  30,000
                            _________  _________  _________
Loans charged off             (82,476)   (43,291)   (18,221)
Recoveries                     11,533     13,142      1,334
                            _________  _________  _________
Net loans charged off         (70,943)   (30,149)   (16,887)

Provision for loan losses     185,943    103,947     68,089
                            _________  _________  _________
Balance, ending             $ 270,000  $ 155,000  $  81,202
                            _________  _________  _________
</TABLE>
<PAGE> 13

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 6.  Property and Equipment

Components  of  property  and  equipment  and  total  accumulated
depreciation at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
                                                1997      1996
                                                ____      ____
</CAPTION>
<S>                                         <C>         <C>
Land                                        $   280,000 $   250,000
Land improvements                                51,492      49,564
Leasehold improvements                           14,415           -
Buildings                                     1,228,257     932,609
Furniture and equipment                         477,693     290,921
                                            ___________ ___________
                                              2,051,857   1,523,094
Less accumulated depreciation                  (198,002)   (114,498)
                                            ___________ ___________
                                            $ 1,853,855 $ 1,408,596
                                            ___________ ___________
</TABLE>

The  Company  leased  its  temporary banking  facility  under  an
agreement  accounted for as an operating lease  at  a  rental  of
$2,244  per month, increasing to $3,675 per month in July,  1995.
This   agreement  expired  in  December,  1995.   Rental  expense
relative to this lease was approximately $33,440 for 1995.

Note 7.  Short-term Debt

Short-term  debt  consists  of  federal  funds  purchased,  which
generally  mature  within one to four days from  the  transaction
date, and other short-term borrowings.  Additional information at
December  31,  1997  and 1996 and for the  years  then  ended  is
summarized below:
<TABLE>
<CAPTION>
                                                1997         1996
                                                ____         ____
</CAPTION>
<S>                                         <C>          <C>
Outstanding balance at December 31          $         -  $         -
                                            ___________  ___________
Year-end weighted averaged rate                       -            -
                                            ___________  ___________
Daily average outstanding during the year   $   307,507  $         -
                                            ___________  ___________
Average rate for the year                          5.58%           -
                                            ___________  ___________
Maximum outstanding at any month-end
  during the year                           $ 1,172,000  $         -
                                            ___________  ___________
</TABLE>

At  December 31, 1997, the Bank had established lines  of  credit
totaling  $2,000,000 with various correspondent banks to  provide
additional  liquidity if and as needed.  There  were  no  amounts
outstanding  under  these arrangements at December  31,  1997  or
1996.

Note 8.  Fair Value of Financial Instruments

The  estimated fair values of the Company's financial instruments
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
                                 December 31, 1997 December 31, 1996
                                 _________________ _________________
                                  Carrying  Fair    Carrying  Fair
                                   Amount   Value    Amount   Value
                                   ______   _____    ______   _____
</CAPTION>
<S>                               <C>      <C>      <C>      <C>
Financial assets                  
  Cash and cash equivalents       $ 2,291  $ 2,291  $ 1,189  $ 1,189
  Federal funds sold                1,021    1,021      402      402
  Securities, available-for-sale   11,737   11,737   11,313   11,313
  Loans, net of allowance
    for loan losses                22,395   22,586   12,723   12,793

Financial liabilities
  Deposits                         36,594   36,644   24,041   24,049

Off-balance-sheet assets
  (liabilities)
  Commitments to extend credit and
    standby letters of credit           -        -        -        -

</TABLE>
<PAGE>14

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 9. Earnings Per Share

The  following table details the computation of basic and diluted
earnings per share for each year ended
December 31.
<TABLE>
<CAPTION>
                                        1997      1996       1995
                                        ____      ____       ____
</CAPTION>
<S>                                 <C>        <C>        <C>
Net income (loss)
 (income available to common
  shareholders)                     $(247,250) $(185,645) $(331,582)
                                    _________  _________  _________
Weighted average common shares
 outstanding                          546,453    546,531    546,303
Effect of diluted securities, options       -          -          -
                                    _________  _________  _________
Weighted average common shares
  outstanding, diluted                546,453    546,531    556,303
                                    _________  _________  _________
Basic  earnings per share           $    (.45) $    (.34) $    (.61)
                                    _________  _________  _________
Diluted  earning per share          $    (.45) $    (.34) $    (.61)
                                    _________  _________  _________
</TABLE>

At  December  31, 1997, 1996, and 1995, exercisable options  were
outstanding (see Note 10) with an exercise price below the market
value  of the Bank's stock at those dates.  This condition placed
those  options  "in  the money" at each respective  December  31.
However,  exercise of those options is not assumed  in  computing
diluted  earnings per share for any year presented because  their
exercise would reduce the annual reported diluted loss per share.

Note 10. Subsequent Event

On February 10, 1998, the Company completed sale of 380,000 shares
of common stock in a public offering.  The net proceeds of the sale,
approximately $3.2 million, will be used for general purposes and
to finance future growth.

Note 11.  Employee Benefit Plans

The  Bank  maintains  a profit sharing plan pursuant  to  Section
401(k)   of   the  Internal  Revenue  Code.   The   plan   covers
substantially  all  employees who  have  completed  one  year  of
service.    Participants   may   contribute   a   percentage   of
compensation,  subject to a maximum allowed under  the  Code.  In
addition,  the  Bank  may make additional  contributions  at  the
discretion of Board of Directors.  The Bank made no contributions
during the years ended December 31, 1997, 1996 or 1995.

Note 12. Common Stock

During  1995 the Company adopted a stock option plan under  which
up  to  344,375 shares of stock may be issued. Shares subject  to
the  plan  may  be  issued in any combination of incentive  stock
options,  non-incentive  stock  options,  or  restricted   stock,
provided  that  the total number of shares issuable  pursuant  to
incentive  stock  options  may not be more  than  62,500  without
shareholder  approval.   Termination  of  restrictions   on   any
restricted  stock  granted and expiration  of  any  non-incentive
stock  options  granted  are controlled  by  the  terms  of  each
individual grant. Incentive stock options expire no more than  10
years  from  the date of grant.   Exercise prices of all  options
are determined by
each individual grant except that incentive stock options may not
be granted at less than fair market value and non-incentive stock
options may not be granted at less than 80% of fair market  value
on  each  option's respective date of grant.  Vesting of options,
if  not immediately exercisable, is determined in accordance with
the terms of each option granted.

Activity under the plan during the years ended December 31,  1997
and 1996 is summarized below (adjusted for the May 30, 1997 five-
for-four stock split):
<TABLE>
<CAPTION>
                                 Granted and Outstanding
                          _________________________________________
                                                  Non-
                          Available Incentive  incentive
                             for      Stock      Stock   Restricted
                            Grant    Options    Options    Stock
                            _____    _______    _______    _____
</CAPTION>
<S>                         <C>      <C>        <C>        <C>
Balance December 31, 1995   138,125         -   206,250         -

Granted                     (6,534)         -     6,534         -
Exercised                         -         -         -         -
                            _______   _______   _______   _______
Balance December 31, 1996   131,591         -   212,784         -

Granted                     (6,470)               6,470         -
Exercised                         -         -         -         -
                            _______   _______   _______   _______
Balance December 31, 1997   125,121         -   219,254         -
                            _______   _______   _______   _______
</TABLE>
<PAGE>15

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 12. Common Stock, continued

Additional  information  relating to the  plan  is  listed  below
(adjusted for the May 30, 1997 five-for-four stock split):
<TABLE>
<CAPTION>
                                         1997        1996       1995
                                         ____        ____       ____
</CAPTION>
<S>                                 <C>          <C>          <C>
Outstanding options at December 31:
 Exercise price, beginning of
   the year<F1>                     $      8.00  $      8.00  $      8.00
 Exercise price, end of the year<F1>$      8.00  $      8.00  $      8.00
 Range of exercise prices:
  From                              $      8.00  $      8.00  $      8.00
  To                                $      8.00  $      8.00  $      8.00
 Remaining contractual life
   in months<F1>                             90          101          112
                                                   
Exercisable options outstanding
 at December 31:
 Number                                 219,254      212,781      206,250
 Exercise price                     $      8.00  $      8.00  $      8.00

Weighted average exercise
  price of options:                                                
 Granted during the year            $      8.00  $      8.00  $      8.00
 Exercised during the year          $         -  $         -  $         -
 Forfeited during the year          $         -  $         -  $         -
 Expired during the year            $         -  $         -  $         -

Significant assumptions used in
  determining fair value:
 Risk-free interest rate                    6.5%         7.0%         7.0%
 Expected life in years                      10           10           10
 Expected dividends                         0.0%         0.0%         0.0%
 Expected volatility                        7.6%         5.0%         2.7%

Grant-date fair value:
 Options granted during the year    $    27,302  $    26,259  $   829,234
 Restricted stock awards granted
   during the year                  $         -  $         -  $         -

Results of operations:
 Compensation cost recognized
   in income for all stock-based
   compensation awards              $         -  $         -  $         -
                                    ___________  ___________  ___________
 Pro  forma  net  income<F2>        $  (274,552) $  (211,904) $(1,160,816)
                                    ___________  ___________  ___________
 Pro forma earnings per
   common share<F2>                 $      (.50) $      (.39) $     (2.12)

                                    ___________  ___________  ___________
______________________________
<FN>
<F1>  Weighted average
<F2>  As if the fair value based method prescribed by SFAS No. 123
has been applied.
</FN>
</TABLE>
<PAGE>16

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 13.   Income Taxes

Operating loss and carryforwards

The  Company  has loss carryforwards of approximately  $1,086,000
for Federal income tax purposes that may be used to offset future
taxable  income.   If not previously utilized, the  Federal  loss
carryforwards will expire between 2008 and 2012.

Current and deferred income tax components

The  components  of  income  tax expense  (all  Federal)  are  as
follows:
<TABLE>
<CAPTION>
                                      1997       1996       1995
                                      ____       ____       ____
</CAPTION>
<S>                               <C>         <C>        <C>
Current                           $        -  $       -  $       -
Deferred                             (82,364)   (67,750)  (111,968)
Deferred tax asset valuation
  allowance change                    82,364     67,750    111,968
                                  __________  _________  _________
                                  $        -  $       -  $       -
                                  __________  _________  _________
</TABLE>

Rate Reconciliation

A  reconciliation of income tax expense (benefit) computed at the
statutory  federal  income  tax  rate  expense  included  in  the
consolidated statement of operations follows:
<TABLE>
<CAPTION>
                                       1997      1996      1995
                                       ____      ____      ____
</CAPTION>
<S>                               <C>         <C>        <C>
Tax at statutory federal rate     $  (84,065) $ (63,119) $(112,738)
Other                                  1,701     (4,631)       770
Deferred tax asset valuation
 allowance change                     82,364     67,750    111,968
                                  __________  _________  _________
                                  $        -  $       -  $       -
                                  __________  _________  _________
</TABLE>

Deferred tax analysis

The  components  of  net  deferred tax assets  (all  Federal)  at
December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
                                                 1997      1996
                                                 ____      ____
</CAPTION>
<S>                                          <C>        <C>
Deferred tax assets                          $  468,331 $  354,588
Deferred tax liabilities                        (56,711)   (25,332)
Deferred tax asset valuation allowance         (411,620)  (329,256)
                                             __________ __________
                                             $        - $        -
                                             __________ __________
</TABLE>
<PAGE>17

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 13. Income Taxes, continued

Tax  effects of each significant item creating deferred taxes are
summarized below:
<TABLE>
<CAPTION>
                                                 1997      1996
                                                 ____      ____
</CAPTION>
<S>                                           <C>       <C>
Allowance for loan losses                     $  47,001 $  18,512
Pre-operating expenses                           28,613    46,683
Net operating losses                            369,331   276,242
Deferred fee income                              22,264    12,159
Contributions                                     1,122       992
Accretion of discount on
 investment securities                          (18,657)   (1,828)
Depreciation                                    (38,054)   (23,504)
                                              _________ __________
                                              $ 411,620 $  329,256
                                              _________ __________
</TABLE>

Note 14.  Commitments and Contingencies

Financial instruments with off-balance-sheet risk

The Bank is party to 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 standby  letters  of  credit.
These  instruments involve, to varying degrees,  credit  risk  in
excess  of  the  amount  recognized in the  consolidated  balance
sheets.

The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments.  The Bank uses the  same
credit policies in making commitments and conditional obligations
as for on-balance-sheet instruments.

A summary of the Bank's commitments at December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
                                             1997         1996
                                             ____         ____
</CAPTION>
<S>                                      <C>          <C>
Commitments to extend credit             $ 2,863,681  $ 3,921,000
Standby letters of credit                     80,250            -
                                         ___________  ___________
                                         $ 2,943,931  $ 3,921,000
                                         ___________  ___________
</TABLE>
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.
Since  many  of  the commitments are expected to  expire  without
being drawn upon, the total commitment amounts do not necessarily
represent  future  cash requirements.  The  Bank  evaluates  each
customer's creditworthiness on a case-by-case basis.  The  amount
of  collateral  obtained, if deemed necessary by  the  Bank  upon
extension  of credit, is based on management's credit  evaluation
of  the  party.  Collateral held varies, but may include accounts
receivable,  inventory, property and equipment, residential  real
estate and income-producing commercial properties.

Standby  letters of credit are conditional commitments issued  by
the  Bank to guarantee the performance of a customer to  a  third
party.   Those guarantees are primarily issued to support  public
and private borrowing arrangements.  The credit risk involved  in
issuing  letters  of  credit  is essentially  the  same  as  that
involved   in  extending  other  loan  facilities  to  customers.
Collateral  held  varies as specified above and  is  required  in
instances which the Bank deems necessary.
<PAGE>18

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 14.  Commitments and Contingencies, continued

Concentrations of credit risk

Substantially  all  of  the Bank's loans, commitments  to  extend
credit  and  standby  letters  of credit  have  been  granted  to
customers  in  the  Bank's market area  and  such  customers  are
generally depositors of the Bank. The concentrations of credit by
type  of  loan  are  set forth in Note 4.   The  distribution  of
commitments  to  extend credit approximates the  distribution  of
loans  outstanding.   Standby  letters  of  credit  were  granted
primarily to commercial borrowers.  The Bank's primary  focus  is
toward  consumer  oriented and small business  transactions,  and
accordingly, it does not have a significant number of credits  to
any  single borrower or group of related borrowers in  excess  of
$250,000.  The Bank has cash and cash equivalents on deposit with
financial institutions which exceed federally-insured limits.

Other

The   Company  has  entered  a  five-year  employment  and  bonus
agreement   with  the  Company's  President,  which   effectively
commenced with the opening of the Bank.

Note 15.   Regulatory Restrictions

Capital requirements

The  Bank  is  subject to various regulatory capital requirements
administered  by  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
consolidated   financial  statements.  Under   capital   adequacy
guidelines  and  the regulatory framework for  prompt  corrective
action,  the  Bank  must  meet specific capital  guidelines  that
involve  quantitative measures of the Bank's assets, liabilities,
and   certain   off-balance-sheet  items  as   calculated   under
regulatory accounting practices.  The Bank's capital amounts  and
classification are also subject to qualitative judgments  by  the
regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and  ratios
(set  forth  in the table below) of total and Tier I  capital  to
risk-weighted assets, and of Tier I capital to average assets, as
all those terms are defined in regulations.  Management believes,
as of December 31, 1996, that the Bank meets all capital adequacy
requirements to which it is subject.

As  of  December 31, 1997, the most recent notification from  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 the  Bank  must
maintain minimum total risk-based, Tier I risk-based, and Tier  I
leverage  ratios as set forth in the following table.  There  are
no  conditions or events since that notification that  management
believes have changed the institution's category.
<PAGE>19

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 15.   Regulatory Restrictions, continued

The  Bank's actual capital amounts and ratios are also  presented
in the table.
<TABLE>
<CAPTION>
                                                               To Be Well
                                          Required         Capitalized Under
                                         For Capital       Prompt Corrective
                         Actual       Adequacy Purposes    Action Provisions
                   ________________   _________________   __________________
                     Amount   Ratio     Amount   Ratio     Amount     Ratio
                     ______   _____     ______   _____     ______     _____
</CAPTION>
<S>                <C>        <C>     <C>          <C>    <C>          <C>
December 31, 1997
 Total Capital
  (to Risk-Weighted
   Assets)         $3,223,614 13.5% > $1,916,318 > 8.0% > $2,395,398 > 10.0%
 Tier I Capital                     -            -      -            -
  (to Risk-Weighted
   Assets)         $2,953,614 12.3% > $  958,159 > 4.0% > $1,437,239 >  6.0%
 Tier I Capital                     -            -      -            -
  (to  Average
   Assets)         $2,953,614  7.7% > $1,528,055 > 4.0% > $1,910,069 >  5.0%
                                    -            -      -            -
December 31, 1996
 Total Capital
  (to Risk-Weighted
   Assets)         $3,294,381 23.1% > $1,142,913 > 8.0% > $1,428,641 > 10.0%
 Tier I Capital                     -            -      -            -
  (to Risk-Weighted
   Assets)         $3,139,381 22.0% > $  571,457 > 4.0% > $  857,185 >  6.0%
 Tier I Capital                     -            -      -            -
  (to Average
   Assets)         $3,139,381 11.6% > $1,080,749 > 4.0% > $1,350,936 >  5.0%

                                    -            -      -            -
</TABLE>

Dividends

The  Company's dividend payments (when available)  will  be  made
primarily from dividends received from the Bank. Under applicable
federal  law, the Comptroller of the Currency restricts  national
bank  total dividend payments in any calendar year to net profits
of  that year, as defined, combined with retained net profits for
the  two  preceding years. At December 31, 1996,  there  were  no
retained  net profits free of such restriction.  The  Comptroller
also  has  authority under the Financial Institutions Supervisory
Act  to  prohibit a national bank from engaging in an  unsafe  or
unsound  practice in conducting its business.   It  is  possible,
under certain circumstances, the Comptroller could assert
that  dividends or other payments would be an unsafe  or  unsound
practice.

Intercompany transactions

Legal  lending  limits on loans by the Bank to  the  Company  are
governed  by  Federal  Reserve Act 23A,  and  differ  from  legal
lending limits on loans to external customers.  Generally, a bank
may  lend up to 10% of its capital and surplus to its parent,  if
the  loan  is secured.  If collateral is in the form  of  stocks,
bonds,  debentures or similar obligations, it must have a  market
value  when the loan is made of at least 20% more than the amount
of  the  loan,  and  if  obligations  of  a  state  or  political
subdivision or agency thereof, it must have a market value of  at
least  10%  more than the amount of the loan.  If such loans  are
secured  by obligations of the United States or agencies thereof,
or  by  notes, drafts, bills of exchange or bankers'  acceptances
eligible  for  rediscount or purchase by a Federal Reserve  Bank,
requirements  for  collateral in excess of  loan  amount  do  not
apply.   Under this definition, the legal lending limit  for  the
Bank  on  loans  to  the  Company was approximately  $298,000  at
December  31, 1997. One 23A transaction existed between the  Bank
and the Company at December 31, 1997.

On  October 31, 1997, the Company acquired a future banking  site
at  public auction.  The Company borrowed $158,179 from the  Bank
to complete the purchase.
<PAGE>20

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 16.   Transactions with Related Parties

The  Bank  has  entered  into transactions  with  its  directors,
significant shareholders and their affiliates (related  parties).
Such transactions were made in the ordinary course of business on
substantially  the same terms and conditions, including  interest
rates  and collateral, as those prevailing at the same  time  for
comparable transactions with other customers, and did not, in the
opinion  of management, involve more than normal credit  risk  or
present other unfavorable features.

Loans

Aggregate loan transactions with related parties were as follows:
<TABLE>
<CAPTION>
                                          1997        1996
                                          ____        ____
</CAPTION>
<S>                                   <C>         <C>
Balance, beginning                    $ 1,075,994 $   524,726

New loans and advances                    959,582     867,146
Repayments                               (610,932)   (309,392)
Change in relationship                          -      (6,486)
                                      ___________ ___________
Balance, ending                       $ 1,424,644 $ 1,075,994
                                      ___________ ___________
</TABLE>

Leases

During 1997 the Company leased office space which is used as a
branch location under the terms of an agreement accounted for as
an operating lease.  The lessor is a partnership in which one of
the Company directors is a partner.  Rent expense recognized
under this lease in 1997 was $6,250.  Future minimum lease
payments under this agreement are $15,000 and $8,750 in 1998 and
1999, respectively.

Note 17.   Parent Company Financial Information

Condensed  financial  information  of  CNB  Holdings,   Inc.   is
presented as follows:

                         Balance Sheets
                   December 31, 1997 and 1996
<TABLE>
<CAPTION>
                                                 1997      1996
                                                 ____      ____
</CAPTION>
<S>                                         <C>         <C>
Assets
    Cash and due from banks                 $    28,836 $   181,042
    Investment in subsidiary
     bank at equity                           2,961,011   3,119,995
    Property and equipment                      190,420           -
    Other assets                                 93,426      34,149
                                            ___________ ___________
     Total assets                           $ 3,273,693 $ 3,335,186
                                            ___________ ___________
Liabilities
    Due to subsidiary                       $   158,178 $         -
    Accounts payable and other liabilities        4,896      11,665
                                            ___________ ___________
     Total liabilities                          163,074      11,665
                                            ___________ ___________
Stockholders' equity:
    Common stock                              2,731,995   2,186,125
    Surplus                                   1,609,748   2,156,782
    Retained deficit                         (1,209,973)   (962,723)
    Unrealized depreciation on
     subsidiary's investment
     securities available for sale              (21,151)    (56,663)
                                            ___________ ___________
     Total stockholders' equity               3,110,619   3,323,521
                                            ___________ ___________
     Total liabilities and
      stockholders' equity                  $ 3,273,693 $ 3,335,186
                                            ___________ ___________
</TABLE>
<PAGE>21

Notes to Consolidated Financial Statements
________________________________________________________________________________

Note 17.   Parent Company Financial Information, continued

                    Statements of Operations
          Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                       1997       1996       1995
                                       ____       ____       ____
</CAPTION>
<S>                                 <C>        <C>        <C>
Income:
 Interest on deposits with banks    $   6,118  $   7,633  $  11,450
 Other income                             110          -          -
                                    _________  _________  _________
                                        6,228      7,633     11,450
                                    _________  _________  _________
Expenses:
    Professional fees                  44,199     23,381     59,326
    Other expenses                     14,783     26,048     23,148
                                    _________  _________  _________
     Total expenses                    58,982     49,429     82,474
                                    _________  _________  _________
     Loss before tax benefit and
      equity in undistributed
      income of subsidiary            (52,754)   (41,796)   (71,024)

Federal income tax benefit                  -          -          -
                                    _________  _________  _________
     Loss before equity in
      undistributed income of
      subsidiary                      (52,754)   (41,796)   (71,024)

Equity in undistributed loss
 of subsidiary                       (194,496)  (143,849)  (260,558)
                                    _________  _________  _________
     Net loss                       $(247,250) $(185,645) $(331,582)
                                    _________  _________  _________
</TABLE>
                    Statements of Cash Flows
          Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                       1997       1996       1995
                                       ____       ____       ____
</CAPTION>
<S>                                 <C>        <C>        <C>
Cash flows from operating activities:
    Net loss                        $(247,250) $(185,645) $(331,582)
    Adjustments to reconcile net
     loss to net cash provided by
     operating activities:
         Amortization                   7,724     23,173     15,499
         Increase in equity in
          undistributed loss of
          subsidiary                  194,496    143,849    260,558
         Increase in other assets         467      1,999      4,339
         Increase (decrease) in
          other liabilities            (6,769)    (1,985)     8,521
                                    _________  _________  _________
       Net cash provided (used)
        by operating activities       (51,332)   (18,609)   (42,665)
                                    _________  _________  _________
Cash flows from investing
 activities, purchase of property
 and equipment                       (190,420)         -          -
                                    _________  _________  _________
Cash flows from financing activities:
       Net intercompany borrowings    158,178          -          -
       Stock issuance costs           (67,468)         -          -
       Redemption of fractional
        shares                         (1,164)         -          -
                                    _________  _________  _________
         Net cash provided by
          financing activities         89,546          -          -
                                    _________  _________  _________
         Decrease in cash and due
          from banks                 (152,206)   (18,609)   (42,665)

Cash and cash equivalents,
 beginning                            181,042    199,651    242,316
                                    _________  _________  _________
Cash and cash equivalents,
 ending                             $  28,836  $ 181,042  $ 199,651
                                    _________  _________  _________
</TABLE>
<PAGE>22
TITLE PAGE TO MD&A
<PAGE>23
________________________________________________________________________________

Management's Discussion and Analysis
________________________________________________________________________________

             MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                
The  following presents management's discussion and analysis  of
the  consolidated financial condition and results of  operations
of  the  Company as of the dates and for the periods  indicated.
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto.

The  Consolidated  Financial Statements  include  the  financial
information of the Company and the Bank.  As the Bank represents
substantially  all  of  the  Company's  activities,  comparative
discussions  of  consolidated versus non-consolidated  financial
statements are unnecessary.

There  are  no current recommendations by regulatory authorities
which,  if  implemented,  would have a material  effect  on  its
liquidity,  capital resources or results of  operations.   There
are  no agreements between the Company and either the OCC or the
Federal Reserve Board, nor has either regulatory agency made any
recommendations  concerning the operations of the  Company  that
could have a material effect on its liquidity, capital resources
or results of operations.

Overview

The  Company  commenced operations on March 8, 1993,  while  the
Bank   began   operations  on  August  29,  1994.   Accordingly,
financial  data for 1994 reflects only four months of  activity.
The  Company's sole subsidiary, the Bank, operates by attracting
deposits from the general public and using such deposit funds to
make  commercial,  consumer,  and residential  construction  and
permanent  mortgage  real estate loans.   Revenues  are  derived
principally from interest on loans and investments.  Changes  in
the  volume and mix of these assets and liabilities, as well  as
changes  in the yields earned and rates paid, determine  changes
in net interest income.

The Company's assets increased over 45% in 1997 and over 75%  in
both 1996 and 1995.  Total assets  increased to $39.7 million as
compared  to $27.4 million at December 31, 1996.  Virtually  all
of  this  asset  growth  was  from  increased  deposits.   Total
deposits were $36.6 million at December 31, 1997 compared to $24
million at December 31, 1996.  The Bank used these new resources
primarily  to  fund new loans.  The Bank's net  loans  increased
over  75% in 1997, and over 90% in each of 1996 and 1995.  Total
net  loans  were $22.4 million as compared to $12.7  million  at
December 31, 1996.

During  1997  the Company filed for, and received approval  from
the  SEC for a secondary stock offering  of up to 380,000 shares
of  common stock at a price of $9 per share.  The stock sale was
closed  February 10, 1998 after the sale of 380,000  shares  for
net  proceeds of approximately $3.2 million.  Other  significant
events  that occurred during 1997 were the opening of  Community
National Bank's first branch in downtown Pulaski in October  and
the  purchase of a 19,900 square foot, three story  building  to
house the branch and to provide for future growth.
<PAGE>24

Management's Discussion and Analysis
________________________________________________________________________________

Net Interest Income and Average Balances (thousands)<F1>
<TABLE>
<CAPTION>
                                Years Ended December 31,
                 _______________________________________________________________
                          1997                 1996                 1995
                 ____________________ ____________________ _____________________
                        Interest             Interest             Interest
                 Average Income/Yield/Average Income/Yield/Average Income/Yield/
                 Balance Expense Cost Balance Expense Cost Balance Expense Cost
                 _______ _______ ____ _______ _______ ____ _______ _______ ____
</CAPTION>
<S>              <C>     <C>    <C>   <C>     <C>     <C>   <C>    <C>   <C>
Interest-earning assets:
   Taxable investment
    securities   $12,242 $  746 6.09% $ 8,957 $  578  6.45% $ 5,350 $378  7.07%
   Federal funds
    sold             691     40 5.79    1,179     71  6.02      967   56  5.79
  Loans, net      17,652  1,668 9.45    9,695    926  9.55    3,620  377 10.41
                 _______ ______ ____  _______ ______  ____  _______ ____ _____
   Total
    interest-
    earning
    assets        30,585  2,454        19,831  1,575          9,937  811
                 _______ ______       _______ ______        _______ ____
   Yield on average
    interest-earning
    assets                      8.02%                 7.94%               8.16%
                                ____                  ____               _____ 
Noninterest-earning assets:
  Cash and due
   from banks      2,106                1,465                   660
  Premises and
   equipment       1,556                1,410                   718
  Interest
   receivable
   and other         430                  272                   249
                 _______              _______               _______
    Total
    noninterest-
    earning
    assets         4,092                3,147                 1,627
                 _______              _______               _______
    Total
     assets      $34,677              $22,978               $11,564
                 _______              _______               _______
Interest-bearing liabilities:
   Demand
    deposits     $ 8,094    327 4.04% $ 5,304    191  3.60% $   917   33  3.60%
   Savings
   deposits        3,501    123 3.51    2,276     88  3.87      940   30  3.19
   Time deposits  16,553    904 5.46   10,725    575  5.36    5,008  283  5.65
   Federal funds
    purchased        308     17 5.52        -      -     -        -    -     -
                 _______ ______ ____  _______ ______  ____  _______ ____ _____  
 Total interest-
  bearing
  liabilities     28,456  1,371        18,305    854          6,865  346
                 _______ ______       _______ ______        _______ ____
 Cost of average
  interest-bearing
   liabilities                  4.82%                 4.67%               5.04%
                                ____                  ____                ____
Noninterest-bearing liabilities:
 Demand deposits   2,909                1,492                 1,158
  Interest
   payable and
   other             122                   30                    27
                 _______              _______               _______
    Total
    noninterest-
    bearing
    liabilities    3,031                1,522                 1,185
                 _______              _______               _______
    Total
     liabilities  31,487               19,827                 8,050

Stockholders'
 equity            3,190                3,151                 3,514
                 _______              _______               _______
  Total          
   liabilities
   and
   stockholders'
   equity        $34,677              $22,978               $11,564
                 _______              _______               _______

   Net interest income   $1,083               $  721                $465
                         ______               ______                ____
   Net yield on
    interest-earning assets     3.54%                 3.63%               4.68%
                                ____                  ____                ____
<FN>
____________________
<F1>    Income and yields are computed on a tax equivalent basis.
</FN>
</TABLE>
<PAGE>25

Management's Discussion and Analysis
________________________________________________________________________________

Net Interest Income

Net  interest  income, the principal source  of  income  for  the
Company  and  the  Bank,  is the amount of  income  generated  by
earning  assets (primarily loans and investment securities)  less
the  interest  expense  incurred on interest-bearing  liabilities
(primarily deposits used to fund earning assets).  Changes in the
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.   The
preceding  table presents the average balances of total interest-
earning  assets  and total interest-bearing liabilities  for  the
periods  indicated, showing the average distribution  of  assets,
liabilities  and  stockholders' equity, and the  related  income,
expense,  and  corresponding weighted average yields  and  costs.
The  average  balances used for the purposes of  this  table  and
other  statistical disclosures were calculated by using the daily
average balances.

Interest  income  for  1997 increased to $2.5  million,  a  55.8%
increase  over the 1996 amount of $1.6 million.  Interest  income
for 1996 increased 94.2% from $811,000 in 1995.  The increases in
interest  income  during 1997 and 1996 are due  to  increases  in
average  interest-earning assets in both years  while  yields  on
these  assets  remained  relatively  constant.   Average  earning
assets  were  $30.6  million during 1997, an  increase  of  $10.8
million  over the 1996 average of $19.8 million.  Average earning
assets  increased  99.6% during 1995.  Yields on interest-earning
assets during 1997, 1996 and 1995 were within a range of 22 basis
points.  Those yields were 8.02%, 7.94% and 8.16%, respectively.

Interest  rates  charged on loans vary with the degree  of  risk,
maturity  and  amount of the loan.  Competitive pressures,  money
market  rates,  availability of funds, and government  regulation
also  influence interest rates.  On average, loans yielded  9.45%
in  1997 compared to 9.55% in 1996 and 10.41% in 1995, reflecting
lower  market  interest  rates and  an  increase  in  1-4  family
residential  mortgage  loans  as  a  percentage  of  the  overall
portfolio.

Interest expense increased by 60.5% in 1997 to $1.4 million  from
$854,000 in 1996.  Interest expense increased by $508,000 in 1996
to  $854,000 from $346,000 in 1995.  These increases were due  to
increases  in average interest-bearing liabilities of  $10.2  and
$11.4 million during 1997 and 1996, respectively.  The rate  paid
on  interest-bearing liabilities increased 15 basis points during
1997  to  4.82%.   This  increase is due  in  part  to  the  Bank
utilizing Federal funds to provide short-term liquidity  for  the
first   time   in   1997.   The  rate  paid  on  interest-bearing
liabilities  decreased  37 basis points during  1996,  reflecting
decreased market rates.

Net  interest  income increased over 50% in 1997 and  1996.   Net
interest income was $1.1 million, $721,000 and $465,000 in  1997,
1996  and  1995,  respectively.   These  increases  are  due   to
increases  in  the volume of net average earning assets  in  both
years.   Net interest margin has decreased to 3.54% in 1997  from
3.63%  in  1996,  and  4.68% in 1995.  Net  interest  margin  has
declined over the past two years even though net interest  income
has increased.  This is because of increases in the percentage of
average  interest-bearing liabilities to average interest-earning
assets to 93.0% in 1997 from 92.3% in 1996 and 69.1% in 1995, due
primarily to rapid growth combined with net losses.  The  effects
of  changes  in  volumes  and rates on net  interest  income  for
various periods are shown in the following table.
<PAGE>26

Management's Discussion and Analysis
________________________________________________________________________________

Rate/Volume Variance Analysis (thousands)
<TABLE>
<CAPTION>
                      1997 Compared to 1996    1996 Compared to 1995
                     ________________________ ________________________
                                  Variance                  Variance
                     Interst     Atrributable  Interest   Atrributable 
                     Income/         To        Income/        To
                     Expense   ______________  Expense ________________
                     Variance   Rate   Volume  Variance   Rate   Volume
                     ________   ____   ______  ________   ____   ______
</CAPTION>
<S>                  <C>     <C>       <C>      <C>      <C>     <C>                              
Interest-earning assets:                                         
  Deposits in other
   banks             $   -    $   -    $   -    $   -    $   -    $   -
  Taxable investment
   securities          168      (44)     212      200      (55)     255            
  Federal funds sold   (31)      (2)     (29)      15        3       12
  Loans                742      (18)     760      549      (83)     632
                     _____    _____    _____    _____    _____    _____
   Total               879      (64)     943      764     (135)     899
                     _____    _____    _____    _____    _____    _____
Interest-bearing
 liabilities:
  Demand deposits      136       36      100      158        -      158
  Savings deposits      35      (13)      48       58       15       43
  Time deposits        329       17      312      292      (31)     323
  Federal Funds
   purchased            17       17        -        -        -        -
                     _____    _____    _____    _____    _____    _____
    Total              517       57      460      508      (16)     524
                     _____    _____    _____    _____    _____    _____                                 
     Net interest
      income         $ 362    $(121)   $ 483    $ 256    $(119)   $ 375
                     _____    _____    _____    _____    _____    _____                                                 
</TABLE>                                                                        

Provision for Loan Losses

The  provision for loan losses is charged to income in an  amount
necessary  to maintain an allowance for loan losses  adequate  to
provide  for  expected losses in the Bank's loan portfolio.   The
level  of  the  allowance  for  loan  losses  is  determined   by
management's  assessment of a variety of factors,  including  the
collectibility  of  past  due  loans,  volume   of   new   loans,
composition of the loan portfolio, and general economic  outlook.
Loan  losses  and recoveries are charged or credited directly  to
the allowance for loan losses.

Management  increased  the provision for  loan  lose  expense  to
$186,000 in 1997 from $104,000 in 1996 and  $68,000 in 1995.  The
increases  in  the loan loss provision were made because  of  the
significant  growth of the loan portfolio during  these  periods.
The  Bank's  allowance for loan losses as a percentage  of  gross
loans was 1.2% at the end of 1997, 1996 and 1995.

Additional   information  regarding  loan  loss   provisions   is
discussed in "Nonperforming and Problem Assets."

Noninterest Income

Noninterest income consists of revenues generated from a  variety
of   financial   services  and  activities.   The   majority   of
noninterest  income  is a result of service  charges  on  deposit
accounts  including charges for insufficient  funds,  checks  and
fees  charged for nondeposit services.  Noninterest  income  also
includes  fees  charged for various bank services  such  as  safe
deposit box rental fees and letter of credit fees.  A portion  of
noninterest  income is gain on the sale of investment securities.
Although  the  Bank generally follows a buy and  hold  philosophy
with  respect to investment securities, occasionally the need  to
sell  some investment securities is created by changes in  market
rate  conditions  or by efforts to restructure the  portfolio  to
improve the Bank's liquidity or interest rate risk positions.

Noninterest income totaled $153,000 in 1997, a increase of  20.5%
from  the $127,000 recorded in 1996.  Noninterest income in  1996
increased 111.7% from the 1995 amount of $60,000. The majority of
the  increase in noninterest income over the last two  years  was
due  to increased service charges on deposit accounts because  of
the increased number of accounts.

The  Bank's  fee structure is reviewed annually to  determine  if
adjustments to fees are warranted.  There were no changes in  the
deposit  account fee structure during the last three years.   The
sources  of  noninterest  income for the  past  three  years  are
summarized in the table below.
<PAGE>27

Management's Discussion and Analysis
________________________________________________________________________________

Sources of Noninterest Income (thousands)
<TABLE>
<CAPTION>
                                        Years Ended December 31,
                                      ____________________________
                                        1997      1996     1995
                                        ____      ____     ____
</CAPTION>
<S>                                   <C>       <C>       <C>
Service charges in deposit         
  accounts                            $   112   $    93   $    41
Gain on sale of investment         
securities                                  3        17        10
Other                                      38        17         9
                                      _______   _______   _______
 Total noninterest income             $   153   $   127   $    60
                                      _______   _______   _______
</TABLE>

Noninterest Expense

Noninterest  expense  for  1997 rose 368,000  or  39.6%  to  $1.3
million.   Noninterest expense in 1996 was $929,000,  a  $140,000
increase over the 1995 amount of $789,000.  The overhead ratio of
noninterest  expense  to  adjusted total revenues  (net  interest
income plus noninterest income excluding securities transactions)
was 105%, 112% and 153% in 1997, 1996 and 1995, respectively.

Total  personnel expenses, the largest component  of  noninterest
expense,  increased 197,000 or 50.8% during  in 1997.   Personnel
expenses  for 1996 were $388,000, an increase of 17.9%  over  the
1995  amount  of $329,000.  These increases were attributable  to
the  increased number of full time equivalent employees  required
due  to  the  high  growth rate the Bank  has  experienced  since
opening.  Total full time equivalent employees were 25, 16 and 14
at  December  31,  1997, 1996 and 1995.  Management  expects  the
number  of full-time equivalent employees to increase at a slower
pace through 1998.

Combined  occupancy and furniture and equipment expense increased
$33,000  or 23.7% to $172,000 in 1997.  Those expenses  increased
$32,000  in 1996 to $139,000 compared to $107,000, in 1995.   The
reasons for the increase in 1997 are the completion of the second
floor of the Bank building to provide additional office space and
the  opening of the branch in downtown Pulaski.  The increase  in
1996  was  primarily due to the opening of the new Bank  building
which   resulted   in   increased  maintenance,   insurance   and
depreciation.

Professional   services   expense,  fees   paid   to   attorneys,
independent  auditors, consultants and state examiners  for  1997
increased  to  $87,000  or  89.1% over  the  1996  amount.   This
increase  is  due  primarily to the loss of the Company's  senior
vice president of operations late in 1996, forcing the Company to
outsource portions of the responsibilities formerly performed  by
that  position.   In addition, the Bank engaged a  consultant  to
evaluate  certain  bank policies.  Professional services  expense
decreased  $14,000  or  23.3%,  to  $46,000  during  1996.   This
fluctuation was caused by the Bank incurring significant expenses
in  1995  related  to  various examinations  that  were  required
subsequent to the initial opening.

Printing  and  supplies  expense increased  $24,000  in  1997  to
$72,000.   This was 50.0% more than the 1996 amount  of  $48,000.
This  increase was due in part to expense incurred to  stock  the
new branch.

Outside  services  consisting primarily of  data  processing  and
credit  card  processing fees, increased $49,000 or 49.5%  during
1997  to  $148,000.  These expenses increased $25,000, to $99,000
in  1996 from $74,000 in 1995.  These fees relate directly to the
number   of   accounts   serviced  and  transactions   processed.
Management expects these expenses to continue to increase as  the
Bank grows.
<PAGE>28

Mangement's Discussion and Analysis
________________________________________________________________________________

Noninterest  expense has increased over the past  two  years  and
will  most  likely  continue  to  increase  as  the  Bank  grows.
However,  as the Bank becomes more mature, growth in net interest
income  will outpace growth in noninterest expense.  Accordingly,
management  believes the Bank's overhead ratio will  continue  to
improve.   The  primary elements of noninterest expense  for  the
past three years are as summarized in the following table.

Sources of Noninterest Expense (thousands)
<TABLE>
<CAPTION>
                                       Years Ended December 31,
                                    ___________________________
                                      1997      1996      1995
                                      ____      ____      ____
</CAPTION>                                      
<S>                                 <C>       <C>       <C>                 
Salaries and wages                  $   515   $   335   $   285
Employee benefits                        70        53        44
                                    _______   _______   _______
 Total personnel expense                585       388       329
                                                                
Occupancy expense                        80        77        67
Furniture and equipment                  92        62        40
Printing and supplies                    72        48        37
Professional services                    87        46        60
Postage                                  31        25        18
Telephone                                15         9         8
Dues and subscriptions                   18        12         8
Education and seminars                   13        11        19
Advertising and public                  
  relations                              40        38        30
Insurance expense                        26        26        30
Bank franchise tax                       13        15         7
Outside services                        148        99        74
Stock transfer agent fees                 9         -         -
Amortization of                          22        37        37
organizational cost
Other operating expense                  46        36        25
                                    _______   _______   _______
 Total other expenses               $ 1,297   $   929   $   789
                                    _______   _______   _______
</TABLE>

Income Taxes

Income tax expense is based on amounts reported in the statements
of  income  (after adjustments for non-taxable  income  and  non-
deductible  expenses) and consists of taxes  currently  due  plus
deferred  taxes  on temporary differences in the  recognition  of
income and expense for tax and financial statement purposes.  The
deferred tax assets and liabilities represent the future  Federal
income  tax return consequences of those differences, which  will
either  be  taxable or deductible when the assets and liabilities
are recovered or settled.

The  Company's  deferred income tax benefits and liabilities  are
the  result  of  temporary  differences  in  loss  carryforwards,
provisions  for  loan  losses, valuation reserves,  depreciation,
deferred income, and investment security discount accretion.

Net deferred income tax assets of $411,000, $329,000 and $261,000
at December 31, 1997, 1996, and 1995, respectively, are offset by
a  valuation  allowance.  Accordingly, no income tax  expense  or
benefit was reported during 1997, 1996 or 1995.
<PAGE>29

Management's Discussion and Analysis
________________________________________________________________________________

Earning Assets

Average earning assets increased $10.8 million, or 54.2%,  during
1997  to  $30.6 million.  Average earning assets increased  $9.89
million  to  $19.8 million during 1996 as compared  to  the  1995
average   of   $9.9  million.   Total  average   earning   assets
represented  88.2%  of  total  average  assets  in  1997.    This
increased from 86.3% of total average assets in 1996 and 85.9% in
1995.  The mix of average earning assets changed during 1997  and
1996 with a larger portion of the Bank's funds being invested  in
higher  yielding loans.  For 1997, average net loans  represented
50.9%  of  average assets.  This is a significant  increase  from
42.2%   in 1996 and 31.3% in 1995.  Average investment securities
decreased to 35.5% of total average assets.  This number was down
from  39.0%  in  1996  and  46.3% in 1995.   Average  noninterest
earning  assets  increased to $4.1 million from $3.1  million  in
1996 and $1.6 million in 1995.  In spite of these increases,  the
percentage of noninterest earning assets to total average  assets
decreased  to  11.8% from 13.7% in 1996  and 14.1%  during  1995.
This  is  due to interest-earning assets increasing at  a  faster
pace  than  noninterest earning assets.   A  summary  of  average
assets is shown in the following table.
                                
Average Asset Mix (thousands)
<TABLE>
<CAPTION>
                                  Years Ended December 31,
                         _________________________________________________ 
                                1997             1996            1995
                         ________________ ________________ ________________
                          Average          Average          Average
                          Balance Percent  Balance Percent  Balance Percent
                          _______ _______  _______ _______  _______ _______
</CAPTION>
<S>                      <C>       <C>    <C>       <C>    <C>       <C>
Earnings assets:
  Loans,  net            $ 17,652  50.90% $  9,695  42.19% $  3,620  31.30%
 Investment securities     12,242  35.30     8,957  38.98     5,350  46.26
 Federal funds sold           691   1.99     1,179   5.13       967   8.36
                         ________ ______  ________ ______  ________ ______
 Total earning assets      30,585  88.19    19,831  86.30     9,937  85.92
                         ________ ______  ________ ______  ________ ______
Nonearning assets:
 Cash and due from banks    2,106   6.07     1,465   6.38       660   5.71
 Premises and equipment     1,556   4.49     1,410   6.14       718   6.21
 Other assets                 430   1.25       272   1.18       249   2.16
                         ________ ______  ________ ______  ________ ______
 Total nonearning assets    4,092  11.81     3,147  13.70     1,627  14.08
                         ________ ______  ________ ______  ________ ______
  Total assets           $ 34,677 100.00% $ 22,978 100.00% $ 11,564 100.00%
                         ________ ______  ________ ______  ________ ______
</TABLE>

Loans

The Bank makes both consumer and commercial loans to borrowers in
all  neighborhoods within its market area, including the low- and
moderate-income  areas.   The Bank's  market  area  is  generally
defined  to  be  all  or portions of the Pulaski,  Giles,  Wythe,
Montgomery  and  Bland  Counties of  Virginia  and  the  City  of
Radford,   Virginia.    The   Bank  emphasizes   consumer   based
installment  loans, commercial loans to small  and  medium  sized
businesses and real estate loans.

Net  loans  consist of total loans less unearned income  and  the
allowance for loan losses.  Average net loans increased 82.07% to
$17.7   million.   This  was  the  second  consecutive  year   of
significant  loan  growth.  Average net loans were  increased  to
$9.7  million during 1996, an increase of $6.1 million or  167.9%
over  1995.  The increase in average net loans outstanding during
the  past  year  is due to the efforts of the Bank's  management,
increases in loan demand and to the Bank's growing reputation  in
the community.

A  significant  portion of the loan portfolio,  $9.0  million  or
39.7%,  is  made  up of loans secured by various  types  of  real
estate.   Total  loans secured by one to four family  residential
properties represented 36.2% of total loans at the end  of  1997.
During  1997,  the  Bank also experienced  growth  in  loans  for
commercial  and  business purposes. These loans  increased  93.6%
during  1997 to a total of $8.4 million, or 37.0% of total  loans
outstanding compared to a total of $4.3 million or 33.6%  at  the
end of 1995.
<PAGE>30

Management's Discussion and Analysis
________________________________________________________________________________

The amounts of loans outstanding by type at December 31, 1997 and
1996 are shown in the following table.

Loan Portfolio Summary (thousands)
<TABLE>
<CAPTION>
                           December 31, 1997   December 31, 1996
                           __________________   __________________
                            Amount       %       Amount       %
                            ______       _       ______       _
</CAPTION>
<S>                        <C>          <C>     <C>          <C>
Construction and
 development               $    635     2.79%   $    235     1.82%
Farmland                          -        -           -        -
1-4 family residential        8,232    36.21       4,676    36.21
Multifamily residential           -        -           -        -
Nonfarm, nonresidential         148      .66         102      .79
                           ________   ______    ________   ______
Total real estate             9,015    39.66       5,013    38.82

Agricultural                    100      .44           8      .05
Commercial and industrial     8,409    36.99       4,344    33.64
Credit cards                    186      .82         135     1.05
Other consumer                4,207    18.51       2,564    19.85
State and political
 subdivisions                   258     1.14         343     2.66
Other                           556     2.44         507     3.93
                           ________   ______    ________   ______
      Total                $ 22,731   100.00%   $ 12,914   100.00%
                           ________   ______    ________   ______
</TABLE>

The maturity distribution of variable and fixed rate loans as  of
December 31, 1997 are set forth in the following table.

Maturity Schedule of Loans (thousands)
<TABLE>
<CAPTION>          
                                      December 31, 1997
                      _________________________________________________
                      Commercial
                      Financial                             Total
                          and       Real             __________________
                      Agriculture  Estate   Others    Amount       %
                      ___________  ______   ______    ______       _
</CAPTION>                      
<S>                    <C>       <C>       <C>       <C>          <C>
Fixed rate loans:
 Three months or less  $    117  $     59  $    724  $    900     3.96%
 Over three months
  to twelve months          355       596       429     1,380     6.07
 Over one year to
  five years                931       297     2,873     4,101    18.04

 Over five years            674       332       312     1,318     5.80
    Total fixed rate   ________  ________  ________  ________   ______
     loans                2,077     1,284     4,338     7,699    33.87
                       ________  ________  ________  ________   ______
Variable rate loans:
 Three months or less     3,480       773       562     4,815    21.18
 Over three months to
  twelve months              24       788        54       866     3.81
 Over one year to five
  years                   2,928     6,092       253     9,273    40.79
 Over five years              -        78         -        78      .35
                       ________  ________  ________  ________   ______

     Total variable rate
      loans               6,432     7,731       869    15,032    66.13
                       ________  ________  ________  ________   ______
Total loans:
 Three months or less     3,597       832     1,286     5,715    25.14
 Over three months to
  twelve months             379     1,384       483     2,246     9.88
 Over one to five years   3,859     6,389     3,126    13,374    58.83
 Over five years            674       410       312     1,396     6.15
                       ________  ________  ________  ________   ______
     Total loans       $  8,509  $  9,015  $  5,207  $ 22,731   100.00%
                       ________  ________  ________  ________   ______
</TABLE>
<PAGE>31

Management's Discussion and Analysis
________________________________________________________________________________

Investment Securities

The  Bank uses its investment portfolio to provide liquidity  for
unexpected  deposit decreases, to fund loans, to meet the  Bank's
interest rate sensitivity goals, and to generate income.

Securities  are  classified as securities held to  maturity  when
management has the intent and the Company has the ability at  the
time  of purchase to hold the securities to maturity.  Securities
held to maturity are carried at cost adjusted for amortization or
premiums  and accretion of discounts.  Securities to be held  for
indefinite periods of time are classified as securities available
for  sale.   Unrealized gains and losses on securities  available
for  sale  are  recognized as direct increases  or  decreases  in
shareholders'  equity.   Securities available  for  sale  include
securities  that  may be sold in response to  changes  in  market
interest  rates,  changes  in  the  security's  prepayment  risk,
increases  in  loan  demand, general liquidity  needs  and  other
similar  factors.  The entire securities portfolio is  classified
as available for sale.

Management   of   the  investment  portfolio  has   always   been
conservative with virtually all investments taking  the  form  of
purchases of U.S. Treasury, U.S. Government agency and State  and
local bond issues.  Management views the investment portfolio  as
a  source of income, and purchases securities with that in  mind.
However, adjustments are necessary in the portfolio to provide an
adequate  source of liquidity which can be used to  meet  funding
requirements  for  loan demand and deposit  fluctuations  and  to
control  interest  rate  risk.  Therefore,  management  may  sell
certain securities prior to their maturity.

The following table presents the investment portfolio at December
31,  1997  by  major  types of investments and  maturity  ranges.
Maturities  may  differ  from scheduled maturities  in  mortgage-
backed securities because the mortgages underlying the securities
may  be  called  or repaid prior to the scheduled maturity  date.
Maturities  on all other securities are based on the  contractual
maturity.

Investment Securities (thousands)
<TABLE>
<CAPTION>

Available for sale
                                       December 31, 1997
                     _______________________________________________________
                       Amortized Cost Due
                     _______________________
                              After   After
                               One    Five 
                     In One  Through Through  After   Equity
                      Yr.or    Five    Ten     Ten    Secur-          Fair
                       Less    Yrs.    Yrs.   Years   ities   Total   Value
                       ____    ____    ____   _____   _____   _____   _____
</CAPTION>
<S>                  <C>     <C>     <C>     <C>     <C>     <C>     <C>
U.S. Treasury        $ 1,200 $   500 $     - $     - $     - $ 1,700 $ 1,707
U. S. Government
 agencies              5,614   1,955   2,142       -       -   9,711   9,680
State and political
 subdivisions              -     198       -       -       -     198     201
Equity securities          -       -       -       -     149     149     149
                     _______ _______ _______ _______ _______ _______ _______
     Total           $ 6,814 $ 2,653 $ 2,142 $     - $   149 $11,758 $11,737
                     _______ _______ _______ _______ _______ _______ _______

Weighted average yields:

U.S. Treasury           5.24%   6.34%      -%      -%           5.56%
U.S. Government
 agencies               5.72    6.24    6.27       -            5.95
State and political
 subdivisions              -    6.45       -       -            6.45
                        ____    ____    ____    ____            ____
Consolidated            5.64%   6.27%   6.27%      - %          5.90%
                        ____    ____    ____    ____            ____
</TABLE>

The interest rate environment and the need of the Bank to improve
liquidity  in  1997  caused the average yield on  the  investment
portfolio to decrease to 5.9% from 6.5% in 1996.  At December 31,
1997,  the  market  value of the investment portfolio  was  $11.7
million,  representing  depreciation of $21,000  below  amortized
cost.   This compared to a market value of $11.3 million  and  an
depreciation of $56,000 below amortized cost a year earlier.
<PAGE>32

Management's Discussion and Analysis
________________________________________________________________________________

Federal Funds Sold

Federal  funds  represent the most liquid portion of  the  Bank's
invested  funds  and  generally the lowest  yielding  portion  of
earning  assets.   Management  has made  an  effort  to  maintain
Federal  funds  at  the  lowest level  possible  consistent  with
prudent  interest rate risk management strategies  and  liquidity
needs.

Average  Federal funds sold totaled $691,000 in 1997,  down  from
$1.2  million  in 1996.  This change represents a 41.4%  decrease
from  1996.  Average Federal funds sold were $56,000 during 1995.
Average  Federal  funds sold were 2.0%, 5.1% and  8.4%  of  total
average assets in 1997, 1996 and 1995, respectively.

Deposits

The  Bank  relies  on deposits generated in its  market  area  to
provide   the  majority  of  funds  needed  to  support   lending
activities   and   for  investments  in  liquid   assets.    More
specifically, core deposits (total deposits less time deposits in
denominations  of  $100,000  or more)  are  the  primary  funding
source.

The  Bank's  balance sheet growth is largely  determined  by  the
availability  of deposits in its markets, the cost of  attracting
the  deposits,  and  the  prospects of profitably  utilizing  the
available   deposits  by  increasing  the  loan   or   investment
portfolios.   Market  conditions  have  resulted  in   depositors
shopping  for  better deposit rates more than in  the  past.   An
increased  customer  awareness of  interest  rates  adds  to  the
importance  of  rate  management.   The  Bank's  management  must
continuously  monitor  market pricing,  competitor's  rates,  and
internal interest rate spreads to maintain the Bank's growth  and
profitability.   The Bank attempts to structure rates  so  as  to
promote  deposit  and  asset  growth  while  at  the  same   time
increasing the overall profitability of the Bank.

Average  total  deposits  for the year ended  December  31,  1997
amounted to $31.1 million which was an increase of $11.3 million,
or 56.9%, over 1996.  Average core deposits totaled $25.3 million
in 1997, an increase of $8.6 million, or 51.5.8%, over 1996.  The
percentage  of  the  Bank's average deposits that  are  interest-
bearing  decreased to 90.6% from 92.5% in 1996.   Average  demand
deposits  which earn no interest increased $1.4 million  to  $2.9
million in 1997 as compared to 1996.

The  average  certificates of deposit issued in denominations  of
$100,000 or more increased to $5.7 million in 1997.  This  is  an
84.2% increase over the 1996 amount of $3.1 million.  Even though
certificates  of deposit issued in denominations of  $100,000  or
more  have  increased significantly, average  large  denomination
certificates of deposit as a percentage of total average deposits
have  increased  only slightly. Average certificates  of  deposit
issued  in  denominations of $100,000 or more as a percentage  of
total  average deposits were 18.5%, 15.6% and 19.8% for the years
ended  December 31, 1997, 1996 and 1995, respectively.  Municipal
deposits  from  local  governments were $11.5  million  and  $9.0
million  at December 31, 1997 and 1996, respectively.  Management
believes that the Bank is paying market rates for these deposits.
Management's  strategy has been to support  loan  and  investment
growth  with  core deposits and not to aggressively  solicit  the
more volatile, large denomination certificates of deposit.  Large
denomination certificates of deposit and large municipal deposits
are   particularly  sensitive  to  changes  in  interest   rates.
Management considers these deposits to be volatile and, in  order
to  minimize  liquidity and interest rate  risks,  invests  these
funds in short-term investments.
<PAGE>33

Management's Discussion and Analysis
________________________________________________________________________________

Average  deposits  for the three years ended December  31,  1997,
1996 and 1995 are summarized in the following table.
                                
Deposit Mix (thousands)
<TABLE>
<CAPTION>
                                  Years Ended December 31,
                         _______________________________________________
                                1997          1996            1995
                                ____          ____            ____
                         Average         Average         Average
                         Balance Percent Balance Percent Balance Percent
                         _______ _______ _______ _______ _______ _______
</CAPTION>
<S>                      <C>      <C>    <C>      <C>    <C>      <C>
Interest-bearing deposits:
 Now accounts            $ 8,094  26.06% $ 5,304  26.79% $   917  11.43%
 Money market              1,805   5.81      982   4.96      687   8.56
 Savings                   1,696   5.46    1,294   6.54      253   3.15
 Small denomination
  certificates            10,817  34.83    7,642  38.60    3,417  42.59
 Large  denomination
  certificates             5,736  18.47    3,083  15.57    1,591  19.83
                         _______ ______  _______ ______  _______ ______
    Total interest
     bearing deposits     28,148  90.63   18,305  92.46    6,865  85.56

Noninterest bearing
 deposits:
  Demand deposits          2,909   9.37    1,492   7.54    1,158  14.44
                         _______ ______  _______ ______  _______ ______
   Total deposits        $31,057 100.00% $19,797 100.00% $ 8,023 100.00%
                         _______ ______  _______ ______  _______ ______
</TABLE>                         

The  following  table provides maturity information  relating  to
time deposits of $100,000 or more at December 31, 1997 and 1996.

Large Time Deposit Maturities, (thousands)
<TABLE>
<CAPTION>
                                               1997        1996
                                               ____        ____
</CAPTION>
<S>                                          <C>        <C>
Remaining maturity of three months or less   $  1,839   $   1,392
Remaining maturity over three through
 twelve months                                  1,692       1,155
Remaining maturity over twelve months             911         532
                                             ________   _________
  Total time deposits of $100,000 or more    $  4,442   $   3,079
                                             ________   _________
</TABLE>                                             

Short-Term Debt

The  Bank  had  no  short-term debt or other  borrowed  funds  at
December  31,  1997,  1996, or 1995.   The  Bank  borrowed  using
Federal funds purchased for the first time during 1997, in  order
to  provide liquidity and reduce interest rate risk.  The average
balance  of Federal funds purchased was $308,000 for  1997.   The
related interest expense on these borrowings was $17,000,  for  a
cost of funds of 5.5%.

Capital Adequacy

Regulatory  guidelines  relating  to  capital  adequacy   provide
minimum  risk-based  ratios which assess capital  adequacy  while
encompassing  all credit risks, including those related  to  off-
balance  sheet activities.  Capital ratios under these guidelines
are computed by weighing the relative risk of each asset category
to   derive   risk-adjusted  assets.   The   risk-based   capital
guidelines  require  minimum ratios  of  core  (Tier  I)  capital
(common    stockholders'   equity   and   qualifying    preferred
stockholders'  equity, less intangible assets)  to  risk-weighted
assets  of  4.0% and total regulatory capital (core capital  plus
allowance for loan losses up to 1.25% of risk-weighted assets and
qualifying  subordinated debt) to risk-weighted assets  of  8.0%.
See "Supervision and Regulation."
<PAGE>34

Management's Discussion and Analysis
________________________________________________________________________________

In  addition, a minimum leverage ratio of average Tier I  capital
to average total assets for the previous quarter, ranging from 3%
to  5%,  is  required by federal bank regulators subject  to  the
regulator's   evaluation  of  the  Bank's  overall   safety   and
soundness.  As of December 31, 1997, the Bank had a ratio of year-
end Tier I capital to average total assets for the fourth quarter
of 1997 of 7.7%.

The  Bank exceeds all required regulatory capital ratios  and  is
considered well capitalized.

Shareholders'  equity was $3.1 million at December  31,  1997,  a
6.4% decrease from the 1996 year-end total of $3.3 million.   The
decrease was primarily a result of the net loss in 1997 which was
partially  off-set  by  an  increase  in  the  market  value   of
securities  that are classified as available for  sale.   Average
shareholders' equity as a percentage of average total assets  was
9.2% in 1997 and 13.7% in 1996.

At  December 31, 1997 the Bank had a ratio of Tier I  capital  to
risk-weighted  assets of 12.33% and a ratio of  total  regulatory
capital  to  risk-weighted  assets  of  13.46%,  well  above  the
regulatory minimum of 4.0% and 8.0%, respectively.

The Bank's analysis of capital for the quarters December 31, 1997
and 1996 is presented in the following table.
                                
Risk-Based Capital, (thousands)
<TABLE>
<CAPTION>
                                            1997       1996
                                            ____       ____
</CAPTION>                                            
<S>                                      <C>        <C>
Tier I capital                           $   2,954  $   3,139
Qualifying allowance for loan losses<F1>       270        155
                                         _________  _________
     Total regulatory capital            $   3,224  $   3,294
                                         _________  _________

     Total risk-weighted assets          $  23,954  $  14,286
                                         _________  _________
Tier I as a percent of risk-weighted
  assets                                     12.33%     21.97%
Total Tier II capital as a percent of
 risk-weighted assets                        13.46%     23.06%
Leverage ratio<F2>                            7.73%     11.62%

<FN>
__________________________

<F1> Limited to 1.25% of risk-weighted assets.
<F2> Period end Tier I capital to adjusted average assets per quarter.
</FN>
</TABLE>

Common Stock Outstanding

At  December  31, 1996 the Company had 437,225 shares  of  common
stock  outstanding.  Shareholders of record as  of  May  1,  1997
received a 25% stock dividend.  At December 31, 1997 the  Company
had 546,399 shares of common stock outstanding.  These shares are
held by approximately 587 shareholders of record.

During 1997 the Company filed for, and received approval from the
SEC for a secondary stock offering of  common stock at a price of
$9  per  share.  The stock sale began on December  10,  1997  and
closed February 10, 1998 after the sale of 380,000 shares for net
proceeds  of approximately $3.2 million.  Management  intends  to
used  the  proceeds  for general purposes and to  finance  future
growth.
<PAGE>35

Management's Discussion and Analysis
________________________________________________________________________________

Nonperforming and Problem Assets

Certain  credit risks are inherent in making loans,  particularly
commercial  and  consumer loans.  Management  prudently  assesses
these  risks and attempts to manage them effectively.   The  Bank
also  attempts to reduce repayment risks by adhering to  internal
credit  policies and procedures.  These policies  and  procedures
include  officer and customer limits, periodic loan documentation
review and follow up on exceptions to credit policies.

The  allowance for loan losses is maintained at a level  adequate
to  absorb probable losses.  Some of the factors which management
considers  in determining the appropriate level of the  allowance
for  credit  losses are:  past loss experience, an evaluation  of
the  current loan portfolio, identified loan problems,  the  loan
volume  outstanding, the present and expected economic conditions
in  general,  regulatory policies, and in  particular,  how  such
conditions relate to the market areas that the Bank serves.  Bank
regulators  also periodically review the Bank's loans  and  other
assets  to assess their quality.  Loans deemed uncollectible  are
charged  to  the  allowance.   Provisions  for  loan  losses  and
recoveries  on  loans previously charged off  are  added  to  the
allowance.

The  accrual of interest on loans is discontinued on a loan when,
in  the  opinion of management, there is an indication  that  the
borrower may be unable to meet payments as they become due.  Upon
such discontinuance, all unpaid accrued interest is reversed.

The  provision for loan losses, net charge-offs and the  activity
in  the  allowance for loan losses is detailed in  the  following
table.
Allowance for Loan Losses (thousands)
<TABLE>
<CAPTION>
                                                December 31,
                                          ______________________
                                           1997    1996    1995
                                           ____    ____    ____
</CAPTION>
<S>                                       <C>     <C>     <C>
Allowance for loan losses, beginning      $  155  $   81  $   30
Provision for loan losses, added             186     104      68
                                          ______  ______  ______
                                             341     185      98

Loans charged off                            (83)    (43)    (18)
Recoveries of loans previously charged off    12      13       1
                                          ______  ______  ______
     Net charge-offs                         (71)    (30)    (17)
                                          ______  ______  ______
     Allowance for loan losses, ending    $  270  $  155  $   81
                                          ______  ______  ______
</TABLE>

The  loan  portfolio  also included loans  to  various  borrowers
(watch  loans)  at period-end for which management  had  concerns
about  the  ability of the borrowers to continue to  comply  with
present  loan repayment terms, and which could result in some  or
all  of  these  loans  being uncollectible.  Management  monitors
these  loans  carefully and has provided for these loans  in  the
allowance for loan losses.

Management  realizes that general economic trends greatly  affect
loan  losses  and no assurances can be made about future  losses.
Management does, however, consider the allowance for loan  losses
to be adequate at December 31, 1997.
<PAGE>36

Management's Discussion and Analysis
________________________________________________________________________________

The  allocation of the reserve for loan losses is  shown  in  the
following table.

Allocation of the Allowance for Loan Losses (thousands)
<TABLE>
<CAPTION>
                                       December 31,
                         ________________________________________________
                              1997             1996            1995
                         ______________   ______________   ______________
Balance at end of
 period applicable to:   Amount Percent   Amount Percent   Amount Percent
                                  <F1>             <F1>            <F1>
                         ______ _______   ______ _______   ______ _______
</CAPTION>
<S>                      <C>     <C>      <C>     <C>      <C>     <C>
Commercial, financial
 and agricultural        $  80   37.43%   $  85   33.73%   $  26   24.71%
Real estate, construction    -    2.79        -    1.82        -       -
Real estate, mortgage      103   36.87       23   36.31       16   44.41
Installment loans to
 individuals, other         87   22.91       47   28.14       39   30.88
                         _____  ______    _____  ______    _____  ______
   Total                 $ 270  100.00%   $ 155  100.00%   $  81  100.00%
                         _____  ______    _____  ______    _____  ______
<FN>
_____________________
<F1>  Percent of loans in each category to total loans.
</FN>
</TABLE>

Nonperforming Assets at December 31, 1997 and 1996  are  analyzed
in the table below.

Nonperforming Assets (thousands)
<TABLE>
<CAPTION>
                                         December 31,
                                        ______________
                                         1997    1996
                                         ____    ____
</CAPTION>                                         
<S>                                     <C>     <C>
Nonaccrual loans                        $    -  $   17
Restructured loans                           -       -
Foreclosed and in-substance
 foreclosed properties                      36       -
                                        ______  ______
                                        $   36  $   17
                                        ______  ______
</TABLE>

Nonperforming assets were .2% and .1% of gross loans  outstanding
at  year-end  1997 and 1996, respectively.  In  addition  to  the
nonperforming assets, loans which were past due 90 days  or  more
amounted  to $52,000 at December 31, 1996.  There were  no  loans
past  due 90 days or more at December 31, 1997.  Net loan charge-
offs  as a percentage of average loans were .4%, .3%, and .5%  in
1997, 1996 and 1995, respectively.  The allowance for loan losses
was  $270,000, $155,000 and $81,000 and December 31,  1997,  1996
and  1995,  respectively.   This is 1.2%  of  total  gross  loans
outstanding for all three years.

Liquidity and Sensitivity

The  principal goals of the Bank's asset and liability management
strategy  are  the  maintenance of  adequate  liquidity  and  the
management  of interest rate risk.  Liquidity is the  ability  to
convert  assets to cash in order to fund depositors'  withdrawals
or borrowers' loans without significant loss.  Interest rate risk
management  balances  the  effects of interest  rate  changes  on
assets  that earn interest against  liabilities on which interest
is  paid, to protect the Bank from wide fluctuations in  its  net
interest income which could result from interest rate changes.

Management must insure that adequate funds are available  at  all
times  to meet the needs of its customers.  On the asset side  of
the  balance sheet, maturing investments, loan payments, maturing
loans,  federal  funds sold, and unpledged investment  securities
are principal sources of liquidity.  On the liability side of the
balance  sheet,  liquidity  sources include  core  deposits,  the
ability  to  increase  large denomination  certificates,  Federal
funds lines from correspondent banks, borrowings from the Federal
Reserve  Bank,  as well as the ability to generate funds  through
the issuance of long-term debt and equity.

Interest  rate risk is the effect that changes in interest  rates
would  have on interest income and interest expense as  interest-
sensitive   assets  and  interest-sensitive  liabilities   either
reprice   or   mature.   Management  attempts  to  maintain   the
portfolios  of  earning  assets and interest-bearing  liabilities
with  maturities or repricing opportunities at levels  that
<PAGE>37

Management's Discussion and Analysis
________________________________________________________________________________

will afford  protection from erosion of net interest margin, to the
extent  practical,  from changes in interest  rates.   The  table
below  shows the sensitivity of the Bank's balance sheet  at  the
dates  indicated,  but  is  not  necessarily  indicative  of  the
position on other dates.

Interest Rate Sensitivity
<TABLE>
<CAPTION>
                                           December 31, 1997
                                         Maturities/Repricing
                          ________________________________________________
                             1-3       4-12    13-60    Over 60
                            Months    Months   Months    Months     Total
                            ______    ______   ______    ______     _____
</CAPTION>
<S>                       <C>       <C>       <C>       <C>       <C>
Earning assets:
 Loans                    $  6,097  $  3,538  $ 12,545  $    551  $ 22,731
 Investments                 1,689     5,118     2,655     2,275    11,737
 Federal Funds Sold          1,021         -         -         -     1,021
                          ________  ________  ________  ________  ________
  Total                      8,807     8,656    15,200     2,826    35,489
                          ________  ________  ________  ________  ________

Interest-bearing liabilities:
 Now accounts               11,192         -         -         -    11,192
 Money market                2,356         -         -         -     2,356
 Savings                     1,414         -         -         -     1,414
 Certificates of deposit     4,063     8,201     5,786         -    18,050
                          ________  ________  ________  ________  ________
     Total                  19,025     8,201     5,786         -    33,012
                          ________  ________  ________  ________  ________
Interest rate gap         $(10,218) $    455  $  9,414  $  2,826  $  2,477
                          ________  ________  ________  ________  ________
Cumulative interest
 sensitivity gap          $(10,218) $ (9,763) $   (349) $  2,477
Ratio of sensitivity gap
 to total earnings assets   (28.79)%    1.28%   (26.53)%    7.96%     6.98%
Cumulative ratio of
 sensitivity gap to total
 earnings assets            (28.79)%  (27.51)%    (.98)%    6.98%

</TABLE>

At  December  31,  1997,  the  Company  was  cumulatively  asset-
sensitive  (earning  assets  subject  to  interest  rate  changes
exceeded  interest-bearing  liabilities  subject  to  changes  in
interest  rates). NOW and money market accounts repricing  within
three months were $13.5 million, which historically have not been
as   interest-sensitive  as  other  types   of   interest-bearing
deposits.   Removing the impact of NOW and money market accounts,
the  Bank  is  asset sensitive in the three month  or  less  time
period,  with  the  four  to  twelve  months  time  period  being
liability-sensitive,  the thirteen to sixty  months  time  period
being asset-sensitive and the over sixty months time period being
asset-sensitive.

Certificates of deposit in denominations of $100,000 or more  and
large  municipal deposits are especially susceptible to  interest
rate   changes.   These  deposits  are  matched  with  short-term
investments.  Matching sensitive positions alone does not  ensure
that   the  Bank  has  no  interest  rate  risk.   The  repricing
characteristics  of  assets  are  different  from  the  repricing
characteristics  of funding sources.  Thus, net  interest  income
can  be  impacted  by  changes  in interest  rates  even  if  the
repricing  opportunities of assets and liabilities are  perfectly
matched.
<PAGE>38

Management's Discussion and Analysis
________________________________________________________________________________

Effects of Inflation

Interest  rates  are affected by inflation, but  the  timing  and
magnitude  of  the changes may not coincide with changes  in  the
consumer  price index.  Management actively monitors  the  Bank's
interest  rate  sensitivity in order to minimize the  effects  of
inflationary trends on the Bank's operations.  Other areas of non-
interest expenses may be more directly affected by inflation.

Financial Ratios

The   following   table  summarizes  ratios  considered   to   be
significant  indicators  of  the  Bank's  operating  results  and
financial condition for the periods indicated.

Key Financial Ratios
<TABLE>
<CAPTION>
                                             Years Ended December 31,
                                             ________________________
                                               1997    1996    1995
                                               ____    ____    ____
</CAPTION>
<S>                                           <C>     <C>     <C>

Return on average assets                      (.71%)  (.81%)  (2.87%)
Return on  average equity                    (7.75%) (5.89%)  (9.44%)
Average   equity  to  average  assets         9.20%  13.71%   30.39%

</TABLE>
<PAGE>39

________________________________________________________________________________

Board of Directors and Officers
________________________________________________________________________________


                       Board of Directors
                       __________________

Wayne L. Carpenter    CNB Holdings, Inc. & Community National Bank

Sybil S. Atkinson                         Mediaid of America, Inc.

Jack W. Bowling                         H.T. Bowling, Incorporated

Jackson M. Bruce       Gilmer, Sadler, Ingram, Sutherland & Hutton

Randolph V. Chrisley                 Pulaski Furniture Corporation

Hiawatha Nicely, Jr.  CNB Holdings, Inc. & Community National Bank

A. Carole Pratt                               Pratt & Mansell, DDS

David W. Ratcliff, Jr.                   Alliant TechSystems, Inc.

Nathaniel R. Tuck                Tuck Clinic of Chiropractic, P.C.

James L. Webb, Jr.           Old Dominion Insurance Services, Inc.

J. David Wine                  Advanced Health-Care Services, Inc.


                            Officers
                            ________

Wayne L. Carpenter                               President & CEO

Hiawatha Nicely, Jr.                     Chief Operating Officer

Clinton C. Ison                             Vice President-Loans

Deborah Boyd                                        Loan Officer

Madonna L. Gwinn                                         Cashier

Michael D. Ware                                     Loan Officer

<PAGE>40

________________________________________________________________________________

Stockholder Information

________________________________________________________________________________


Annual Meeting
______________

The annual meeting of stockholders will be held at 10:00 a.m. on
April 9, 1998 in Room 206 of Edwards Hall at New River Community
College, Dublin, Virginia.

Requests for Information
________________________

Requests   for  information  should  be  directed  to  Wayne   L.
Carpenter,  President  & CEO, at Community  National  Bank,  Post
Office  Box 1060, Pulaski, Virginia, 24301; Telephone (540)  994-
0831.   A  copy  of the Company's Form 10-KSB for  1997  will  be
furnished,  without  charge, after March 31,  1998  upon  written
request.


Common Stock Market Information        Stock Transfer Agent
_______________________________        ____________________

Scott & Stringfellow                   First Citizens Bank & Trust
Post Office Box 198                    Post Office Box 29522
Blacksburg, Virginia 24063             Raleigh, North Carolina 27626

                                
Independent Auditors                   Legal Counsel
____________________                   _____________

Larrowe, Cardwell & Company, LC        Mays & Valentine
  Certified Public Accountants         NationsBank Center
Post Office Box 2108                   Post Office Box 1122
Pulaski, Virginia  24301               Richmond, Virginia 23208-1122

                                

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