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, 1998
                                        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 $3,615,657.

The  aggregate  market value of the voting  stock as of March 20, 1999,  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.

<PAGE>

926,399  shares of the Issuer's  common stock were issued and  outstanding as of
March 20, 1999.

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, 1998 is
incorporated  by reference  into Form 10-KSB Part I, Item 1 and Part II, Items 7
and 8, and Part III, Item 13. The issuer's Proxy  Statement  dated March 8, 1999
is incorporated by reference into Form 10-KSB Part III, Items 9, 10, 11 and 12.


                                     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 $3.1 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,  Bland, 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,  professional
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.

<PAGE>

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  (2,500  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.

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.

<PAGE>



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 mortgage loan origination, cash management services,
travelers  checks,  direct deposit of payroll and social  security  checks,  and
automated drafts for various accounts. The Bank is associated with Honor, Plus &
VISA  shared  networks  of  automated  teller  machines  and debit  card  retail
locations that Bank customers 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 elsewhere, most of
which are larger and have greater resources than the Bank. As of March 20, 1999,
there were six 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 with
one office in the county,  is a statewide  bank based in  Richmond.  First Union
Bank, a Charlotte, North Carolina based regional bank operates one branch in the
county. NationsBank, with two 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,  operates one branch in Pulaski County.
First National Bank of  Christiansburg,  a community bank which is headquartered
in nearby Montgomery County, operates a branch in Pulaski County.

<PAGE>



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  regulatory 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.

<PAGE>



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.

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.

<PAGE>

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.

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  provision,   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.  Substantially all company revenues are earned through the
operations of the bank. 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.

<PAGE>

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,  information 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.

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 nationwide  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  interstate 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 interstate 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 received a CRA  rating
of satisfactory on its most recent evaluation.
<PAGE>

Other Regulations. Interest and certain other charges collected or contracted by
the Bank are  subject to state usury laws and certain  federal  laws  concerning
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 borrowers,  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 Banks 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.

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 deducting  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.
<PAGE>

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.

<PAGE>

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, 1998, 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.

<PAGE>

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.

YEAR 2000 READINESS

A detailed  discussion  of the  Company's  and Bank's  year 2000  readiness  and
compliance  program in included in  "Management's  Discussion and Analysis",  on
page 30 and is hereby incorporated by reference.


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 202 N.  Washington  Ave,  Pulaski,  Virginia  in CNB  Center 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,  and safety deposit
boxes. The Bank also recently  installed a stand-alone  automated teller machine
on the campus of the New River Community College in Dublin, Virginia.

CNB Center was purchased in 1997 from NationsBank for $187,000. This three story
building has  approximately  20,000 square feet. In addition to the branch,  the
building houses the Bank's  operations  department.  The second and third floors
are leased to unrelated third parties and is available for future expansion.
<PAGE>

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  20,  1999.  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 20, 1999, 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 though
the Company has achieved profitable operations.

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, 1998, the Bank was not
yet cumulatively profitable. 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.
<PAGE>

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 1998 Annual Report to Stockholders, pages 25 through 42.

ITEM 7. FINANCIAL STATEMENTS.

The  following  consolidated  financial  statements  of the  registrant  and the
Independent  Auditors'  Report set forth on pages 3 through 24 of the  Company's
1998 Annual Reports to Stockholders are incorporated herein by reference:

     1. Independent Auditor's Report
     2. Consolidated  Balance  Sheets  as of  December  31,  1998  and  1997
     3. Consolidated Statements of Operations for the years
        ended December 31, 1998, 1997, and 1996
     4. Consolidated Statements of Stockholders' Equity for the years
        and period ended December 31, 1998, 1997, and 1996
     5. Consolidated  Statements of Cash Flows for the years ended  December 31,
        1998, 1997, and 1996
     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, 1998 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 March 8, 1999 which information is incorporated  herein by
reference.

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  March 8,  1999,  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 March 8, 1999, is incorporated
herein by reference.
<PAGE>

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 March 8,
1999, is incorporated herein by reference.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information contained under "Certain Relationships and Related Transactions"
on page 4 of the Company's  Proxy statement dated March 8, 1999, 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 1998 Annual Report to Stockholder

                                                    1998 Annual Report to
                                                  Stockholders page number
                                                  ------------------------

Independent Auditor's Report                                  2
Consolidated Balance Sheets-December 31, 1998 and 1997        3
Consolidated Statements of Operations - Years ended
 December 31, 1998, 1997 and 1996                             4
Consolidated Statements of Stockholders' Equity - Years
 ended December 31, 1998, 1997 and 1996                       5
Consolidated Statements of Cash Flows - Years ended
 December  31, 1998, 1997 and 1996                            6
Notes to Consolidated Financial Statements                 7-24
Management's Discussion and Analysis                      25-42

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.

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).
<PAGE>

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 1998 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 1998 Proxy Statement.

<PAGE>

                                   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, 1999               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, 1999
Sybil S. Atkinson

/s/Jack W. Bowling
_________________________            Director          March 27, 1999
Jack W. Bowling

/s/Jackson M. Bruce
_________________________            Director          March 27, 1999
Jackson M. Bruce

                                  Director, Chief
                                  Financial Officer
                               (principal financial
/s/Wayne L. Carpenter              and accounting
_________________________             officer)         March 27, 1999
Wayne L. Carpenter


/s/Randolph V. Chrisley
_________________________            Director          March 27, 1999
Randolph V. Chrisley
                                     Chairman,
                                   President and
/s/Hiawatha Nicely, Jr.            Chief Executive
_________________________             Officer          March 27, 1999
Hiawatha Nicely, Jr.

<PAGE>



/s/A. Carole Pratt
_________________________            Director          March 27, 1999
A. Carole Pratt

/s/David W. Ratcliff, Jr.
_________________________            Director          March 27, 1999
David W. Ratcliff, Jr.

/s/Nathanial R. Tuck
_________________________            Director          March 27, 1999
Nathaniel R. Tuck

/s/J. David Wine
_________________________            Director          March 27, 1999
J. David Wine

<PAGE>



                                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       1998 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       1998 Proxy Statement.