CNB (CNBW) 10-Q 2004 Q3 Quarterly report

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

For the quarterly period ended     September 30, 2004

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT  OF 1934

For the transition period from                        to                    

___________________

Commission file number:  2-96350        

                                 CNB Corporation                           
               (Exact name of registrant as specified in its charter)


  South Carolina                                 57-0792402                 
 (State or other jurisdiction of                (I.R.S. Employer
  incorporation or organization)                 Identification No.)

P.O. Box 320, Conway, South Carolina             29528                     
(Address of principal executive offices)        (Zip Code)


(Registrant's telephone number, including area code):  (803) 248-5721

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X .  No    .

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Exchange Act).  Yes____. No   X  .

State the number of shares outstanding of the issuers shares of common equity as of the latest practical date: 788,454 shares of common stock, par value $10 per share, October 31, 2004.

CNB Corporation

Forward-Looking Statements		Page   1
PART I.   Item 1.                                       Item 2.     Item 3.   Item 4.   SIGNATURE   PART II.   Item 6.	FINANCIAL INFORMATION   Financial Statements:   Consolidated Balance Sheets as of September 30, 2004, December 31, 2003 and September 30, 2003   Consolidated Statement of Income for the Three Months and Nine Months Ended September 30, 2004 and 2003   Consolidated Statement of Comprehensive Income for the Three Months and Nine Months Ended September 30, 2004 and 2003   Consolidated Statement of Changes in Stockholders' Equity for the Nine Months Ended September 30, 2004 and 2003   Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 2004 and 2003   Notes to Consolidated Financial Statements   Management's Discussion and Analysis of Financial Condition and Results of Operations   Qualitative and Quantitative Disclosures About Market Risk   Controls and Procedures           Exhibits and Reports on Form 8-K	2     3     4       5     6     7-14   14-24     24   24   25       26

Forward-Looking Statements

     Statements included in this report which are not historical in nature are intended to be, and are hereby identified as "forward-looking statements" for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts.  Such forward-looking statements may be identified, without limitation, by the use of the words "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," and similar expressions. The Company's expectations, beliefs, estimates and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties, but there can be no assurance that management's expectations, beliefs, estimates or projections will result or be achieved or accomplished.

     The Company cautions readers that forward-looking statements, including without limitation, those relating to the Company's recent and continuing expansion, its future business prospects, revenues, working capital, liquidity, capital needs, interest costs, income, and adequacy of the allowance for loan losses, are subject to risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to several important factors herein identified, among others, and other risks and factors identified from time to time in the Company's reports filed with the Securities and Exchange Commission.

     The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

- -1-

Part I.

Item 1.  Financial Statements

CNB Corporation and Subsidiary
Consolidated Balance Sheets
(All Dollar Amounts, Except Per Share Data, in Thousands)

ASSETS:
 
 
    Cash and due from banks
    Investment Securities
      (Fair values of $5,435 at
       September 30, 2004, $8,516 at
       December 31, 2003, and $9,448
       at September 30, 2003)
    Securities Available for Sale
      (Amortized cost of $195,965 at
       September 30, 2004, $177,825 at
       December 31, 2003, and $183,174
       at September 30, 2003)
    Federal Funds sold and securities
       purchased under agreement
       to resell
    Loans:
       Total loans
       Less allowance for possible
          loan losses
         Net loans
    Bank premises and equipment
    Other assets
Total assets
 
LIABILITIES AND STOCKHOLDERS' EQUITY:
    Deposits:
       Non-interest bearing
       Interest-bearing
          Total deposits
    Federal funds purchased and
       securities sold under agreement
       to repurchase
    Other short-term borrowings
    Other liabilities
 Total liabilities
   Stockholders' equity:
       Common stock, par value $10 per
       share:  Authorized 1,500,000 in
       2004 and 2003; issued 789,774 in
       2004 and 718,246 in 2003
       Surplus
       Undivided Profits
       Net Unrealized Holding
       Gains (Losses) on
        Available-For-Sale Securities
         Less:  Treasury stock
            Total stockholders' equity
           Total liabilities
             and stockholders' equity Sept. 30, 
2004   
(Unaudited)
$ 30,805 
5,150 
 
 
 
 
198,486 
 
 
 
 
 
 
28,000 
 
395,006 
 
  (4,888)
390,118 
17,629 
  10,205 
$680,393 
 
 
 
$ 127,465 
 445,509 
 572,974 
 
 
32,700 
1,541 
   3,233 
 610,448 
 
 
 
 
7,898 
43,541 
17,137 
1,513 
 
 
    (144)
  69,945 
 
$680,393  December 31,
2003  
 
$ 25,021 
8,081 
 
 
 
 
182,210 
 
 
 
 
 
 
1,000 
 
362,034 
 
  (4,524)
357,510 
17,068 
   9,088 
$599,978 
 
 
 
$ 101,684 
 401,429 
 503,113 
 
 
24,760 
970 
   6,512 
 535,355 
 
 
 
 
7,182 
34,801 
20,113 
2,631 
 
 
    (104)
  64,623 
 
$599,978  Sept. 30, 
2003   
(Unaudited)
$ 21,621 
8,962 
 
 
 
 
188,292 
 
 
 
 
 
 
35,000 
 
343,210 
 
  (4,498)
338,712 
15,020 
   9,209 
$616,816 
 
 
 
$107,888 
 405,842 
 513,730 
 
 
32,060 
1,107 
   3,691 
 550,588 
 
 
 
 
7,182 
34,792 
21,343 
3,071 
 
 
    (160)
  66,228 
 
$616,816 

2

CNB Corporation and Subsidiary
Consolidated Statement of Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)

Interest Income:   Interest and fees on loans   Interest on investment securities:     Taxable investment securities     Tax-exempt investment securities   Interest on federal funds sold and securities     purchased under agreement to resell       Total interest income Interest Expense:   Interest on deposits   Interest on federal funds purchased and securities     sold under agreement to repurchase   Interest on other short-term borrowings         Total interest expense   Net interest income   Provision for possible loan losses     Net interest income after provision for possible     loan losses   Other income:     Service charges on deposit accounts     Gains/(Losses) on available-for-sale securities     Other operating income         Total other income     Other expenses:     Salaries and employee benefits     Occupancy expense     Other operating expenses         Total operating expenses   Income before income taxes     Income tax provision   Net income     *Per share data:     Net income per weighted average shares      outstanding       Cash dividend paid per share       Book value per actual number of shares      outstanding       Weighted average number of shares outstanding       Actual number of shares outstanding	Three Months Ended Sept 30,		Nine Months Ended Sept. 30,
	2004   $  6,177   1,659 249        106    8,191   1,674   97        3      1,774    6,417      315        6,102   875 0      931    1,806        2,692      614    1,200    4,506    3,402      935    2,467       $   3.13   $      0     $  88.69    789,124    788,664	2003      $  5,608   1,610 256         86    7,560   1,669   77        4      1,750    5,810      250        5,560   846 0      816    1,662        2,512      541    1,049    4,102    3,120    1,002    2,118       $   2.68   $      0     $  83.97    789,468    788,653	2004      $ 17,833   4,893 734        210   23,670   4,807   229        7      5,043   18,627      760       17,867   2,634 0    2,152    4,786        8,055    1,822    3,260   13,137    9,516    3,007    6,509       $   8.25   $      0     $  88.69    789,124    788,664	2003      $ 16,956   4,885 782        197   22,820   5,323 253         11      5,587   17,233      750       16,483   2,562 154    1,909    4,625        7,718    1,594    3,002   12,314    8,794    2,770    6,024       $   7.63   $      0     $  83.97    789,468    788,653

*Adjusted for the effect of a 10% stock dividend issued during 2004.

3

CNB Corporation and Subsidiary
Consolidated Statement of Comprehensive Income
(All Dollar Amounts, Except Per Share Data, in Thousands)
(Unaudited)

Net Income	Three Months      Ended         Sept. 30,			Nine Months      Ended        Sept. 30,
	2004		2003	2004	2003
	$2,467	$2,118		$6,509	$6,024
Other comprehensive income, net of tax       Unrealized gains/(losses)       on securities:     Unrealized holding gains/(losses)       during period	1,646	(1,421)		(1,118)	(873)
Net Comprehensive Income/(Loss)	$4,113	$  697		$5,391	$5,151

4

CNB Corporation and Subsidiary
Consolidated Statement of Changes in Stockholders' Equity
(All Dollar Amounts in Thousands)
(Unaudited)

Common Stock: ($10 par value; 1,500,000 shares authorized) Balance, January 1 Issuance of Common Stock Stock Dividend Balance at end of period	Nine Months Ended September 30,
	2004	2003
	7,182     None      716    7,898	7,182     None     None    7,182
Surplus: Balance, January 1 Issuance of Common Stock Stock Dividend Gain on sale of Treasury stock Balance at end of period	34,801  None  8,726       14   43,541	34,783  None  None        9   34,792
Undivided profits: Balance, January 1 Net Income Stock Dividend Cash dividends declared Balance at end of period	20,113  6,509  (9,485)    None   17,137	15,318  6,024  None     None   21,343
Net unrealized holding gains/(losses) on Available-for-sale securities: Balance, January 1 Change in net unrealized gains/(losses) Balance at end of period	2,631   (1,118)   1,513	3,944     (873)   3,071
Treasury stock: Balance, January 1 (837 shares in 2004; 951 shares in 2003) Purchase of treasury stock Reissue of treasury stock Balance at end of period (1,110 shares in 2004; 1,173 shares in 2003)   Total stockholders' equity	(104) (186)     146       (144)           69,945	(102) (232)     174       (160)           66,228

Note:  Columns may not add due to rounding.

5

CNB CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

OPERATING ACTIVITIES   Net Income   Adjustments to reconcile net income to     net cash provided by operating activities     Depreciation     Provision for loan losses     Provision for deferred income taxes     Loss (gain) on sale of investment      securities     (Increase) decrease in accrued interest      receivable     (Increase) decrease in other assets     (Decrease) increase in other liabilities	For the nine-month period ended           September 30,                 2004               2003
	$  6,509      630  760  (1,154)   0    129  (817)      596	$  6,024      517  750  (837)   (154)   498  (369)       17
Net cash provided by operating           activities	6,653	6,446
INVESTING ACTIVITIES   Proceeds from sale of investment securities    available for sale   Proceeds from maturities/calls of investment    securities held to maturity   Proceeds from maturities/calls of investment    securities available for sale   Purchase of investment securities    available for sale   (Increase) decrease in federal funds sold   (Increase) decrease in loans   Premises and equipment expenditures	0    2,931    54,519  (72,658) (27,000) (32,972)   (1,191)	6,529    4,143    54,008    (84,216) (13,000) (17,588)   (3,088)
Net cash provided by (used for)           investing activities	(76,371)	(53,212)
FINANCING ACTIVITIES   Dividends paid   Increase (decrease) in deposits   (Decrease) increase in securities sold     under repurchase agreement   (Decrease) increase in other     short-term borrowings	(2,870) 69,861    7,940         571	(2,690) 45,421    5,841      (5,402)
Net cash provided by (used for)           financing activities           Net increase (decrease) in cash           and due from banks   CASH AND DUE FROM BANKS, BEGINNING OF YEAR   CASH AND DUE FROM BANKS, SEPT. 30, 2004 AND 2003   CASH PAID (RECEIVED) FOR:   Interest   Income taxes	75,502      5,784      25,021    $ 30,805      $  5,077  $  2,941	43,170      (3,596)     25,217    $ 21,621      $  5,911  $  2,759

6

CNB CORPORATION AND SUBSIDIARY (The "Corporation")

CNB CORPORATION (The "Parent")

THE CONWAY NATIONAL BANK (The "Bank")


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All Dollar Amounts in Thousands)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Net income per share - Net income per share is computed on the basis of the weighted average number of common shares outstanding, adjusted for a 10% stock dividend declared in September, 2004, resulting in 789,124 for the nine-month period ended September 30, 2004 and 789,468 for the nine-month period ended September 30, 2003.

NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required to maintain average reserve balances either at the Bank or on deposit with the Federal Reserve Bank.  The average amount of these reserve balances for the nine-month period ended September 30, 2004 and for the year ended December 31, 2003 were approximately $14,127 and $10,346, respectively.

7

NOTE 3 - INVESTMENT SECURITIES

Investment securities with a par value of approximately $107,080 at September 30, 2004 and $85,195 at December 31, 2003 were pledged to secure public deposits and for other purposes required by law.

The following summaries reflect the book value, unrealized gains and losses, approximate market value, and tax-equivalent yields of investment securities at September 30, 2004 and at December 31, 2003.

AVAILABLE FOR SALE   United States Treasury	September 30, 2004             Book  Unrealized Holding Fair            Value   Gains   Losses   Value Yield(1)
	$      0	$    -	$    -	$      0	-%
Federal agencies    Within one year    One to five years       Mortgage Backed Securities    Over ten years	16,571  160,542  177,113               1,027	353  1,647  2,000               -	-    355    355              38	16,924  161,834  178,758                 989	5.30% 3.65  3.80          3.62%
State, county and   municipal    Within one year    One to five years    Six to ten years     Other-CRA Qualified    Investment Fund   Total available for sale	481 11,785    5,237   17,503        322 $195,965	4 530    380    914        - $2,914	- -      -      -        - $  393	485 12,315    5,617   18,417        322 $198,486	5.33% 5.85  6.91  6.15       -  4.01%
HELD TO MATURITY   United States Treasury	$      0	-	-	0	-%
Federal agencies	0	-	-	0	-%
State, county and   municipal    Within one year    One to five years    Six to ten years      Total held to maturity	1,031   3,218      901    5,150 $  5,150	11 192     82    285 $  285	- -      -      - $    -	1,042 3,410      983    5,435 $  5,435	6.97% 7.24  7.27  7.19  7.19%

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

As of the quarter ended September 30, 2004, the Bank did not hold any securities of an issuer that exceeded 10% of stockholders' equity. The net unrealized holding gains/(losses) on available-for-sale securities component of capital is $1,513 as of September 30, 2004.

8

NOTE 3 - INVESTMENT SECURITIES (Continued)

December 31, 2003                 Book   Unrealized Holding  Fair           Value    Gains   Losses   Value  Yield(1)
AVAILABLE FOR SALE   United States Treasury	$      0	$    -	$    -	$      0	-%
Federal agencies    Within one year    One to five years	8,809  149,917  158,726	174  3,484  3,658	-    273    273	8,983  153,128  162,111	4.36  4.00  4.02
Mortgage Backed Securities     Over ten years     State, county and   municipal    Within one year    One to five years    Six to ten years    Over ten years     Other - CRA Qualified    Investment Fund Total available for sale	1,071       185 10,283 6,961      288   17,717        311 $177,825	-       1 522 492      4  1,019        - $4,677	19       - - -      -      -        - $  292	1,052       186 10,805 7,453      292   18,736        311 $182,210	3.59       7.03  5.68  6.81  5.92  6.14       -  4.23%
HELD TO MATURITY   United States Treasury	$      0	-	-	0	-%
Federal agencies    Within one year	2,000	55	-	2,055	6.44
State, county and   municipal    Within one year    One to five years    Six to ten years           Total held to maturity	1,562 3,086    1,433    6,081 $  8,081	30 227    123    380 $  435	- -      -      - $    -	1,592 3,313    1,556    6,461 $  8,516	6.98% 7.40  6.97  7.19  7.01%

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

As of the quarter ended  December 31, 2003, the Bank  did not hold any securities of an issuer that exceeded 10% of stockholders' equity. The net unrealized holding gains/(losses) on available-for-sale securities component of capital is $2,631 as of December 31, 2003.

9

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES

     The following is a summary of loans at September 30, 2004 and December 31, 2003 by major classification:

Real estate loans - mortgage                   - construction Commercial and industrial loans Loans to individuals for household,   family and other consumer expenditures Agriculture All other loans, including overdrafts      Gross loans        Less allowance for loan losses          Net loans	Sept. 30,   December 31,    2004         2003
	$249,099  43,981  63,511    34,818  2,049     1,548   395,006    (4,888) $390,118	$228,556  44,099  53,559    32,884  1,537     1,399   362,034    (4,524) $357,510

10

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES, continued

     Changes in the allowance for loan losses for the quarter ended and nine-month period ended September 30, 2004 and 2003 and the year ended December 31, 2003 are summarized as follows:

Balance, beginning of period Charge-offs:    Commercial, financial, and agricultural    Real Estate - construction and mortgage    Loans to individuals        Total charge-offs Recoveries:    Commercial, financial, and agricultural    Real Estate - construction and mortgage    Loans to individuals        Total recoveries Net charge-offs/(recoveries) Additions charge to operations Balance, end of period	Quarter Ended    Nine Months Ended   December    Sept. 30,           Sept. 30,         31,        2004     2003      2004     2003      2003
	$ 4,861   106 0     208 $   314   $     9 0      17 $    26 $   288 $   315 $ 4,888	$ 4,564   246 4     118 $   368   $    25 3      24 $    52 $   316 $   250 $ 4,498	$ 4,524   178      17     340 $   535   $    39 1      99 $   139 $   396 $   760 $ 4,888	$ 4,155   295      48     281 $   624   $    83 11     123 $   217 $   407 $   750 $ 4,498	$ 4,155   431 59     392 $   882   $   115 26     150 $   291 $   591 $   960 $ 4,524
Ratio of net charge-offs during the period  to average loans outstanding during the  period	.07%	.09%	.10%	.12%	.17%

The entire balance is available to absorb future loan losses.

At September 30, 2004 and December 31, 2003 loans on which no interest was being accrued totalled approximately $428 and $351, respectively and foreclosed real estate totalled $80 and $0, respectively; and loans 90 days past due and still accruing totalled $280 and $130, respectively.

OTHER INTEREST-BEARING ASSETS

As of September 30, 2004, the Company does not have any interest-bearing assets that would be required to be disclosed under Item III.C.1. or 2. if such assets were loans.

11

NOTE 5 - PREMISES AND EQUIPMENT

     Property at September 30, 2004 and December 31, 2003 is summarized as follows:

 
 
 
Land and buildings
Furniture, fixtures and equipment
Construction in progress
 
Less accumulated depreciation and
   amortization Sept. 30  
  2004    
 
$ 15,333  
7,327  
   5,692  
$ 28,352  
 
  10,723  
$ 17,629   December 31,
  2003    
 
$ 15,866  
6,923  
   4,371  
$ 27,160  
 
  10,092  
$ 17,068  

     Depreciation and amortization of bank premises and equipment charged to operating expense was $208 and $630 for the quarter ended and the nine-month period ended September 30, 2004, respectively and $739 for the year ended December 31, 2003.

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

     At September 30, 2004 and December 31, 2003, certificates of deposit of $100,000 or more included in time deposits totaled approximately $106,809 and $86,975 respectively.  Interest expense on these deposits was approximately $536 and $1,474 for the quarter ended and the nine-month period ended September 30, 2004, respectively, and $1,929 for the year ended December 31, 2003.

NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

     At September 30, 2004 and December 31, 2003, securities sold under repurchase agreements totaled $32,700 and $24,760. Securities with a book value of $43,752 ($44,702 market value) and $34,100 ($35,341 market value), respectively, are used as collateral for the agreements.  The weighted-average interest rate of these agreements was 1.31 percent and .96 percent at September 30, 2004 and December 31, 2003.

NOTE 8 - LINES OF CREDIT

     At September 30, 2004, the Bank had unused short-term lines of credit to purchase Federal Funds from unrelated banks totaling $27,000.  These lines of credit are available on a one to seven day basis for general corporate purposes of the Bank.  All of the lenders have reserved the right to withdraw these lines at their option.

     The Bank has a demand note through the U.S. Treasury, Tax and Loan system with the Federal Reserve Bank of Richmond.  The Bank may borrow up to $7,000 under the arrangement at a variable interest rate.  The note is secured by bonds with a market value of $6,042 at September 30, 2004.  The amount outstanding under the note totalled $1,541 and $970 at September 30, 2004 and December 31, 2003, respectively.

     The Bank also has a line of credit from the Federal Home Loan Bank of Atlanta for $69,615 secured by a lien on the Bank's 1-4 family mortgages.  Allowable terms range from overnight to twenty years at varying rates set daily by the FHLB.  The amount outstanding under the agreement totalled $0 and $0 at September 30, 2004 and December 31, 2003, respectively.

NOTE 9 - INCOME TAXES

     Income tax expense for the quarter ended September 30, 2004 and September 30, 2003 on pretax income of $3,402 and $3,120 totalled $935 and $1,002 respectively. Income tax expense for the nine-month period ended September 30, 2004 and September 30, 2003 on pretax income of $9,516 and $8,794 totalled $3,007 and $2,770 respectively.  The provision for federal income taxes is calculated by applying the 34% statutory federal income tax rate and increasing or reducing this amount due to any tax-exempt interest, state bank tax (net of federal benefit), business credits, surtax exemption, tax preferences, alternative minimum tax calculations, or other factors.  A summary of income tax components and a reconciliation of income taxes to the federal statutory rate are included in fiscal year-end reports.

     The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".

12

NOTE 10 - OFF-BALANCE SHEET ARRANGEMENTS AND CONTINGENT LIABILITIES

     From time to time the bank subsidiary is a party to various litigation, both as plaintiff and as defendant, arising from its normal operations.  No material losses are anticipated in connection with any of these matters at September 30, 2004.

     In the normal course of business, the bank subsidiary is party to financial instruments with off-balance-sheet risk including commitments to extend credit and standby letters of credit.  Such instruments have elements of credit risk in excess of the amount recognized in the balance sheet.  The exposure to credit loss in the event of nonperformance by the other parties to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments.  Generally, the same credit policies used for on-balance-sheet instruments, such as loans, are used in extending loan commitments and standby letters of credit.

     Following are the off-balance-sheet financial instruments whose contract amounts represent credit risk:

 
Loan Commitments
Standby letters of credits Sept. 30, 2004
$ 41,640   
2,797   

                     Loan commitments involve 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 some involve payment of a fee.  Many of the commitments are expected to expire without being fully drawn.  Therefore, the total amount of loan commitments does not necessarily represent future cash requirements.  Each customer's creditworthiness is evaluated on a case-by-case basis.  The amount of collateral obtained, if any, upon extension of credit is based on management's credit evaluation of the borrower.  Collateral held varies but may include commercial and residential real properties, accounts receivable, inventory and equipment.

     Standby letters of credit are conditional commitments to guarantee the performance of a customer to a third party.  The credit risk involved in issuing standby letters of credit is the same as that involved in making loan commitments to customers.  Many letters of credit will expire without being drawn upon and do not necessarily represent future cash requirements.

     Management believes that its various sources of liquidity provide the resources necessary for the bank subsidiary to fund the loan commitments and to perform under standby letters of credit, if the need arises.  Neither the Company nor the Bank are involved in other off-balance sheet contractual relationships or transactions that could result in liquidity needs or other commitments or significantly impact earnings.

NOTE 11 - EMPLOYEE BENEFIT PLAN

     The Bank has a defined contribution pension plan covering all employees who have attained age twenty-one and have a minimum of one year of service. Upon ongoing approval of the Board of Directors, the Bank matches one hundred percent of employee contributions up to three percent of employee salary deferred and fifty percent of employee contributions in excess of three percent and up to five percent of salary deferred.  The Board of Directors may also make discretionary contributions to the Plan.  For the three-month and nine-month periods ended September 30, 2004 and year ended December 31, 2003, $144, $436, and $558, respectively, was charged to operations under the plan.

NOTE 12 - REGULATORY MATTERS

     The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the financial statements.  The regulations require the Bank to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

13

NOTE 12 - REGULATORY MATTERS (continued)

     Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Tier I capital to adjusted total assets (Leverage Capital ratio) and minimum ratios of Tier I and total capital to risk-weighted assets.  To be considered adequately capitalized under the regulatory framework for prompt corrective action, the Bank must maintain minimum Tier I leverage, Tier I risk-based and total risked-based ratios as set forth in the table.  The Bank's actual capital ratios are presented in the table below as of September 30, 2004:

Total Capital (to  risk weighted assets) Tier I Capital (to  risk weighted assets) Tier I Capital (to  avg. assets	To be      well capitalized For           under prompt  Capital adequacy corrective action                      Purposes         provisions        Actual           Minimum           Minimum     Amount  Ratio     Amount   Ratio  Amount    Ratio
	$69,182   64,294   64,294	16.52%   15.36    9.86	$33,794   16,747   26,094	8.0%   4.0    4.0	$41,868   25,121   32,617	10.0%   6.0    5.0

NOTE 13 - CONDENSED FINANCIAL INFORMATION

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

CONDENSED BALANCED SHEET SEPTEMBER 30, 2004 (Unaudited)
ASSETS    Cash    Investment in subsidiary    Other assets	$  4,101  65,807        37  $ 69,945
LIABILITIES AND STOCKHOLDERS' EQUITY    Other liability    Stockholders' equity	$      0    69,945  $ 69,945
CONDENSED STATEMENT OF INCOME For the nine-month period ended September 30, 2004 (Unaudited)
EQUITY IN NET INCOME OF SUBSIDIARY OTHER INCOME OTHER EXPENSES    Net Income	$  6,563  0       (54) $  6,509

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts in thousands, except per share data.)

Management's Discussion and Analysis is provided to afford a clearer understanding of the major elements of the corporation's results of operations, financial condition, liquidity, and capital resources. The following discussion should be read in conjunction with the corporation's financial statements and notes thereto and other detailed information appearing elsewhere in this report.  In addition, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. The accompanying consolidated financial statements include all accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements at September 30, 2004 and for the three-month and nine-month periods ending September 30, 2004 and 2003 have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q for the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

14

DISTRIBUTION OF ASSETS AND LIABILITIES

The Company maintains a conservative approach in determining the distribution of assets and liabilities.  Loans have increased 15.1% from $343,210 at September 30, 2003 to $395,006 at September 30, 2004 and have increased as a percentage of total assets from 55.6% to 58.0% over the same period as loan demand has strengthened in our market. Securities and federal funds sold have decreased as a percentage of total assets from 37.7% at September 30, 2003 to 34.1% at September 30, 2004.  This level of investments and federal funds sold provides for a more than adequate supply of secondary liquidity.  Management has sought to build the deposit base with stable, relatively non-interest-sensitive deposits by offering the small to medium deposit account holders a wide array of deposit instruments at competitive rates. Non-interest-bearing demand deposits increased as a percentage of total assets from 17.5% at September 30, 2003 to 18.7% at September 30, 2004.  As more customers, both business and personal, are attracted to interest-bearing deposit accounts, we expect the percentage of demand deposits to decline over the long-term. Interest-bearing deposits have decreased slightly from 65.8% of total assets at September 30, 2003 to 65.5% at September 30, 2004 while securities sold under agreement to repurchase have declined from 5.2% to 4.8% over the same period.

The following table sets forth the percentage relationship to total assets of significant components of the corporation's balance sheet as of September 30, 2004 and 2003:

Assets:    Earning assets:    Loans    Investment securities    Securities Available for Sale    Federal funds sold and securities purchased      under agreement to resell       Total earning assets    Other assets       Total assets	Sept. 30,     2004    2003
	58.0% .8  29.2      4.1   92.1    7.9  100.0%	55.6% 1.5  30.5      5.7   93.3    6.7  100.0%
Liabilities and stockholders' equity:   Interest-bearing liabilities:     Interest-bearing deposits     Federal funds purchased and securities sold       under agreement to resell     Other short-term borrowings         Total interest-bearing liabilities           Noninterest-bearing deposits     Other liabilities     Stockholders' equity         Total liabilities and stockholders' equity	65.5%   4.8     .2   70.5   18.7  .5   10.3  100.0%	65.8%   5.2     .2   71.2   17.5  .6   10.7  100.0%

15

RESULTS OF OPERATION

CNB Corporation experienced earnings for the three-month period ended September 30, 2004 and 2003 of $2,467 and $2,118, respectively, resulting in a return on average assets of 1.47% and 1.38% and a return on average stockholders' equity of 14.50% and 12.89%.

CNB Corporation experienced earnings for the nine-month period ended September 30, 2004 and 2003 of $6,509 and $6,024, respectively, resulting in a return on average assets of 1.34% and 1.37% and a return on average stockholders' equity of 12.96% and 12.54%.

The earnings were primarily attributable to net interest margins in each period (see Net Income-Net Interest Income).  Other factors include management's ongoing effort to maintain other income at adequate levels (see Net Income - Other Income) and to control other expenses (see Net Income - Other Expenses).  This level of earnings, coupled with a conservative dividend policy, have supplied the necessary capital funds to support the growth in total assets. Total assets have increased  $63,577 or 10.3% from $616,816 at September 30, 2003 to $680,393 at September 30, 2004. The following table sets forth the financial highlights for the three-month and nine-month periods ending September 30, 2004 and September 30, 2003:

CNB Corporation and Subsidiary FINANCIAL HIGHLIGHTS (All Dollar Amounts, Except Per Share Data, in Thousands)
Net interest income after provision      for loan losses Income before income taxes Net Income Per Share (1) Cash dividends declared    Per Share (1) Total assets Total deposits Loans Investment securities and     securities available for sale Stockholders' equity     Book value per share (1) Ratios (2): Annualized return on average total      assets Annualized return on average      stockholders' equity	Three-Month Period      Ended Sept. 30,        Percent   Increase    2004      2003   (Decrease)			Nine-Month Period      Ended Sept. 30,       Percent   Increase    2004     2003   (Decrease)
	6,102  3,402  2,467  3.13  0  0  680,393  572,974  395,006    203,636  69,945  88.69      1.47%   14.50%	5,560  3,120  2,118  2.68  0  0  616,816  513,730  343,210    197,254  66,228  83.97      1.38%   12.89%	9.8%  9.0   16.5   16.8   -   -   10.3%  11.5   15.1     3.2   5.6   5.6       6.5%    12.5%	17,867  9,516  6,509  8.25  0  0  680,393  572,974  395,006    203,636  69,945  88.69      1.34%   12.96%	16,483  8,794  6,024  7.63  0  0  616,816  513,730  343,210    197,254  66,228  83.97      1.37%   12.54%	8.4%  8.2   8.1   8.1   -   -   10.3%  11.5   15.1     3.2   5.6   5.6       (2.2)%   3.3 %

(1)Adjusted for a 10% stock dividend issued during 2004.

(2) For the three-month period ended September 30, 2004 and September 30, 2003, average total assets amounted to $672,538 and $612,261 with average stockholders' equity totaling $68,076 and $65,700, respectively. For the nine-month period ended September 30, 2004 and September 30, 2003, average total assets amounted to $649,870 and $585,555 with average stockholders' equity totaling $66,972 and $64,066 respectively.

16

NET INCOME

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

Interest rates paid on deposits and borrowed funds and earned on loans and investments have generally followed the fluctuations in market interest rates in 2004 and 2003.  However, fluctuations in market interest rates do not necessarily have a significant impact on net interest income, depending on the bank's rate sensitivity position.  A rate sensitive asset (RSA) is any loan or investment that can be repriced either up or down in interest rate within a certain time interval.  A rate sensitive liability (RSL) is an interest paying deposit or other liability that can be repriced either up or down in interest rate within a certain time interval.  When a proper balance between RSA and RSL exists, market interest rate fluctuations should not have a significant impact on earnings. The larger the imbalance, the greater the interest rate risk assumed by the bank and the greater the positive or negative impact of interest rate fluctuations on earnings.  The bank seeks to manage its assets and liabilities in a manner that will limit interest rate risk and thus stabilize long-run earning power. Management believes that a rise or fall in interest rates will not materially effect earnings.

The Bank has maintained net interest margins for the three-month and nine-month periods ended September 30, 2004, of 4.20% and 4.21%, respectively, and 4.18% and 4.31%, respectively, for the same periods in 2003 as compared to management's long-term target of 4.50%.  Net interest margins have been compressed at the bank and industry-wide, as we are experiencing almost fifty-year lows in market interest rates.  We anticipate interest rates to increase in the latter part of 2004 and into 2005 which should enhance our earnings potential through a wider net interest margin.

Fully-tax-equivalent net interest income showed a 10.0% increase from $5,966 for the three-month period ended September 30, 2003 to $6,565 for the three-month period ended September 30, 2004. During the same period, total fully-tax-equivalent interest income increased by 8.1% from $7,716 to $8,339 and total interest expense increased by 1.4% from $1,750 to $1,774. Fully-tax-equivalent net interest income as a percentage of total earning assets has shown an increase of .02% from 4.18% for the three-month period ended September 30, 2003 to 4.20% for the three-month period ended September 30, 2004.

Fully-tax-equivalent net interest income showed a 7.7% increase from $17,660 for the nine-month period ended September 30, 2003 to $19,025 for the nine-month period ended September 30, 2004. During the same period, total fully-tax-equivalent interest income increased by 3.5% from $23,247 to $24,068 and total interest expense decreased by 9.7% from $5,587 to $5,043. Fully-tax-equivalent net interest income as a percentage of total earning assets has shown a decrease of .10% from 4.31% for the nine-month period ended September 30, 2003 to 4.21% for the nine-month period ended September 30, 2004.

The tables on the following four pages present selected financial data and an analysis of net interest income.

17

CNB Corporation and Subsidiary Average Balances, Yields, and Rates (Dollars in Thousands)
Assets:   Earning assets:    Loans, net of unearned     income        Securities:     Taxable     Tax-exempt    Federal funds sold and     securities purchased     under agreement to resell       Total earning assets     Other assets       Total assets   Liabilities and stockholder equity    Interest-bearing     liabilities:    Interest-bearing deposits    Federal funds purchased     and securities sold     under agreement to     repurchase    Other short-term     borrowings       Total interest-bearing        liabilities    Noninterest-bearing     deposits    Other liabilities    Stockholders' equity       Total liabilities        and stockholders'        equity    Net interest income as a     percent of total earning     assets   (1)  Tax-equivalent      adjustment based on a      34% tax rate	Three Months Ended 9/30/04  Three Months Ended 9/30/03   Avg.    Interest Avg. Ann.  Avg.    Interest  Avg. Ann.  Balance Income/  Yield or   Balance Income/    Yield or  Expense(1)    Rate             Expense(1)  Rate
	$393,807   176,309 22,757       32,165  625,038   47,500 $672,538           $440,555       30,114      1,160   $471,829    129,009    3,624   68,076     $672,538     $625,038	$  6,197   1,659 377          106    8,339               1,674       97          3   $  1,774                   $  6,565       $    148	6.29%   3.76  6.63      1.32  5.34                1.52        1.29    1.03    1.50                    4.20	$347,292 160,733 24,828       38,132  570,985   41,276 $612,261           $399,589       31,197      1,553   $432,339     109,948 4,274   65,700     $612,261     $570,985	$  5,632   1,610 388           86    7,716               1,669       77          4   $  1,750                   $  5,966       $    156	6.49%   4.01  6.25      .90  5.41                1.67        .99    1.03    1.62                    4.18
Ratios: Annualized return on average total assets Annualized return on average stockholders' equity Cash dividends declared as a percent of net income Average stockholders' equity as a percent of:   Average total assets   Average total deposits   Average loans Average earning assets as a percent of average total assets			1.47    14.50    0    10.12  11.95  17.29    92.94	1.38    12.89    0    10.73  12.89  18.92    93.26

18

CNB Corporation and Subsidiary Average Balances, Yield and Rates (Dollars in Thousands)
Assets:   Earning assets:    Loans, net of unearned     income    Securities:     Taxable     Tax-exempt    Federal funds sold and     securities purchased     under agreement to     resell       Total earning assets     Other assets       Total assets   Liabilities and stockholder equity    Interest-bearing     liabilities:    Interest-bearing deposits    Federal funds purchased     and securities sold     under agreement to     repurchase    Other short-term     borrowings       Total interest-        bearing liabilities    Noninterest-bearing     deposits    Other liabilities    Stockholders' equity       Total liabilities        and stockholders'        equity    Net interest income as a     percent of total earning     assets   (1)  Tax-equivalent      adjustment based on a      34% tax rate	Nine Months Ended 9/30/04   Nine Months Ended 9/30/03     Avg.    Interest Avg. Ann. Avg.     Interest  Avg. Ann.  Balance Income/  Yield or  Balance  Income/   Yield or   Expense(1)    Rate             Expense(1)  Rate
	$382,869   170,817 23,057         26,313  603,056   46,814 $649,870           $433,911       27,398      1,084   $462,393    117,055 3,450   66,972     $649,870     $603,056	$ 17,853   4,893 1,112            210   24,068               4,807       229          7   $  5,043                   $ 19,025       $    398	6.22%   3.82  6.43        1.06  5.32                1.48        1.11    .86    1.45                    4.21	$344,010   150,789 25,540         25,618  545,957   39,598 $585,555           $387,589       28,599      1,381   $417,569     99,198 4,722   64,066     $585,555     $545,957	$ 16,980   4,885 1,185            197   23,247               5,323       253         11   $  5,587                   $ 17,660       $    427	6.58%   4.32  6.19        1.03  5.68                1.83        1.18    1.06    1.78                    4.31
Ratios: Annualized return on average total assets Annualized return on average stockholders' equity Cash dividends declared as a percent of net income Average stockholders' equity as a percent of:   Average total assets   Average total deposits   Average loans Average earning assets as a percent of average total assets			1.34    12.96    0    10.31  12.16  17.49    92.80	1.37    12.54    0    10.94  13.16  18.62    93.24

19

CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Three Months Ended September 30, 2004 and 2003
(Dollars in Thousands)

 
 
 
 
 

Earning Assets:
Total Loans (2)
Investment securities:
 Taxable
 Tax-exempt
Federal funds sold and
 Securities purchased under
 agreement to resell
 
Total Earning Assets
 
Interest-bearing
 Liabilities:
 
Interest-bearing deposits
Federal funds purchased and
 securities sold under
 agreement to repurchase
Other short-term borrowings
 
Total Interest-bearing
 Liabilities
Interest-free Funds
 Supporting Earning Assets
 
Total Funds Supporting
Earning Assets
 
Interest Rate Spread
Impact of Non-interest-
 bearing Funds on Net Yield
 on Earning Assets
 
Net Yield on Earning Assets Average
 Volume
  2004 
 
 
 
393,807
 
176,309
 22,757
 
 
 32,165
 
625,038
 
 
 
 
440,555
 
 
 30,114
  1,160
 
 
471,829
 
153,209
 
       
625,038 Average
Volume
2003 
 
 
 
347,292
 
160,733
24,828
 
 
 38,132
 
570,985
 
 
 
 
399,589
 
 
31,197
  1,553
 
 
432,339
 
138,646
 
       
570,985 Yield/Rate
2004 (1) 
 
 
 
6.29%
 
3.76%
6.63%
 
 
1.32%
 
5.34%
 
 
 
 
1.52%
 
 
1.29%
1.03%
 
 
1.50%
 
 
 
     
1.14%
 
3.84%
 
 
 .36%
 
4.20% Yield/Rate
2003 (1) 
 
 
 
6.49%
 
4.01%
6.25%
 
 
 .90%
 
5.41%
 
 
 
 
1.67%
 
 
.99%
1.03%
 
 
1.62%
 
 
 
     
1.23%
 
3.79%
 
 
 .39%
 
4.18% Interest  
Earned/Paid 
2004 (1)  
 
 
 
6,197
 
1,659
377
 
 
  106
 
8,339
 
 
 
 
1,674
 
 
97
    3
 
 
1,774
 
 
 
     
1,774
 
 
 
 
 
     
6,565 Interest  
Earned/Paid 
2003 (1)  
 
 
 
5,632
 
1,610
388
 
 
   86
 
7,716
 
 
 
 
1,669
 
 
77
    4
 
 
1,750
 
 
 
     
1,750





     
5,966 Variance 
 
 
565 
 
49 
(11)
 
 
    20 
 
   623 
 
 
 
 
5 
 
 
20 
    (1)
 
 
    24 
 
 
 
       
    24  Change
Due to
Rate 
 
 
 
(174)
 
(100)
24 
 
 
   40 
 
 (210)
 
 
 
 
(150)
 
 
23 
     0 
 
 
  (127)
 
 
 
       
  (127) Change
Due to
Volume
 
 
 
755 
 
156 
(32)
 
 
 (13)
 
 866 
 
 
 
 
171 
 
 
(3)
  (1)
 
 
 167 
 
 
 
     
 167  Change
Due to
Rate X
Volume
 
 
 
(16)
 
(7)
(3)
 
 
  (7)
 
 (33)
 
 
 
 
(16)
 
 
0 
   0 
 
 
 (16)
 
 
 
     
 (16)

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

20

CNB Corporation and Subsidiary
Rate/Volume Variance Analysis
For the Nine Months Ended September 30, 2004 and 2003
(Dollars in Thousands)

 
 
 
 
 
 
Earning Assets:
Total Loans (2)
Investment securities:
 Taxable
 Tax-exempt
Federal funds sold and
 Securities purchased under
 agreement to resell
 
Total Earning Assets
 
Interest-bearing
 Liabilities:
 
Interest-bearing deposits
Federal funds purchased and
 securities sold under
 agreement to repurchase
Other short-term borrowings
 
Total Interest-bearing
 Liabilities
Interest-free Funds
 Supporting Earning Assets
 
Total Funds Supporting
Earning Assets
 
Interest Rate Spread
Impact of Non-interest-
 bearing Funds on Net Yield
 on Earning Assets
 
Net Yield on Earning Assets Average
 Volume
  2004 
 
 
 
382,869
 
170,817
 23,057
 
 
 26,313
 
603,056
 
 
 
 
433,911
 
 
 27,398
  1,084
 
 
462,393
 
140,663
 
       
603,056 Average
Volume
2003 
 
 
 
344,010
 
150,789
25,540
 
 
 25,618
 
545,957
 
 
 
 
387,589
 
 
28,599
  1,381
 
 
417,569
 
128,388
 
       
545,957 Yield/Rate
2004 (1) 
 
 
 
6.22%
 
3.82%
6.43%
 
 
1.06%
 
5.32%
 
 
 
 
1.48%
 
 
1.11%
 .86%
 
 
1.45%
 
 
 
     
1.11%
 
3.87%
 
 
 .34%
 
4.21% Yield/Rate
2003 (1) 
 
 
 
6.58%
 
4.32%
6.19%
 
 
1.03%
 
5.68%
 
 
 
 
1.83%
 
 
1.18%
1.06%
 
 
1.78%
 
 
 
     
1.37%
 
3.90%
 
 
 .41%
 
4.31% Interest  
Earned/Paid 
2004 (1)  
 
 
 
17,853
 
4,893
1,112
 
 
   210
 
24,068
 
 
 
 
4,807
 
 
229
     7
 
 
 5,043
 
 
 
      
 5,043
 
 
 
 
 
      
19,025 Interest  
Earned/Paid 
2003 (1)  
 
 
 
16,980
 
4,885
1,185
 
 
   197
 
23,247
 
 
 
 
5,323
 
 
253
    11
 
 
 5,587
 
 
 
      
 5,587
 
 
 
 
 
      
17,660 Variance 
 
 
873 
 
8 
(73)
 
 
    13 
 
   821 
 
 
 
 
(516)
 
 
(24)
    (4)
 
 
  (544)
 
 
 
       
  (544) Change
Due to
Rate 
 
 
 
(929)
 
(565)
46 
 
 
     6 
 
(1,442)
 
 
 
 
(1,017)
 
 
(15)
    (2)
 
 
(1,034)
 
 
 
       
(1,034) Change
Due to
Volume
 
 
 
1,918 
 
649 
(115)
 
 
     5 
 
 2,457 
 
 
 
 
636 
 
 
(11)
    (2)
 
 
   623 
 
 
 
       
   623  Change
Due to
Rate X
Volume
 
 
 
(116)
 
(76)
(4)
 
 
    2 
 
 (194)
 
 
 
 
(135)
 
 
2 
    0 
 
 
 (133)
 
 
 
      
 (133)

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

21

NET INCOME (continued)

Provision for Possible Loan Losses - It is the policy of the bank to maintain the allowance for possible loan losses at the greater of 1.20% of net loans or a percentage based on a level to cover potential losses identified in the portfolio.

The provision for possible loan losses was $315 for the three-month period ended September 30, 2004 and $250 for the three-month period ended September 30, 2003. Net loan charge-offs/(recoveries) totaled $288 for the three-month period ended September 30, 2004 and $316 for the same period in 2004.

The provision for possible loan losses was $760 for the nine-month period ended September 30, 2004 and $750 for the nine-month period ended September 30, 2003. Net loan charge-offs/(recoveries) totalled $396 for the nine-month period ended September 30, 2004 and $407 for the same period in 2003.

The allowance for possible loan losses as a percentage of net loans was 1.25% at September 30, 2004 and 1.33% at September 30, 2003.  The increased provisions during the three-month and nine-month periods ended September 30, 2004 reflect the continued strong loan portfolio growth.

Securities Transactions - At September 30, 2004, December 31, 2003, and September 30, 2003 market value appreciation in the investment portfolio totalled $2,806, $4,820, and $5,604, respectively.  As indicated, market values have decreased due to higher market interest rates in 2004.  Security gains of $154 were taken during the first quarter of 2003 to supplement liquidity and to take advantage of a steeply-sloping yield curve.

Other Income - Other income, net of any gains/losses on security transactions, increased by 8.7% from $1,662 for the three-month period ended September 30, 2003 to $1,806 for the three-month period ended September 30, 2004.

Other income, net of any gains/losses on security transactions, increased by 7.0% from $4,471 for the nine-month period ended September 30, 2003 to $4,786 for the nine-month period ended September 30, 2004.

This increase in the three-month and nine-month period ended September 30, 2004 other income was due to an increase in deposit account volumes and higher merchant discount income, offset somewhat by a decrease in refinancing volume in the mortgage loan department.

Other Expenses - Other expenses increased by 9.8% from $4,102 for the three-month period ended September 30, 2003 to $4,506 for the three-month period ended September 30, 2004. The major components of other expenses are salaries and employee benefits which increased 7.2% from $2,512 to $2,692; occupancy expense which increased 13.5% from $541 to $614; and other operating expenses which increased by 14.4% from $1,049 to $1,200.

Other expenses increased by 6.7% from $12,314 for the nine-month period ended September 30, 2003 to $13,137 for the nine-month period ended September 30, 2004. The major components of other expenses are salaries and employee benefits which increased 4.4% from $7,718 to $8,055; occupancy expense which increased 14.3% from $1,594 to $1,822; and other operating expense which increased by 8.6% from $3,002 to $3,260.

22

NET INCOME (continued)

The increase in the three-month and nine-month period ended September 30, 2004 salaries and employee benefits was due to normal pay increases and the increased costs of providing employee benefits, particularly health insurance coverage. Occupancy expense has grown in 2004 due to the addition of a new banking office in Conway.  Looking ahead, the construction, staffing, and equipping of a new branch office in Pawleys Island, South Carolina, expected in 2005, will add to future occupancy expense.

Income Taxes - Provisions for income taxes decreased 6.7% from $1,002 for the three-month period ended September 30, 2003 to $935 for the three-month period ended September 30, 2004.  Income before income taxes less interest on tax-exempt investment securities increased by 10.1% from $2,864 for the three-month period ended September 30, 2003 to $3,153 for the same period in 2004.  State tax liability increased as income before income taxes increased 9.0% from $3,120 to $3,402 during the same period.  Third Quarter 2004 income taxes declined slightly due to the recognition of additional deferred tax assets.

Provisions for income taxes increased 8.6% from $2,770 for the nine-month period ended September 30, 2003 to $3,007 for the nine-month period ended September 30, 2004. Income before income taxes less interest on tax-exempt investment securities increased by 9.6% from $8,012 for the nine-month period ended September 30, 2003 to $8,782 for the same period in 2004 and state tax liability increased as income before income taxes increased 8.2% from $8,794 to $9,516 during the same period.

LIQUIDITY

The bank's liquidity position is primarily dependent on short-term demands for funds caused by customer credit needs and deposit withdrawals and upon the liquidity of bank assets to meet these needs.  The bank's liquidity sources include cash and due from banks, federal funds sold and short-term investments.  In addition, the bank has established federal funds lines of credit from correspondent banks and has the ability to borrow funds from the Federal Reserve System and the Federal Home Loan Bank of Atlanta. Management feels that short-term and long-term liquidity sources are more than adequate to meet funding needs, including the funding of off-balance sheet loan commitments and standby letters of credit, if the need arises.  Neither the Company nor the Bank are involved in other off-balance sheet contractual relationships or transactions that could result in liquidity needs or other commitments or significantly impact earnings.  The Bank has received regulatory approval to open a new banking office in Pawleys Island, South Carolina.  Land, construction, and equipment costs are estimated at $1,750.

CAPITAL RESOURCES

Total stockholders' equity was $69,945 and $64,623 at September 30, 2004 and December 31, 2003, representing 10.28% and 10.77% of total assets, respectively. At September 30, 2004, the Bank exceeds quantitative measures established by regulation to ensure capital adequacy (see NOTE 12 to the consolidated unaudited financial statements - REGULATORY MATTERS). Capital is considered sufficient by management to meet current and prospective capital requirements and to support anticipated growth in bank operations.

23

ACCOUNTING ISSUES

Accounting standards that have been issued or proposed by the Financial Accounting Standards Board that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

RISKS AND UNCERTAINTIES

In the normal course of its business the Company encounters two significant types of risks: economic and regulatory.  There are three main components of economic risk: interest rate risk, credit risk and market risk.  The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different basis, than its interest-earning assets.  Credit risk is the risk of default on the Company's loan portfolio that results from borrower's inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of collateral underlying loans receivable and the valuation of real estate held by the Company.

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

Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises principally from interest rate risk inherent in its lending, deposit and borrowing activities.  Management actively monitors and manages its interest rate risk exposure.  In addition to other risks which the Company manages in the normal course of business, such as credit quality and liquidity risk, management considers interest rate risk to be a significant market risk that could potentially have a material effect on the Company's financial condition and results of operations (See Net Income - Net Interest Income).  Other types of market risks, such as foreign currency risk and commodity price risk, do not arise in the normal course of the Company's business activities.

Item 4. CONTROLS AND PROCEDURES

Based on the evaluation required by 17 C.F.R. Section 240.13a-15(b) or 240.15d-15(b) of the Company's disclosure controls and procedures (as defined in 17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e)), the Company's chief executive officer and chief financial officer concluded that the effectiveness of such controls and procedures, as of the end of the period covered by this quarterly report, was adequate.

No disclosure is required under 17 C.F.R. Section 229.308.

24

SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

                                  CNB Corporation
                                    (Registrant)

                                  /s/Paul R. Dusenbury                  
                                  Paul R. Dusenbury
                                  Treasurer
                                 (Chief Financial and Accounting Officer)


Date:  November 10, 2004

25

PART II.

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

See Exhibit Index.

(b)  Reports on Form 8-K

     On August 13, 2004, the Company furnished a Form 8-K stating that on August 10,
     2004, the Registrant's Board of Directors adopted a Code of Ethics for
     Executive Officers that addresses specifically the standards set forth in
     regulation 5-K, Item 406(b).  A copy of the new Code of Ethics was set forth as
     Exhibit 99.

26

EXHIBIT INDEX

Exhibit 31.1   Certification of Principal Executive Officer required by Rule 13a-
               14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
               adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2   Certification of Principal Financial Officer required by Rule 13a-
               14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as
               adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1   Certification of Chief Executive Officer and Chief Financial
               Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
               Section 906 of the Sarbanes-Oxley Act of 2002.