CNB (CNBW) 10-Q 2012 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
(Mark One)
[X]             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended                            March 31, 2012
OR
[  ]              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                                  to
Commission file number:   000-24523
CNB Corporation
(Exact name of registrant as specified in its charter)
South Carolina	57-0792402
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1400 Third Avenue, Conway, S.C.	29526
(Address of principal executive offices)	(Zip Code)
(Registrant's telephone number, including area code):  (843) 248-5721
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   X  .   No      .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]     No [  ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [  ]		Accelerated filer [X]
Non-accelerated filer [  ](Do not check if a smaller reporting company)		Smaller Reporting Company [  ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes  [X]  No.
State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practical date:  1,661,007 shares of common stock, par value $5 per share, May 1, 2012.

CNB Corporation
	Page
Forward-Looking Statements	1
PART I.    FINANCIAL INFORMATION
Item 1.       Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2012, December 31, 2011, and March 31, 2011	2
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2012 and 2011	3
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011	4
Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 2012 and 2011	5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011	6
Notes to Consolidated Financial Statements	7-29
Item 2.     Management's Discussion and Analysis of Financial                  Condition and Results of Operations	30-38
Item 3.     Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.     Controls and Procedures	38
PART II.   OTHER INFORMATION
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.    Exhibits	39
SIGNATURE	39

CAUTIONARY NOTICE WITH RESPECT TO
FORWARD LOOKING STATEMENTS

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

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

These forward-looking statements are based on current expectations, estimates and projections about the banking industry and the economy, management's beliefs, and assumptions made by management.  Such information includes, without limitation, discussions as to estimates, expectations, beliefs, plans, strategies, and objectives concerning future financial and operating performance.  These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially from those expressed or forecasted in such forward-looking statements.  The risks and uncertainties include, but are not limited to:

● future economic and business conditions;

● lack of sustained growth in the economies of the Company's market areas, including, but not limited to, declining real estate values and increasing levels of unemployment;

● government monetary and fiscal policies;

● the effects of changes in interest rates on the levels, composition and costs of deposits, loan demand, and the values of loan collateral, securities, and interest sensitive assets and liabilities;

● the effects of credit rating downgrades on the value of investment securities issued or guaranteed by various governments and government agencies, including the United State of America;

● the effects of competition from a wide variety of local, regional, national and other providers of financial, investment, and insurance services, as well as competitors that offer banking products and services by mail, telephone, computer and/or the Internet;

● credit risks;

● higher than anticipated levels of defaults on loans;

● ability to sell repossessed collateral;

● perceptions by depositors about the safety of their deposits;

● ability to weather the current economic downturn;

● loss of consumer or investor confidence;

● the failure of assumptions underlying the establishment of the allowance for loan losses and other estimates, including the value of collateral securing loans;

● the risks of opening new offices, including, without limitation, the  related costs and time of building customer relationships and  integrating operations as part of these endeavors and the failure to  achieve expected gains, revenue growth and/or expense savings from  such endeavors;

● increases in deposit insurance premiums;

● changes in laws and regulations, including tax, banking and securities laws and regulations;

● changes in accounting policies, rules and practices;

● the effect of agreements with regulatory authorities, which restrict various activities and impose additional administrative requirements without commensurate benefits;

● changes in requirements of regulatory authorities;

● changes in technology or products may be more difficult or costly, or less effective, than anticipated;

● the effects of war or other conflicts, acts of terrorism or other  catastrophic events that may affect general economic conditions and  economic confidence; and

● other factors and information described in this report and in any of the other reports that we file with the Securities and Exchange Commission under the Securities Exchange Act of 1934.

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

-1-

PART I.
Item 1. Financial Statements
CNB Corporation and Subsidiary Condensed Consolidated Balance Sheets (All Dollar Amounts, Except Per Share Data, in Thousands)
ASSETS:		March 31,		December 31,		March 31,
		2012		2011		2011
		(Unaudited)				(Unaudited)
Cash and cash equivalents:
Cash and due from banks	$	24,718	$	24,422	$	23,241
Due from Federal Reserve Bank, balance in excess of requirement		57,965		30,578		39,580
Federal funds sold		13,000		10,000		32,000
Total cash and cash equivalents		95,683		65,000		94,821
Investment securities available for sale		301,409		320,717		269,421
(Amortized cost of  $299,109 at March 31, 2012, $317,551 at
December 31, 2011, and $268,999 at March 31, 2011)
Investment securities held to maturity		30,480		11,009		19,203
(Fair values of  $31,143 at March 31, 2012, $11,744 at       December 31, 2011, and  $19,431 at March 31, 2011)
Other investments		1,865		1,865		2,729
Loans:
Total loans		469,706		484,022		523,745
Less allowance for possible loan losses		(12,612)		(12,373)		(11,803)
Net loans		457,094		471,649		511,942
Bank premises and equipment		21,043		21,249		21,922
Other real estate owned		9,262		9,063		6,446
Accrued interest receivable		4,073		4,158		4,377
Other assets		9,257		9,110		10,671
Total assets	$	930,166	$	913,820	$	941,532
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Noninterest-bearing	$	129,823	$	119,649	$	111,146
Interest-bearing		616,876		612,976		625,801
Total deposits		746,699		732,625		736,947
Securities sold under agreement to repurchase		90,248		87,784		111,274
United States Treasury demand notes		-		-		1,336
Other liabilities		3,829		4,005		4,872
Total liabilities		840,776		824,414		854,429
Stockholders' equity:
Common stock, par value $5 per share; authorized 3,000,000;		8,305		8,309		8,323
issued 1,661,010 at March 31, 2012, 1,661,912 at December
31, 2011, and 1,664,614 at March 31, 2011.
Capital in excess of par value of stock		50,298		50,343		50,485
Retained earnings		29,436		28,879		28,042
Accumulated other comprehensive income		1,351		1,875		253
Total stockholders' equity		89,390		89,406		87,103
Total liabilities and stockholders' equity	$	930,166	$	913,820	$	941,532

See Notes to Condensed Consolidated Financial Statements



-2-

CNB Corporation and Subsidiary Condensed Consolidated Statements of Income (All Dollar Amounts, Except Per Share Data, in Thousands) (Unaudited)
	Three Months Ended
	March 31,
Interest Income:		2012		2011
Interest and fees on loans	$	7,227	$	7,991
Interest on investment securities:
Taxable investment securities		756		845
Nontaxable investment securities		315		261
Interest on federal funds sold and Federal Reserve Bank		33		7
balances in excess of required balance
Other interest income		6		19
Total interest income		8,337		9,123
Interest Expense:
Interest on deposits		1,012		1,552
Interest on securities sold under agreement to repurchase		55		96
Total interest expense		1,067		1,648
Net interest income		7,270		7,475
Provision for loan losses		2,083		2,112
Net interest income after provision for loan losses		5,187		5,363
Noninterest income:
Service charges on deposit accounts		781		815
Gains on sale of securities		446		-
Other operating income		605		576
Total noninterest income		1,832		1,391
Noninterest expenses:
Salaries and employee benefits		3,464		3,423
Occupancy expense		828		830
Examination and professional fees		240		256
FDIC deposit insurance assessments		139		356
Net cost of operation of other real estate owned		531		286
Other operating expenses		1,095		1,117
Total noninterest expenses		6,297		6,268
Income before income taxes		722		486
Income tax provision		165		104
Net income	$	557	$	382
Per Share Data
Net income  per weighted average shares outstanding	$	0.34	$	0.23
Book value per actual number of shares outstanding	$	53.82	$	52.33
Weighted average number of shares outstanding		1,661,636		1,664,620
Actual number of shares outstanding, end of period		1,661,010		1,664,614

See Notes to Condensed Consolidated Financial Statements




-3-

CNB Corporation and Subsidiary Condensed Consolidated Statements of Comprehensive Income (All Dollar Amounts in Thousands) (Unaudited)
		Three Months Ended    March 31,
			2012		2011
	Net income	$	557	$	382
	Other comprehensive income/(loss), net of tax
	Unrealized gains on securities:
	Unrealized holding gains/(losses) during period, net		(230)		389
	Reclassification adjustment for gains included in net income, net		(294)		-
	Other comprehensive income/(loss)		(524)		389
	Comprehensive income	$	33	$	771

See Notes to Condensed Consolidated Financial Statements

-4-

CNB Corporation and Subsidiary Condensed Consolidated Statements of Changes in Stockholders' Equity (All Dollar Amounts in Thousands) (Unaudited)
	Three Months Ended    March 31,
		2012		2011
Common stock:
($5 par value, 3,000,000 shares authorized)
Balance, January 1	$	8,309	$	8,323
Repurchase of Common Stock		(4)		-
Balance at end of period		8,305		8,323
Capital in excess of par value of stock
Balance, January 1		50,343		50,486
Repurchase of Common Stock		(45)		(1)
Balance at end of period		50,298		50,485
Retained earnings:
Balance, January 1		28,879		27,660
Net Income		557		382
Balance at end of period		29,436		28,042
Accumulated other comprehensive income:
Balance, January 1		1,875		(136)
Change in net unrealized gains/(losses), net		(524)		389
Balance at end of period		1,351		253
Total stockholders' equity	$	89,390	$	87,103

See Notes to Condensed Consolidated Financial Statements

-5-

CNB CORPORATION AND SUBSIDIARY Condensed Consolidated Statements of Cash Flows (All Dollar Amounts in Thousands) (Unaudited)
	For the Three Months Ended March 31,
		2012		2011
OPERATING ACTIVITIES
Net Income		$        557		$        382
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		331		370
Provision for loan losses		2,083		2,112
Provision for deferred income taxes		(100)		(225)
Net discount accretion and premium amortization on investment securities		595		514
Gain on sale of investment securities		(446)		-
Loss on sale of foreclosed assets		28		39
Write-down of foreclosed assets		266		109
Decrease in accrued interest receivable		85		273
Decrease  in other assets		301		488
Decrease in other liabilities		(176)		(449)
Net cash provided by operating activities		3,524		3,613
INVESTING ACTIVITIES
Proceeds from sale of investment securities available for sale		11,815		-
Proceeds from maturities/calls of investment securities available for sale		47,945		55,135
Proceeds from maturities/calls of investment securities held to maturity		-		2,000
Purchase of investment securities available for sale		(41,458)		(49,031)
Purchase of investment securities held to maturity		(19,486)		(535)
Proceeds from sale of foreclosed assets		913		362
Net increase in federal funds sold		(3,000)		(18,000)
Net decrease in loans		11,066		7,025
Premises and equipment expenditures		(125)		(204)
Net cash provided/(used) for investing activities		7,670		(3,248)
FINANCING ACTIVITIES
Net increase in deposits		14,074		18,807
Net increase in securities sold under repurchase agreement		2,464		12,121
Net decrease in United States Treasury demand notes		-		(988)
Common shares purchased		(49)		(1)
Net cash provided by financing activities		16,489		29,939
Net increase in cash and due from banks		27,683		30,304
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD		55,000		32,517
CASH AND DUE FROM BANKS, END OF PERIOD	$	82,683	$	62,821
CASH PAID FOR:
Interest	$	1,473	$	2,548
Income taxes	$	244	$	178
SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCIAL ACTIVITIES
Change in unrealized gain/loss on securities available for sale	$	(867)	$	648
Real estate acquired through foreclosure	$	1,406	$	1,480
Change in dividends payable	$	-	$	-

See Notes to Condensed Consolidated Financial Statements

-6-

 

CNB CORPORATION AND SUBSIDIARY (The "Company")

CNB CORPORATION (The "Parent")

THE CONWAY NATIONAL BANK (The "Bank")

NOTES TO CONDENSED 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 resulting in 1,661,636 shares for the three-month period ended March 31, 2012.

Fair values of financial instruments

Financial Accounting Standards Board Accounting Standards Codification 820 (FASB ASC 820), “Fair Value of Financial Instruments," requires disclosure of fair value information for financial instruments, whether or not recognized in the balance sheet, when it is practicable to estimate the fair value.  FASB ASC 820 defines a financial instrument as cash, evidence of an ownership interest in an entity or contractual obligations which require the exchange of cash or other financial instruments.  Certain items are specifically excluded from the disclosure requirements, including the Company's common stock.  In addition, other nonfinancial instruments such as premises and equipment and other assets and liabilities are not subject to the disclosure requirements.

The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein:

Cash and due from banks - The carrying amounts of cash and due from banks (cash on hand, due from banks and interest bearing deposits with other banks) approximate their fair value.

Federal funds sold - The carrying amounts of federal funds sold approximate their fair value.

Investment securities available for sale and held to maturity - Fair values for investment securities are based on quoted market prices.

Other investments - No ready market exists for Federal Reserve and Federal Home Loan Bank Stock and they have no quoted market value.  However, redemption of this stock has historically been at par value.  Management has determined it is not practicable to estimate the fair value and has not performed an impairment analysis.

Loans - For variable rate loans that reprice frequently and for loans that mature within one year, fair values are based on carrying values.  Fair values for all other loans are estimated using discounted cash flow analyses, with interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  Fair values for impaired loans are estimated using discounted cash flow analyses or current appraised values of the underlying collateral, where applicable.

Deposits - The fair values disclosed for demand deposits are, by definition, equal to their carrying amounts. The carrying amounts of variable rate, fixed-term money market accounts and short-term certificates of deposit approximate their fair values at the reporting date.  Fair values for long-term fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities.

Short-term borrowings - The carrying amounts of borrowings under repurchase agreements and U. S. Treasury demand notes approximate their fair values.

Off balance sheet instruments - Fair values of off balance sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing.

-7-

 

Recently Issued Accounting Pronouncements – The following is a summary of recent authoritative pronouncements that could impact the accounting, reporting, and/or disclosure of financial information by the Company.

In April 2011, the criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the Accounting Standards Codification (ASC) was amended by Accounting Standards Update (ASU) 2011-03.  The requirement for the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and the collateral maintenance implementation guidance related to that criterion were removed from the assessment of effective control.  The other criteria to assess effective control were not changed.  The amendments were effective for the Company on January 1, 2012 and had no effect on the financial statements.

ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of the ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements.  The amendments were effective for the Company beginning January 1, 2012 and had no effect on the financial statements.

The Comprehensive Income topic of the ASC was amended in June 2011.  The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity and requires consecutive presentation of the statement of net income and other comprehensive income.  The amendments were applicable to the Company on January 1, 2012 and have been applied retrospectively.  In December 2011, the topic was further amended to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements.  Companies should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect prior to the amendments while FASB redeliberates future requirements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

NOTE 2 – RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required to maintain average reserve balances either at the Bank or on deposit with the Federal Reserve Bank.  The average amounts of these reserve balances for the three-month period ended March 31, 2012 and for the year ended December 31, 2011 were approximately $1,312 and $1,193 respectively.

-8-

NOTE 3 – INVESTMENT SECURITIES

The following summaries reflect the book value, unrealized gains and losses, approximate market value, and tax-equivalent yields of investment securities listed by type of issuer and maturity at March 31, 2012 and at December 31, 2011.

	March 31, 2012
		Book	Unrealized Holding					Fair
		Value		Gains		Losses		Value	Yield(1)
AVAILABLE FOR SALE
Government Sponsored Enterprises
Within one year	$	48,317	$	120	$	-	$	48,437	.64%
One to five years		176,686		519		65		177,140	.82%
Six to ten years		26,844		112		43		26,913	1.39%
		251,847		751		108		252,490	.85%
Mortgage Backed Securities
One to five years		77		7		-		84	5.86%
Six to ten years		2,818		126		-		2,944	3.46%
Over ten years		16,557		239		1		16,795	2.61%
		19,452		372		1		19,823	2.75%
State, county and municipal
Within one year		485		8		-		493	5.56%
One to five years		1,505		54		-		1,559	3.69%
Six to ten years		19,546		1,066		63		20,549	4.57%
Over ten years		5,150		191		19		5,322	4.42%
		26,686		1,319		82		27,923	4.51%
Other Investments
CRA Qualified Investment Fund		1,087		49		-		1,136	-%
Other		37		-		-		37	-%
		1,124		49		-		1,173	-%
Total available for sale	$	299,109	$	2,491	$	191	$	301,409	1.30%
HELD TO MATURITY
Government Sponsored Enterprises
Six to ten years	$	8,246	$	-	$	4	$	8,242	1.09%
Mortgage Backed Securities
Six to ten years		1,024		-		-		1,024	1.62%
Over ten years		9,091		18		-		9,109	2.26%
		10,115		18		-		10,133	2.19%
State, county and municipal
Within one year	$	801	$	8	$	-	$	809	4.29%
One to five years		1,621		92		-		1,713	5.18%
Six to ten years		5,935		390		-		6,325	5.25%
Over ten years		3,762		167		8		3,921	4.32%
		12,119		657		8		12,768	4.89%
Total held to maturity	$	30,480	$	675	$	12	$	31,143	2.97%
(1) Tax equivalent adjustment based on a 34% tax rate.

As of March 31, 2012, the Bank did not hold any securities of an issuer that exceeded 10% of stockholders’ equity. The net unrealized holding gains on available for sale securities component of capital was $1,351, net of deferred income taxes, as of March 31, 2012.

-9-

 

NOTE 3 - INVESTMENT SECURITIES (Continued)

	December 31, 2011
	(Dollars in Thousands)
		Book	Unrealized Holding					Fair
		Value		Gains		Losses		Value	Yield(1)
AVAILABLE FOR SALE
Government sponsored enterprises
Within one year	$	52,367	$	153	$	-	$	52,520	.62%
One to five years		185,112		842		93		185,861	.97%
Six to ten years		29,877		160		30		30,007	1.40%
		267,356		1,155		123		268,388	.95%
Mortgage backed securities
One to five years		84		8		-		92	5.86%
Six to ten years		3,149		128		-		3,277	3.51%
Over ten years		18,787		232		30		18,989	2.46%
		22,020		368		30		22,358	2.63%
State, county and municipal
Within one year		265		-		-		265	5.47%
One to five years		1,784		64		-		1,848	4.13%
Six to ten years		19,472		1,410		3		20,879	5.01%
Over ten years		5,538		283		-		5,821	4.78%
		27,059		1,757		3		28,813	4.91%
Other investments
CRA Qualified Investment Fund		1,079		43		-		1,122	-%
Other		36		-		-		36	-%
		1,115		43		-		1,158	-%
Total available for sale	$	317,550	$	3,323	$	156	$	320,717	1.40%
HELD TO MATURITY
State, county and municipal
Within one year	$	804	$	11	$	-	$	815	4.41%
One to five years		812		38		-		850	5.62%
Six to ten years		6,519		473		-		6,992	5.36%
Over ten years		2,874		213		-		3,087	4.86%
		11,009		735		-		11,744	5.18%
Total held to maturity	$	11,009	$	735	$	-	$	11,744	5.18%

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

As of the year ended December 31, 2011, the Bank did not hold any securities of an issuer that exceeded 10% of stockholders' equity.

-10-

NOTE 3 - INVESTMENT SECURITIES, Continued

     The following table shows gross unrealized losses and fair value, aggregated by investment category, and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2012 and December 31, 2011:

	March 31, 2012
	Less than				Twelve months
	twelve months				or more				Total
AVAILABLE FOR SALE	Fair value			Unrealized      losses		Fair value		Unrealized       losses		Fair value		Unrealized     losses
Government Sponsored Enterprises	$	46,786	$	108		-		-	$	46,786	$	108
Mortgage Backed Securities		3,508		1		-		-		3,508		1
State, county and municipal		2,542		82		-		-		2,542		82
Total	$	52,836	$	191	$	-	$	-	$	52,836	$	191

HELD TO MATURITY
Government sponsored enterprises	$	5,173	$	4	$	-	$	-	$	5,173	$	4
State, county and municipal		1,112		8		-		-		1,112		8
Total	$	6,285	$	12	$	-	$	-	$	6,285	$	12

	December 31, 2011
	Less than				Twelve months
	twelve months				or more				Total
AVAILABLE FOR SALE		Fair value		Unrealized      losses		Fair value		Unrealized       losses		Fair value		Unrealized     losses
Government Sponsored Enterprises	$	42,732	$	123		-		-	$	42,732	$	123
Mortgage Backed Securities		6,507		3		-		-		260		3
State, county and municipal		260		30		-		-		6,507		30
Total	$	49,499	$	156	$	-	$	-	$	49,499	$	156

     
    Securities classified as available for sale are recorded at fair market value.  At March 31, 2012 and December 31, 2011, there were no available for sale securities in a continuous loss position for twelve months or more. 

    Securities classified as held to maturity are recorded at cost.  At March 31, 2012, the Company owned $6,285, fair value, of held to maturity securities in a continuous loss position for less than twelve months with $12 of unrealized losses consisting of one agency and three municipal securities. At March 31, 2012, there were no held to maturity securities in a continuous loss position for twelve months or more. At December 31, 2011, there were no held to maturity securities in a loss position.

 
    Investment securities with an aggregate par value of $181,971 ($185,765 fair value) at March 31, 2012 and $175,457 ($179,252 fair value) at December 31, 2011 were pledged to secure public deposits and for other purposes required by law.

    For the three-month period ended March 31, 2012, the Company sold $11,369 (book value) of available for sale securities for a gain of $446.  There were no sales of available for sale securities in 2011. 

-11-

NOTE 3 – INVESTMENT SECURITIES, Continued

     For the three-month period ended March 31, 2012 and the year ended December 31, 2011, there were no sales of held to maturity securities.

     Management reviews securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the fact that Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of their amortized cost.

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

     The following is a summary of loans at March 31, 2012, December 31, 2011, and March 31, 2011 by major classification:

		March 31,		December 31,		March 31,
		2012		2011		2011
Real estate loans  - commercial	$	136,238	$	142,513	$	152,363
- construction and development		50,795		52,271		60,265
- residential		187,270		191,806		206,704
Commercial and agricultural loans		52,465		54,470		61,500
Loans to individuals for household,
family and other consumer expenditures
including overdrafts		42,938		42,962		42,913
Gross loans	$	469,706	$	484,022	$	523,745
Less allowance for loan losses		(12,612)		(12,373)		(11,803)
Net loans	$	457,094	$	471,649	$	511,942

     Changes in the allowance for loan losses for the quarters ended March 31, 2012 and 2011, and the year ended December 31, 2011
are summarized as follows:

	Quarter Ended					Year Ended
	March 31,					December 31,
		2012		2011		2011
Balance, beginning of period	$	12,373	$	11,627	$	11,627
Charge-offs:
Commercial and agricultural		766		280		1,872
Real Estate – commercial, construction and       residential		1,207		1,962		7,798
Loans to individuals		239		236		917
Total charge-offs	$	2,212	$	2,478	$	10,587
Recoveries:
Commercial and agricultural	$	238	$	62	$	298
Real Estate –commercial, construction and       residential		99		406		929
Loans to individuals		31		74		218
Total recoveries	$	368	$	542	$	1,445
Net charge-offs	$	1,844	$	1,936	$	9,142
Additions charged to operations	$	2,083	$	2,112	$	9,888
Balance, end of period	$	12,612	$	11,803	$	12,373
Ratio of net charge-offs during the period		.39%		.37%		1.79%
to average loans outstanding during the    period

The entire balance of the allowance for loan losses is available to absorb future loan losses.

-12-

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES, Continued

     At March 31, 2012, December 31, 2011, and March 31, 2011 loans on which no interest was being accrued totaled $22,399, $22,913, and $26,393, respectively.  All loans on which no interest was being accrued as well as other loans identified by management as having weaknesses which result in a determination of an inability on the part of the borrower to make full and timely payment of principal and interest are classified as impaired.  Impaired loans at March 31, 2012, December 31, 2011, and March 31, 2011 were $26,916, $26,036, and $28,803, respectively.  The portion of the allowance for loan losses specifically allocated to impaired loans at March 31, 2012, December 31, 2011, and March 31, 2011 was $1,426, $1,484, and $745, respectively.  The Company had $9,262 of foreclosed real estate at March 31, 2012, $9,063 at December 31, 2011, and $6,446 at March 31, 2011.  Loans 90 days past due and still accruing interest totaled $1,602, $2,141, and $1,431 at March 31, 2012, December 31, 2011, and March 31, 2011, respectively.

     At March 31, 2012, December 31, 2011, and March 31, 2011 classified assets, the majority consisting of classified loans, were $60,438, $62,811, and $73,548, respectively.  At March 31, 2012,  December 31, 2011, and March 31, 2011 classified assets represented 60.38%, 63.03%, and 74.90% of total capital (the sum of Tier 1 Capital and the Allowance for Loan Losses), respectively.

    As of March 31, 2012, December 31, 2011, and March 31, 2011 loans individually evaluated and considered impaired under ASC 310-10 “Receivables” were as follows:

	March 31,            2012	December 31,          2011	March 31,            2011
Total loans considered impaired	$26,916	$26,036	$28,803
Loans considered impaired for which there is a related      allowance for loan loss:
Outstanding loan balance	13,777	15,955	8,026
Related allowance established	1,426	1,484	745
Loans considered impaired and previously written      down to fair value	9,242	6,443	20,757
Loans considered impaired and which are classified as      troubled debt restructurings	3,897	3,638	20
Average investment in impaired loans	26,343	26,873	29,356
Interest income recognized on impaired loans during the      period of impairment	86	580	52

-13-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES – Continued

The following tables summarize commercial and consumer credit exposure by internally assigned grade, collateral, and purpose as indicators of credit quality existing in the Company’s loan portfolios as of March 31, 2012, December 31, 2011 and March 31, 2011.  The Company utilizes four “Pass” grade categories and the regulatorily defined “Other Assets Especially Mentioned,” “Substandard,” and “Doubtful” grade categories to monitor credit risk existing in its loan portfolios on an on-going basis.  The four pass grades are defined as: Pass-1, loans that have minimal credit risk and are of excellent quality; Pass-2, loans with satisfactory credit risk; Pass-3, loans with reasonable credit risk, however a degree of watchfulness is warranted; and Pass-4, loans which demonstrate some weakness and a higher degree of watchfulness is warranted. “Other Assets Especially Mentioned (OAEM)” loans have weaknesses and warrant management’s close attention.  “Substandard” loans have a high degree of credit risk and credit factors that indicate potential further deterioration, which could result in a protracted workout or possible loss.  “Doubtful” loans have a high degree of potential loss, in whole or in part.

Credit Risk Profile by Internally Assigned Grade
March 31, 2012

			Real Estate
			Construction					Commercial
	Real Estate		and		Real Estate			and
	Commercial		Development		Residential			Agricultural
PASS 1	$	33	$	37	$	171		$	5,262
PASS 2		40,216		10,405		65,102			14,740
PASS 3		42,870		12,339		44,850			12,308
PASS 4		29,898		13,453		49,578			11,426
OAEM		8,162		4,794		6,806			4,154
Substandard		15,059		9,767			20,763		4,575
Total	$	136,238	$	50,795	$		187,270	$	52,465

			Real Estate
			Construction				Commercial
December 31, 2011	Real Estate		and		Real Estate		and
	Commercial		Development		Residential		Agricultural
PASS 1	$	77	$	37	$	164	$	4,720
PASS 2		46,882		10,168		67,010		15,803
PASS 3		38,237		11,094		42,424		12,207
PASS 4		34,394		15,555		52,577		12,514
OAEM		7,299		4,962		8,366		4,422
Substandard		15,624		10,455		21,265		4,804
Total	$	142,513	$	52,271	$	191,806	$	54,470

			Real Estate
			Construction				Commercial
March 31, 2011	Real Estate		and		Real Estate		and
	Commercial		Development		Residential		Agricultural
PASS 1	$	-	$	38	$	813	$	6,748
PASS 2		54,476		8,900		72,564		12,525
PASS 3		36,051		11,295		47,621		15,264
PASS 4		30,456		17,118		44,997		15,734
OAEM		12,904		9,588		11,756		5,911
Substandard		18,476		13,326		28,953		5,318
Total	$	152,363	$	60,265	$	206,704	$	61,500

The Company had no loans classified as doubtful at March 31, 2012, December 31, 2011, and March 31, 2011.  The Company does not make loans defined as “sub-prime” loans.

-14-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES – Continued

The following table summarizes the Company’s consumer credit card and all other consumer loans based on performance at March 31, 2012, December 31, 2011 and March 31, 2011.

	March 31, 2012		December 31, 2011		March  31, 2011
	Consumer	Consumer	Consumer	Consumer	Consumer	Consumer
	Credit Card	Other	Credit Card	Other	Credit Card	Other
Performing	$  3,119	$39,660	$  3,282	$39,521	$  3,081	$39,832
Non-Performing	-	159	-	159	-	-
Total	$  3,119	$39,819	$  3,282	$39,680	$  3,081	$39,832

The Company classifies consumer credit card and consumer other loans as "Non-Performing" at 120 days or more past due.  The Company had $159 of consumer credit card accounts classified as “Non-Performing” at March 31, 2012.  The Company had no consumer credit card or consumer other loans classified as "Non-Performing" at  December 31, 2011 or March 31, 2011.

-15-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES – Continued

The following tables outline the changes in the allowance for loan losses by collateral type and purpose, the allowances for loans individually and collectively evaluated for impairment, and the amount of loans individually and collectively evaluated for impairment at March 31, 2012, December 31, 2011, and March 31, 2011.

For the Three-Months Ended March 31, 2012

				Real Estate
				Construction				Commercial
		Real Estate		and		Real Estate		and
		Commercial		Development		Residential		Agricultural			Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	2,623	$	2,140	$	3,867	$	2,193	$	1,484		$	66	$	12,373
Charge-offs		(7)		(282)		(918)		(766)		(239)			-		(2,212)
Recoveries		-		87		12		238		31			-		368
Provisions		93		1,164		814		310		(238)			(60)		2,083
Ending balance	$	2,709	$	3,109	$	3,775	$	1,975	$	1,038		$	6	$	12,612
Ending balances:
Individually evaluated
for impairment	$	173	$	300	$	874	$	79	$	-		$	-	$	1,426
Collectively evaluated
for impairment	$	2,536	$	2,809	$	2,901	$	1,896	$	1,038		$	6	$	11,186
Loans receivable:
Ending balance - total	$	136,238	$	50,795	$	187,270	$	52,465	$	42,938		$	-	$	469,706
Ending balances:
Individually evaluated
for impairment	$	8,227	$	5,567	$	11,461	$	1,661	$	-		$	-	$	26,916
Collectively evaluated
for impairment	$	128,011	$	45,228	$	175,809	$	50,804	$	42,938		$	-	$	442,790

For the Year Ended December 31, 2011

			Real Estate
			Construction				Commercial
	Real Estate		and		Real Estate		and
	Commercial		Development		Residential		Agricultural		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	1,637	$	2,628	$	3,113	$	2,774	$	1,365	$	110	$	11,627
Charge-offs		(789)		(2,772)		(4,237)		(1,872)		(917)		-		(10,587)
Recoveries		-		836		93		298		218		-		1,445
Provisions		1,775		1,448		4,898		993		818		(44)		9,888
Ending balance	$	2,623	$	2,140	$	3,867	$	2,193	$	1,484	$	66	$	12,373
Ending balances:
Individually evaluated
for impairment	$	265	$	469	$	710	$	40	$	-	$	-	$	1,484
Collectively evaluated
for impairment	$	2,358	$	1,671	$	3,157	$	2,153	$	1,484	$	66	$	10,889
Loans receivable:
Ending balance - total	$	142,513	$	52,271	$	191,806	$	54,470	$	42,962	$	-	$	484,022
Ending balances:
Individually evaluated
for impairment	$	8,112	$	5,732	$	10,784	$	1,408	$	-	$	-	$	26,036
Collectively evaluated
for impairment	$	134,401	$	46,539	$	181,022	$	53,062	$	42,962	$	-	$	457,986

-16-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES – Continued

For the Three-Months Ended March 31, 2011

			Real Estate
			Construction				Commercial
	Real Estate		and		Real Estate		and
	Commercial		Development		Residential		Agricultural		Consumer		Unallocated			Total
Allowance for loan losses:
Beginning balance	$	1,637	$	2,628	$	3,113	$	2,774	$	1,365	$	110	$	11,627
Charge-offs		(261)		(668)		(1,033)		(280)		(236)		-		(2,478)
Recoveries		-		377		29		62		74		-		542
Provisions		676		417		1,367		(216)		(22)		(110)		2,112
Ending balance	$	2,052	$	2,754	$	3,476	$	2,340	$	1,181	$	-	$	11,803
Ending balances:
Individually evaluated
for impairment	$	41	$	459	$	245	$	-	$	-	$	-	$	745
Collectively evaluated
for impairment	$	2,011	$	2,295	$	3,231	$	2,340	$	1,181	$	-	$	11,058
Loans receivable:
Ending balance - total	$	152,363	$	60,265	$	206,704	$	61,500	$	42,913	$	-	$	523,745
Ending balances:
Individually evaluated
for impairment	$	8,497	$	10,207	$	9,548	$	551	$	-	$	-	$	28,803
Collectively evaluated
for impairment	$	143,866	$	50,058	$	197,156	$	60,949	$	42,913	$	-	$	494,942

-17-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES – Continued

The following tables outline the performance status of the Company’s loan portfolio by collateral type and purpose at March 31, 2012, December 31, 2011, and March 31, 2011.

														Greater
						Greater								Than
						Than								90 Days
March 31, 2012		30-59 Days		60-89 Days		90 Days		Total				Total Loans		Past Due
		Past Due		Past Due		Past Due		Past Due		Current		Receivable		Accruing
Real estate:
Commercial	$	175	$	2,579	$	4,044	$	6,798	$	129,440	$	136,238	$	-
Construction & Development		1,394		895		3,733		6,022		44,773		50,795		80
Residential		3,543		3,042		8,894		15,479		171,791		187,270		1,334
Commercial and Agricultural		714		950		1,063		2,727		49,738		52,465		-
Consumer-credit cards		33		23		33		89		3,030		3,119		33
Consumer-other		1,098		410		315		1,823		37,996		39,819		155
Total	$	6,957	$	7,899	$	18,082	$	32,938	$	436,768	$	469,706	$	1,602

														Greater
						Greater								Than
						Than								90 Days
December 31, 2011		30-59 Days		60-89 Days		90 Days		Total				Total Loans		Past Due
		Past Due		Past Due		Past Due		Past Due		Current		Receivable		Accruing
Real estate:
Commercial	$	2,650	$	465	$	4,317	$	7,432	$	135,081	$	142,513	$	-
Construction & Development		1,190		625		4,226		6,041		46,230		52,271		18
Residential		2,201		1,532		9,175		12,908		178,898		191,806		1,898
Commercial and Agricultural		1,206		1,559		807		3,572		50,898		54,470		-
Consumer-credit cards		26		54		39		119		3,163		3,282		39
Consumer-other		1,116		330		345		1,791		37,889		39,680		186
Total	$	8,389	$	4,565	$	18,909	$	31,863	$	452,159	$	484,022	$	2,141
														Greater
						Greater								Than
						Than								90 Days
March 31, 2011		30-59 Days		60-89 Days		90 Days		Total				Total Loans		Past Due
		Past Due		Past Due		Past Due		Past Due		Current		Receivable		Accruing
Real estate:
Commercial	$	632	$	280	$	5,449	$	6,361	$	146,002	$	152,363	$	-
Construction & Development		1,148		1,010		7,542		9,700		50,565		60,265		-
Residential		5,418		1,659		7,794		14,871		191,833		206,704		1,284
Commercial and Agricultural		1,778		416		-		2,194		59,306		61,500		-
Consumer-credit cards		28		21		32		81		3,000		3,081		33
Consumer-other		745		264		114		1,123		38,709		39,832		114
Total	$	9,749	$	3,650	$	20,931	$	34,330	$	489,415	$	523,745	$	1,431

-18-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES – Continued

In addition to those loans placed in a nonaccrual status, there are certain loans in the portfolio which are not yet 90 days past due but about which management has concerns regarding the ability of the borrower to comply with present loan repayment terms.  Such loans, together with nonaccrual loans, are classified as impaired.  Problem loan identification includes a review of individual loans, the borrower’s and guarantor’s financial capacity and position, loss potential, and present economic conditions.  A specific allocation is provided for impaired loans not yet placed in nonaccrual status and not yet written down to fair value in management’s determination of the allowance for loan losses.  The following table outlines the Company’s loans classified as impaired by collateral type and purpose at March 31, 2012, and December 31, 2011 and March 31, 2011.

For the Three-Months Ended March 31, 2012
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
With no related allowance recorded:	Investment		Balance		Allowance		Investment		Recognized
Real estate - commercial	$	6,274	$	6,297	$	-	$	5,618	$	12
Real estate - construction and development		3,287		4,096		-		2,761		-
Real estate - residential		2,638		2,692		-		2,297		11
Commercial and agricultural		940		987		-		940		2
With an allowance recorded:
Real estate - commercial	$	1,952	$	2,419	$	173	$	2,425	$	4
Real estate - construction and development		2,280		3,892		300		2,829		14
Real estate - residential		8,824		10,631		874		8,751		43
Commercial and agricultural		721		727		79		722		-
Total:
Real estate - commercial	$	8,226	$	8,716	$	173	$	8,043	$	16
Real estate - construction and development		5,567		7,988		300		5,590		14
Real estate - residential		11,462		13,323		874		11,048		54
Commercial and agricultural		1,661		1,714		79		1,662		2
	$	26,916	$	31,741	$	1,426	$	26,343	$	86

For the Year Ended December 31, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
With no related allowance recorded:	Investment		Balance		Allowance		Investment		Recognized
Real estate - commercial	$	4,853	$	4,876	$	-	$	6,511	$	61
Real estate - construction and development		2,391		2,797		-		4,891		-
Real estate - residential		1,897		1,939		-		3,454		36
Commercial and agricultural		939		987		-		838		17
With an allowance recorded:
Real estate - commercial	$	3,259	$	3,720	$	265	$	2,015	$	95
Real estate - construction and development		3,341		5,748		469		3,042		43
Real estate - residential		8,887		10,942		710		6,052		308
Commercial and agricultural		469		648		40		70		20
Total:
Real estate - commercial	$	8,112	$	8,596	$	265	$	8,526	$	156
Real estate - construction and development		5,732		8,545		469		7,933		43
Real estate - residential		10,784		12,881		710		9,506		344
Commercial and agricultural		1,408		1,635		40		908		37
	$	26,036	$	31,657	$	1,484	$	26,873	$	580

-19-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES – Continued

For the Three Months Ended March 31, 2011
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
With no related allowance recorded:	Investment		Balance		Allowance		Investment		Recognized
Real estate - commercial	$	7,952	$	7,975	$	-	$	7,885	$	6
Real estate - construction and development		6,726		8,290		-		6,727		10
Real estate - residential		5,548		5,582		-		5,624		33
Commercial and agricultural		551		551		-		393		3
With an allowance recorded:
Real estate - commercial	$	545	$	777	$	41	$	894	$	-
Real estate - construction and development		3,481		5,231		459		3,601		-
Real estate - residential		4,000		5,190		245		4,232		-
Commercial and agricultural		-		-		-		-		-
Total:
Real estate - commercial	$	8,497	$	8,752	$	41	$	8,779	$	6
Real estate - construction and development		10,207		13,521		459		10,328		10
Real estate - residential		9,548		10,772		245		9,856		33
Commercial and agricultural		551		551		-		393		3
	$	28,803	$	33,596	$	745	$	29,356	$	52

The following table outlines the Company’s loans on nonaccrual status by collateral type and purpose at March 31, 2012 and December 31, 2011.

Loans on Nonaccrual Status
 

	March 31,	December 31,
	2012	2011
Real estate - commercial	$  7,251	$  7,541
Real estate - construction and development	4,759	5,414
Real estate - residential	8,728	8,549
Commercial and agricultural	1,502	1,250
Consumer	159	159
Total	$22,399	$ 22,913

     The total amount of interest earned on nonaccrual loans was $9 for the three-month period ended March 31, 2012 and $386 for the year ended December 31, 2011.  The gross interest income which would have been recorded under the original terms of the nonaccrual loans amounted to $473 and $1,919 for the three-month period ended March 31, 2012 and the year ended December 31, 2011, respectively.  Foregone interest on nonaccrual loans totaled $464 and $1,533 for the three-month period ended March 31, 2012 and the year ended December 31, 2011, respectively.  The Company writes down any confirmed losses associated with nonaccrual loans at the time such loans are placed in a nonaccrual status.  Accrued and unpaid current period interest income on nonaccrual loans is reversed to current period income at the time a loan is placed in nonaccrual status.  Accrued and unpaid prior period interest income on nonaccrual loans is charged to the Allowance for Loan Losses at the time the loan is placed in nonaccrual status.  Any payments received on loans placed in nonaccrual status are applied first to principal.  The Company recognized $9 of interest on a cash basis on one loan relationship consisting of five nonaccrual loans totaling $1,911 during the three-month period ended March 31, 2012.  For 2011, the Company recognized $126 of interest on a cash basis on one loan relationship consisting of five nonaccrual loans totaling $1,949.

     At March 31, 2012 and December 31, 2011 the amount of loans ninety days or more past due and still accruing interest totaled $1,602 and $2,141, respectively.  Loans ninety days or more past due and still accruing interest consist primarily of consumer loans which are placed in nonaccrual status at one hundred twenty days or more past due.

-20-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES – Continued

Troubled Debt Restructurings

The Company had troubled debt restructurings (TDR’s) with a recorded investment of $3,897 and $3,638 included in impaired loans at March 31, 2012 and December 31, 2011, respectively.  All of these loans were classified as impaired prior to restructuring.  The allowance for loan losses associated with these loans was previously, and will continue to be, determined under the impairment measurement guidance in ASC 310-10-35.

Troubled debt restructurings that were made during the three-month period ended March 31, 2012 and the year ended December 31, 2011 are set forth in the tables below.

	For the three months ended                                   March 31, 2012
		Pre-Modification	Post-Modification
		Outstanding	Outstanding
	Number of	Recorded	Recorded
	Contracts	Investment	Investment
Troubled Debt Restructurings
Real estate-commercial	-	$                -	$                -
Real estate-construction and development	-	-	-
Real estate-residential	1	204	204
Commercial and agricultural	-	-	-

During the three months ended March 31, 2012, one loan was modified and considered to be a troubled debt restructuring.  The loan was granted an extended term and no interest rate concessions were made.

	For the year ended                                   December 31, 2011
		Pre-Modification	Post-Modification
		Outstanding	Outstanding
	Number of	Recorded	Recorded
	Contracts	Investment	Investment
Troubled Debt Restructurings
Real estate-commercial	1	$           1,609	$           1,609
Real estate-construction and development	1	487	487
Real estate-residential	3	1,493	1,493
Commercial and agricultural	1	247	247

During the year ended December 31, 2011, the Bank modified six loans that were considered to be troubled debt restructurings.  The Company extended the terms for six of these loans and did not give any interest rate concessions.

-21-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES – Continued

Troubled debt restructurings are considered defaulted when they become ninety or more days past due.  Troubled debt restructurings which have defaulted during the three-month period ended March 31, 2012 and the year ended December 31, 2011 are presented in the tables below:

	Three months ended                          March 31, 2012
	Number of            Contracts	Recorded Investment
Troubled Debt Restructurings
That Subsequently Defaulted
During the Period:
Real estate-commercial	-	$           -
Real estate-construction and development	-	-
Real estate-residential	1	871
Commercial and agricultural	-	-

During the three-month period ended March 31, 2012, one loan that had previously been restructured, went into default.

	Year ended                          December 31, 2011
	Number of            Contracts	Recorded Investment
Troubled Debt Restructurings
That Subsequently Defaulted
During the Period:
Real estate-commercial	1	$    1,435
Real estate-construction and development	1	13
Real estate-residential	1	910
Commercial and agricultural	-	-

During the year ended December 31, 2011, three loans that had previously been restructured, were in default. 

-22-

NOTE 5 - PREMISES AND EQUIPMENT

     Property at March 31, 2012 and 2011, and December 31, 2011 is summarized as follows:

	March 31,	March 31,	December 31,
	2012	2011	2011
Land and buildings	$ 26,402	$ 26,386	$ 26,402
Furniture, fixtures and equipment	8,873	8,921	8,821
Construction in progress	188	134	115
	35,463	35,441	35,338
Less accumulated depreciation and amortization	14,420	13,519	14,089
	$ 21,043	$ 21,922	$ 21,249

     Depreciation and amortization of bank premises and equipment charged to operating expense was $331 and $371 for the three-month period ended March 31, 2012 and 2011, respectively, and $1,333 for the year ended December 31, 2011.  The construction in progress at March 31, 2012 is primarily related to the renovation of the Company’s Main Street branch and Socastee branch offices and the installation of a new automated teller machine (ATM) at the Company’s Conway Banking office.  There are no remaining costs associated with the Main Street branch, Socastee branch, or the Conway Banking Office ATM. 

NOTE 6 - CERTIFICATES OF DEPOSIT IN EXCESS OF $100

     At March 31, 2012 and 2011, and December 31, 2011, certificates of deposit of $100 or more included in time deposits totaled approximately $200,306, $219,781, and $201,362, respectively.  Interest expense on these deposits was approximately $532 and $819 for the three-month periods ended March 31, 2012 and 2011, respectively, and $2,783 for the year ended December 31, 2011.

NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

     At March 31, 2012 and 2011, and December 31, 2011, securities sold under repurchase agreements totaled $90,248, $111,274, and $87,784, respectively.  Securities with a book value of $96,666 ($97,573 fair value), $116,969 ($117,417 fair value), and $101,383 ($101,742 fair value), were used as collateral for the agreements for the same periods, respectively.  The weighted-average interest rate of these agreements was .22 percent, .26 percent, and .22 percent at March 31, 2012 and 2011, and December 31, 2011, respectively.

The Company had no brokered deposits at March 31, 2012, March 31, 2011, or December 31, 2011.

NOTE 8 - LINES OF CREDIT

     At March 31, 2012, the Bank had unused short-term lines of credit to purchase Federal Funds from unrelated banks totaling $22,000.  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.

     During 2011 the U.S. Treasury announced that beginning January 1, 2012 the Treasury would discontinue the practice of leaving a portion of the funds paid through depository financial institutions with those depositories, effectively ending its Treasury, Tax and Loan program.  The Bank closed its demand note through the U.S. Treasury, Tax and Loan system with the Federal Reserve Bank of Richmond (FRB) on November 30, 2011.  However, during the portion of 2011 the Bank maintained this arrangement, the Bank could borrow up to $7,000 at varying rates set weekly by the FRB.  The FRB did not charge interest under the arrangement in 2011.  On March 31, 2011, the note was secured by Federal agency securities with a market value of $3,023, and the amount outstanding under the note totaled $1,336. 

     The Bank also has a line of credit from the Federal Home Loan Bank of Atlanta for $59,797 secured by a lien on the Bank's 1-4 family mortgage loans. Allowable terms range from overnight to twenty years at varying rates set daily by the FHLB.  There were no borrowings under the agreement at March 31, 2012, March 31 2011, or at December 31, 2011. 

-23-

NOTE 9 - INCOME TAXES

     Income tax expense for the three months ended March 31, 2012 and March 31, 2011 on pretax income of $722 and $486 totaled $165 and $104, 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 income 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 on Form 10-K.

     The Company accounts for income taxes in accordance with FASB ASC 740 “Income Taxes.”

NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES

     From time to time the Bank is a party to various litigation matters, both as plaintiff and as defendant, arising from its normal operations.  No material losses are anticipated in connection with any of these matters at March 31, 2012.

     In the normal course of business, the Bank is a 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:

	March 31, 2012
Loan Commitments	$ 37,037
Standby letters of credit	1,429

     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 certificates of deposit or other negotiable collateral, 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 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 periods ended March 31, 2012 and 2011, and the year ended December 31, 2011, $93, $92 and $382, respectively, was charged to operations under the plan.

-24-

NOTE 12 - REGULATORY MATTERS

     The Bank and the Company are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the financial statements.  The regulations require the Bank and the Company 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.

     Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the tables below) of Tier 1 capital to adjusted total assets (Leverage Capital ratio) and minimum ratios of Tier 1 and total capital to risk-weighted assets.  To be considered adequately capitalized under the regulatory framework for prompt corrective action, the Company and the Bank must maintain minimum Tier 1 leverage, Tier 1 risk-based and total risked-based ratios as set forth in the tables below.  The Company’s and the Bank's actual capital ratios are presented in the tables below as of March 31, 2012:

Company
			For
			Capital adequacy
			Purposes
	Actual		Minimum
	Amount	Ratio	Amount	Ratio
Total Capital (to risk weighted assets)	$94,628	18.15%	$41,700	8.0%
Tier 1 Capital (to risk weighted assets)	88,038	16.89	20,850	4.0
Tier 1 Capital (to average assets)	88,038	9.50	37,058	4.0

Bank					To be
					Well capitalized
			For		under prompt
			Capital adequacy		corrective action
			Purposes		provisions
	Actual		Minimum		Minimum
	Amount	Ratio	Amount	Ratio	Amount	Ratio
Total Capital (to risk weighted assets)	$94,074	18.05%	$41,697	8.0%	$52,121	10.0%
Tier 1 Capital (to risk weighted assets)	87,484	16.78	20,848	4.0	31,272	6.0
Tier 1 Capital (to average assets)	87,484	9.44	37,056	4.0	46,320	5.0

     In addition to the general regulatory capital requirements shown above, the Bank is currently required to maintain individual minimum capital ratios by the OCC.  Those required ratios are:  Tier 1 capital to average assets – 8.5%; Tier 1 capital to risk weighted assets – 12.0%; and total capital to risk weighted assets – 14.0%.

-25-

NOTE 13 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

     The estimated fair values of the Company's financial instruments were as follows at March 31, 2012 and December 31, 2011:

	March 31, 2012
	Carrying	Fair	Fair Value Measurements
	Amount	Value	Level 1	Level 2	Level 3
FINANCIAL ASSETS
Cash and due from banks and Federal Reserve	$  82,683	$  82,683	$  32,517	$            -	$            -
balance in excess of requirement
Federal funds sold	13,000	13,000	13,000	-	-
Investment securities available for sale	301,409	301,409	-	301,409	-
Investment securities held to maturity	30,480	31,143	-	31,143	-
Other investments	1,865	1,865	-	1,865	-
Loans (net)
Variable rate loans	71,472	71,472	71,472	-	-
Fixed rate loans with maturities of one year or less	117,184	117,184	117,184	-	-
Fixed rate loans with maturities in excess of one year	273,005	277,831	-	-	277,831
Other loans	8,045	8,045	8,045	-	-
FINANCIAL LIABILITIES
Deposits with stated maturities in excess of one year	58,293	57,338	-	-	57,338
Deposits without stated maturities and deposits with	688,406	688,406	688,406	-	-
maturities less than or equal to one year
Securities sold under repurchase agreements	90,249	90,249	90,249	-	-
OFF BALANCE SHEET INSTRUMENTS	Notional
	Amount
Commitments to extend credit	$  37,037
Standby letters of credit	1,429

	December 31, 2011
	Carrying	Fair	Fair Value Measurements
	Amount	Value	Level 1	Level 2	Level 3
FINANCIAL ASSETS
Cash and due from banks and Federal Reserve	$  55,000	$  55,000	$  55,000	$            -	$            -
balance in excess of requirement
Federal funds sold	10,000	10,000	10,000	-
Investment securities available for sale	320,717	320,717	-	320,717	-
Investment securities held to maturity	11,009	11,744	-	11,744	-
Other investments	1,865	1,865	-	1,865	-
Loans (net)
Variable rate loans	74,121	74,121	74,121	-	-
Fixed rate loans with maturities of one year or less	114,940	114,940	114,940	-	-
Fixed rate loans with maturities in excess of one year	287,999	293,518	-	-	293,518
Other loans	6,962	6,962	6,962	-
FINANCIAL LIABILITIES
Deposits with stated maturities in excess of one year	63,867	62,902	-	-	62,902
Deposits without stated maturities and deposits with	668,758	668,758	668,758	-	-
maturities less than or equal to one year
Securities sold under repurchase agreements	87,784	87,784	87,784	-	-
	Notional
	Amount
OFF BALANCE SHEET INSTRUMENTS
Commitments to extend credit	$  33,903
Standby letters of credit	1,337

-26-

NOTE 13 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued

     Accounting standards require disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans).

     The accounting standard defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:

Level 1	Quoted market prices in active markets for identical assets or liabilities.  Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasuries, and money market funds.
Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments, mortgage-backed securities, municipal bonds, corporate debt securities, and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  This category generally includes certain derivative contracts, impaired loans, and other real estate owned.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.  For example, this category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, and highly-structured or long-term derivative contracts.

     Following is a description of valuation methodologies used by the Company for assets and liabilities recorded on the balance sheet at fair value on a recurring or non-recurring basis:

Investment Securities Available for Sale

     Measurement is on a recurring basis based upon quoted market prices, if available.  If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for prepayment assumptions, projected credit losses, and liquidity.  Level 1 securities include those traded on an active exchange or by dealers or brokers in active over-the-counter markets.  Level 2 securities include securities issued by government sponsored enterprises, municipal securities, and mortgage-backed securities issued by government sponsored enterprises. Generally these fair values are priced from established pricing models.

Impaired Loans

     Loans that are considered impaired are recorded at fair value on a non-recurring basis.  Once a loan is considered impaired, the fair value is measured using one of several methods, including collateral liquidation value, market value of similar debt and discounted cash flows.  Those impaired loans not requiring a specific charge against the allowance represent loans for which the fair value of the expected repayments or collateral meet or exceed the recorded investment in the loan.  At March 31, 2012, substantially all of the total impaired loans were evaluated based on the fair value of the underlying collateral.  When the Company records the fair value based upon a current appraisal, the fair value measurement is considered a non-recurring Level 2 measurement.  When a current appraisal is not available or there is estimated further impairment the fair value measurement is considered a Level 3 measurement

-27-

NOTE 13 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued

Other Real Estate Owned (OREO)

     Other real estate owned is adjusted to fair value upon transfer of the loans to other real estate owned by foreclosure or deed-in-lieu of foreclosure.  Subsequently, other real estate owned is carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management's estimation of the value of the collateral.  When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the other real estate owned as nonrecurring Level 2 measurement.  When a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the other real estate owned as non-recurring Level 3.

     Assets measured at fair value on a recurring basis for March 31, 2012 and December 31, 2011 are presented in the following table:

March 31, 2012		Quoted market price in active markets    (Level 1)		Significant other observable inputs    (Level 2)		Significant unobservable inputs    (Level 3)
Available for sale securities
Government Sponsored Enterprises	$	-	$	252,490	$	-
State, County, and Municipal		-		27,923		-
Mortgage backed securities		-		19,823		-
Other		-		1,173		-
Total	$	-	$	301,409	$	-
December 31, 2011
Available for sale securities
Government Sponsored Enterprises	$	-	$	268,388	$	-
State, County, and Municipal		-		28,813		-
Mortgage backed securities		-		22,358		-
Other		-		1,158		-
Total	$	-	$	320,717	$	-

     Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following table presents the assets carried on the balance sheet by caption and by level within the valuation hierarchy (as described above) as of March 31, 2012 and December 31, 2011 for which a non-recurring change in fair value was recorded during the three months and year ended March 31, 2012 and December 31, 2011.

March 31, 2012		Quoted market price in active markets    (Level 1)		Significant other observable inputs    (Level 2)		Significant unobservable inputs    (Level 3)
Other real estate owned	$	-	$	9,262	$	-
Impaired loans		-		25,490		-
	$	-	$	34,752	$	-
December 31, 2011
Other real estate owned	$	-	$	9,063	$	-
Impaired loans		-		24.552		-
	$	-	$	33,615	$	-

     The Company did not have any liabilities measured at fair value on a recurring or nonrecurring basis at March 31, 2012 or December 31, 2011.

-28-

NOTE 14 - CONDENSED FINANCIAL INFORMATION

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

CONDENSED BALANCE SHEETS (Unaudited)
	March 31,
ASSETS		2012		2011
Cash	$	487	$	421
Investment in subsidiary		88,865		86,646
Other assets		37		36
	$	89,389	$	87,103
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity	$	89,389	$	87,103
	$	89,389	$	87,103

CONDENSED STATEMENTS OF INCOME (Unaudited)
	For the three-month period ended March 31,
		2012		2011
Dividends	$	387	$	387
Equity in net income of subsidiary		226		57
Other expenses		(56)		(62)
NET INCOME	$	557	$	382

NOTE 15 – SUBSEQUENT EVENTS

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.  Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.  Management has reviewed events occurring through the date the financial statements were available to be issued and no subsequent events occurred requiring accrual or disclosure.

-29-

Item 2.

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 Company’s results of operations, financial condition, liquidity, and capital resources. The following discussion should be read in conjunction with the Company’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 for the three-month periods ending March 31, 2012 and 2011 and the year ended December 31, 2011 have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q of 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.

DISTRIBUTION OF ASSETS AND LIABILITIES

The Company has historically maintained a conservative approach in determining the distribution of assets and liabilities.  Loans decreased 10.3% from $523,745 at March 31, 2011 to $469,706 at March 31, 2012, and decreased 3.0%, from $484,022 at December 31, 2011 to $469,706 at March 31, 2012.  Loans decreased as a percentage of total assets from 55.6% to 50.5% from March 31, 2011 to March 31, 2012 and decreased from 53.0% to 50.5% from December 31, 2011 to March 31, 2012.  Loan demand in our market area has continued to soften during the period due to the continued subdued local real estate market.  Securities and federal funds sold increased as a percentage of total assets from 34.1% at March 31, 2011 to 37.1% at March 31, 2012, a reflection of continued soft loan demand coupled with higher levels of deposits.  Securities and federal funds sold decreased as a percentage of total assets from 37.4% at December 31, 2011 to 37.1% at March 31, 2012.  The level of investments and excess Federal Reserve deposits provide for a more than adequate supply of 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 11.8% at March 31, 2011 to 14.0% at March 31, 2012, and increased from 13.1% at December 31, 2011 to 14.0% at March 31, 2012.  Management attributes these increases to new account openings resulting from the acquisition of competitors and the introduction of new fee structures by competitors. However, as more customers, both business and personal, are attracted to interest-bearing deposit accounts, we expect the percentage of non-interest bearing demand deposits to decline over the long-term.  Interest-bearing deposits, as a percent of total assets, decreased from 66.5% of total assets at March 31, 2011 to 66.3% at March 31, 2012, and decreased from 67.1% at December 31, 2011 to 66.3% at March 31, 2012.  Securities sold under agreement to repurchase decreased from 11.8% of total assets at March 31, 2011 to 9.7% at March 31, 2012, and increased from 9.6% of total assets at December 31, 2011 to 9.7% at March 31, 2012.  Management anticipates that securities sold under agreement to repurchase will further decline over time as a percent of total assets due, in part, to new wholesale funding limitations implemented by the Company during the second quarter of 2011. 

The following table sets forth the percentage relationship to total assets of significant components of the Company’s balance sheets as of March 31, 2012 and March 31, 2011 and December 31, 2011:

	March 31,		December 31,
Assets:	2012	2011	2011
Earning assets:
Loans	50.5%	55.6%	53.0%
Securities held to maturity	3.3	2.1	1.2
Securities available for sale	32.4	28.6	35.1
Federal funds sold and securities purchased under agreement to resell	1.4	3.4	1.1
Other earning assets	8.9	4.5	6.0
Total earning assets	96.5	94.2	96.4
Other assets	3.5	5.8	3.6
Total assets	100.0%	100.0%	100.0%
Liabilities and stockholder's equity:
Interest-bearing liabilities:
Interest-bearing deposits	66.3%	66.5%	67.1%
Federal funds purchased and securities sold under agreement to repurchase	9.7	11.8	9.6
Other short-term borrowings	-	.1	-
Total interest-bearing liabilities	76.0	78.4	76.7
Noninterest-bearing deposits	14.0	11.8	13.1
Other liabilities	.4	.5	.4
Stockholders' equity	9.6	9.3	9.8
Total liabilities and stockholders' equity	100.0%	100.0%	100.0%

-30-

RESULTS OF OPERATIONS

Earnings for the three-month periods ended March 31, 2012 and 2011 were $557 and $382 respectively, resulting in a return on average assets of .24% and .16% and a return on average stockholders' equity of 2.49% and 1.75%, respectively.

The increase in earnings for the three-month period ended March 31, 2012 is primarily attributable to increased income from sales of investment securities, a decline in FDIC insurance premiums, and a decrease in the provision for loan losses, partially offset by a decline in net interest income and increased income taxes for the three-month period ended March 31, 2012 (See Net Income – Net Interest Income, Net Income – Noninterest Income, Net Income – Provision for Loan Losses, Net Income – Noninterest Expenses, and Net Income-Income Taxes).  Management anticipates, but cannot assure, that earnings will remain well below historical levels through 2012, but above the level of income experienced for 2011.  Total assets decreased $11,366 or 1.21% to $930,166 at March 31, 2012 from $941,532 at March 31, 2011. The following table sets forth the financial highlights for the three-month period ended at March 31, 2012:

CNB Corporation and Subsidiary

FINANCIAL HIGHLIGHTS

	Three-Month Period Ended March 31,
		2012	2011	Percent   Increase (Decrease)
Net interest income		$ 7,270	$  7,475	(2.74)%
Provision for loan losses		2,083	2,112	(1.37)
Net interest income after provision for loan losses		5,187	5,363	(3.28)
Income before income taxes		722	486	48.56
Net income		557	382	45.81
Per share		.34	.23	56.52
Cash dividends declared		-	-	-
Per share		-	-	-
Total assets		930,166	941,532	(1.20)
Total deposits		746,699	736,947	1.32
Loans		469,706	523,745	(10.32)
Investment securities		331,889	288,624	4.43
Stockholders' equity		89,390	87,103	2.62
Book value per share		53.82	52.33	2.85
Ratios:
Annualized return on average total assets(1)		.24%	16%	50.0%
Annualized return on average stockholders' equity(1)		2.49%	1.75%	42.29%

(1)       For the three-month period ended March 31, 2012, average total assets amounted to $926,441 with average stockholders’ equity totaling             $89,324 for the same period.

            

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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 affected by the interest rates earned or paid and by volume changes in accruing 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.  However, fluctuations in market interest rates do not necessarily have a significant impact on net interest income, depending on the bank's interest rate sensitivity position.  A rate sensitive asset (RSA) is any loan or investment on which the interest rate can be repriced either up or down within a certain time interval. A rate sensitive liability (RSL) is an interest paying deposit or other liability on which the interest rate can be repriced either up or down 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-term earning power. Management believes that a 200 basis point rise or fall in interest rates will have less than a 10 percent effect on before-tax net interest income over a one-year period, which is within Bank guidelines.  The Board of Directors has established policies and procedures for the proper management of assets and liabilities within risk tolerances acceptable to the Board including the establishment of acceptable interest rate sensitivity guidelines for the impact on net interest income and the economic value of equity resulting from a 100 to 400 basis point change in market rates over a 12 month period.

The Bank maintained net interest margins for the three-month period ended March 31, 2012, of 3.42% and 3.50% for the same period in 2011, as compared to management’s long-term target of 4.20%.  Net interest margin declined slightly from 2011 to 2012 as net interest margins have been compressed for the Bank and industry-wide for several years for a variety of reasons.  Dramatic decreases in market interest rates by the Federal Reserve during the first quarter of 2008 and additional decreases in market rates during the remainder of 2008 placed significant pressure on net interest margins for the industry as a whole.  The resulting more historically typical upward-sloping yield curve would generally enhance the Bank’s net interest margin.  However, market interest rates have been reduced to historically low levels, which do not enhance net interest margin.  Further, the persistence of an extremely low interest rate environment places increasing pressure on net interest margin as more and more earning assets re-price into this environment.  Additionally, competition in the Bank’s specific market remains significant, as new competitors seek market share, other competitors attempt to reduce their dependence on wholesale funding, and all competitors seek to attract a diminishing pool of quality loans through aggressive pricing. These factors tend to compress margins by keeping the cost of deposits high in relation to established national benchmark rates and decreasing yields on loans.  Moreover, the Bank, like the industry in general, is experiencing a historically high level of non-performing assets. The loss of interest income from these assets has negatively impacted net interest margin.  The impact of these assets on net interest margin should diminish as the level of these assets declines over time.

Fully-tax-equivalent net interest income for the three-month period ended March 31, 2012 was $7,432, a decrease of 2.3% from the $7,609 attained for the three-month period ended March 31, 2011.  For the same periods, total fully-tax-equivalent interest income decreased by 8.2% to $8,499 from $9,257 and total interest expense decreased by 35.3% to $1,067 from $1,648.  Fully-tax-equivalent net interest income as a percentage of average total earning assets decreased 2.3% to 3.42% for the three-month period ended March 31, 2012 from 3.50% for the three-month period ended March 31, 2011.

The tables on the following two pages present an analysis of average balances, yields and rates for the interest sensitive segments of the Company’s balance sheets for the three-month periods ended March 31, 2012 and 2011, and a summary of changes in net interest income resulting from changes in volume and changes in rate for the three-month periods ended March 31, 2012 and 2011.

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CNB Corporation and Subsidiary Average Balances, Yields, and Rates
	Three Months Ended 3/31/12				Three Months Ended 3/31/11
		Interest		Avg. Annual		Interest		Avg. Annual
	Avg.	Income/		Yield or	Avg.	Income/		Yield or
	Balance	Expense		Rate	Balance	Expense		Rate
Assets:
Earning assets:
Loans, net of unearned income (1)	$477,377	$ 7,227		6.06%	$530,042	$  7,991		6.03%
Securities:
Taxable	277,031	756		1.09	249,655	845		1.35
Tax-exempt	40,958	477	(2)	4.66	30,048	395	(2)	5.26
Federal funds sold	12,901	7		.22	12,733	7		.22
Other earning assets	60,622	32		.21	47,309	19		.16
Total earning assets	868,889	8,499		3.91	869,787	9,257		4.26
Other assets	57,552				58,650
Total assets	$926,441				$928,437
Liabilities and stockholders’ equity
Interest-bearing liabilities:
Interest-bearing deposits	$612,785	1,012		.66	$618,135	1,552		1.00
Fed funds purchased and securities sold         under agreement to repurchase	102,119	55		.22	105,909	96		.36
Other short-term borrowings	-	-		-	968	-		-
Total interest-bearing liabilities	$714,904	$   1,067		.60	$725,012	$   1,648		.91
Noninterest-bearing deposits	120,724				110,836
Other liabilities	1,489				5,387
Stockholders' equity	89,324				87,202
Total liabilities and stockholders' equity	$926,441				$928,437
Net interest income as a percent of total
earning assets	$868,889	$   7,432		3.42	$869,787	$   7,609		3.50
Ratios:
Annualized return on average total assets				.24				.16
Annualized return on average stockholders' equity				2.49				1.75
Cash dividends declared as a percent of net income				-				-
Average stockholders' equity as a percent of:
Average total assets				9.64				9.39
Average total deposits				12.18				11.96
Average loans				18.71				16.45
Average earning assets as a percent of
average total assets				93.79				93.68

(1)  The Company had no out-of-period adjustments or foreign activities.  Loan fees of $124 and $126 are included in the above interest income for March 31, 2012 and 2011, respectively.  Loans on a non-accrual basis for the recognition of interest income totaling $22,399 and $26,393 for March 31, 2012 and 2011, respectively, are included in loans for the purpose of this analysis.

(2)  Tax-exempt income is presented on a tax-equivalent basis using a 34% tax rate.  The amounts shown include tax-equivalent adjustments of $162 and $134 for March 31, 2012  and 2011, respectively.

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The tables “Rate/Volume Variance Analysis” provide a summary of changes in net interest income resulting from changes in rate and changes in volume.  The changes due to rate are calculated as the difference between the current and prior year’s rates multiplied by the prior year’s volume.  The changes due to volume are calculated as the difference between the current and prior year’s volume multiplied by the current rates earned or paid (this calculation effectively allocates all rate/volume variances to volume variances). CNB Corporation and Subsidiary Rate/Volume Variance Analysis For the Three Months Ended March 31, 2012 and 2011
	Average	Average			Interest	Interest		Change	Change
	Volume	Volume	Yield/Rate	Yield/Rate	Earned/Paid	Earned/Paid		Due to	Due to
	2012	2011	2012(3)	2011(3)	2012	2011	Variance	Rate	Volume
Earning Assets:
Loans ,  Net of unearned Income (1)	$477,377	$530,042	6.06%	6.03%	$  7,227	$ 7,991	$      (764)	$       33	$   (797)
Investment securities:
Taxable	277,031	249,655	1.09%	1.35%	756	845	(89)	(164)	75
Tax-exempt (2)	40,958	30,048	4.66%	5.26%	477	395	82	(45)	127
Federal funds sold	12,901	12,733	.22%	.22%	7	7	-	-	-
Other Earning Assets	60,622	47,309	.21%	.16%	32	19	13	6	7
Total Earning Assets	$868,889	$869,787	3.91%	4.26%	$  8,499	$  9,257	$      (758)	$   (170)	$   (588)
Interest-bearing Liabilities:
Interest-bearing deposits	$612,785	$618,135	.66%	1.00%	$  1,012	$  1,552	$      (540)	$   (531)	$       (9)
Fed funds purchased and securities
sold under agreement to repurchase	102,119	105,909	.22%	.36%	55	96	(41)	(39)	(2)
Other short-term borrowings	-	968	-%	-%	-	-	-	-	-
Total Interest-bearing Liabilities	714,904	725,012	.60%	.91%	1,067	1,648	(581)	(570)	(11)
Interest-free  Funds Supporting
Earning Assets	153,985	144,775
Total Funds Supporting Earning Assets	$868,889	$869,787	.49%	.76%	$  1,067	$  1,648	$      (581)	$    (570)	$     (11)
Interest Rate Spread			3.31%	3.35%
Impact of Non-interest-bearing Funds
on Net Yield on Earning Assets			.11%	.15%
Net Yield on Earning Assets			3.42%	3.50%	$  7,432	$  7,609

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

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NET INCOME (continued)

Provision for Loan Losses – The allowance for loan losses is maintained at an amount based on considerations of classified and internally-identified problem loans, the current trend in delinquencies, the volume of past-due loans, historical loss experience, current economic conditions, the levels of higher-risk loans, declines in collateral value, the effects of changes in risk selection or underwriting practices, the experience, ability and depth of lending management and staff, industry conditions, the effect of changes in concentrations of credit, loan administration risks, and levels of policy, collateral, and documentation exceptions.

The level of the allowance for loan losses is determined through the utilization of both quantitative and qualitative measures.  Loans are identified as impaired as a result of management’s determination of an inability on the part of the borrower to make full and timely payment of principal and interest, a decline in project performance, loan structuring issues which evolve in the course of deterioration, and past due status.  Quantified losses associated with such loans are segregated as a component in the determination of the allowance for loan losses.

The Company employs migration analysis to determine the levels of risks and associated losses with homogenous pools of loans.  This analysis determines levels of loss associated with pools of loans based on risk grade and historical loss factors by risk grades.  Risk grading procedures incorporate a review of various loan attributes, the deterioration of which would result in a loan being downgraded to a higher risk pool.  These loan attributes are: demonstrated financial capacity and position, the borrower’s demonstrated willingness to pay, loan structure, lien perfection on collateral, documentation, conformance to loan agreement covenants, and adherence to loan policy, among others.  Quantified losses associated with pools of loans from migration analysis are segregated as a component in the determination of the allowance for loan losses.

The Company utilizes various qualitative factors to quantify additional risks and potential inherent losses existing in the Company’s loan portfolios.  These include the consideration of levels and trends in delinquencies, changes in the loan grading mix, trends in the volume and terms of loans, over-margined real estate loans, national and local economic trends and conditions, changes in risk selection and underwriting practices, the experience, ability and depth of lending management and staff, industry conditions, loan concentrations, geographic concentrations, regulatory considerations, various loan administration risks, and levels of policy, collateral and documentation exceptions.  Quantified losses associated with these qualitative factors are segregated as a component in the determination of the allowance for loan losses.

When the amount necessary to maintain the allowance for loan losses at an adequate level has been determined and that amount is greater than the existing allowance for loan losses after accounting for loan charge-offs and recoveries during the period, the allowance is increased to the amount determined to be necessary by a provision for loan losses which is charged to operating income.  The provision for loan losses was $2,083 for the three-month period ended March 31, 2012 and $2,112 for the three-month period ended March 31, 2011.  This decline in the provision for loan losses is primarily due to declining total classified assets.  Net loan charge-offs totaled $1,843 for the three-month period ended March 31, 2012 and $1,936 for the same period in 2011.  Although the provision for loan losses decreased for the three-month period ended March 31, 2012 as compared to the same period in 2011, both the provision for loan losses and net loan charge-offs remain historically high and reflect continued difficulties in local real estate markets.  The Myrtle Beach-Conway-North Myrtle Beach South Carolina Metropolitan Statistical Area, wherein the majority of the Company’s operations are situated, has experienced significant declines in various sectors of its economy, primarily in the real estate sectors.  The allowance for loan losses as a percentage of net loans was 2.76% at March 31, 2012 and was 2.31% at March 31, 2011.

The levels of loans on which no interest was being accrued, impaired loans, foreclosed real estate, and classified assets at March 31, 2012 and 2011 are outlined in the notes to the consolidated unaudited financial statements (See NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES).  All of these measurements increased during 2010, some markedly. During the fourth quarter of 2010 the increasing trend in impaired loans leveled while classified assets, as a percent of capital, declined, and foreclosed real estate increased.  These trends continued during the three-month period ended March 31, 2012.  Although the levels of problem loans, foreclosed real estate and total classified assets remain at historically high levels, the Company is experiencing positive trends, and management considers all such levels manageable. One factor which contributes, in part, to higher levels of classified assets is the local market’s high number of foreclosure actions in process, which has placed a substantial burden on the judiciary and courts and consequently significantly lengthened the time necessary to accomplish a foreclosure action.  Additionally, the judiciary imposes sanctions and additional procedural requirements related to foreclosure proceedings from time to time.  Management recognizes the potential for continued difficult economic conditions in the Company’s market areas in the short-term, especially with respect to real estate related activities and real property values.  However, management believes, but cannot assure, that substantially all of the Company’s credit risks associated with the current real estate market decline have been identified.  Nonetheless, management anticipates the Company will continue to need to make above average provisions through 2012, although at continually decreasing levels compared to 2011 and 2010.

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NET INCOME (continued)

Securities Transactions – At March 31, 2012, December 31, 2011, and March 31, 2011 total market value appreciation in the investment portfolio totaled $2,963, $3,902, and $651 respectively.  As indicated, the market values of the Company’s investment portfolio increased from March 31, 2011 to December 31, 2011, and decreased from December 31, 2011 to March 31, 2012.  The yield curve has generally normalized during the period commencing with the first reduction in interest rates in October 2007 through March 31, 2012, although the current yield curve in total, and particularly short-term interest rates, remain at historically low levels.

The Company sold $11,369 (book value) of available-for-sale securities for a gain of $446 for the three-month period ended March 31, 2012.  The decline in the total market value of the investment portfolio during the three-month period ended March 31, 2012 is in part attributable to general fluctuations in bond prices but is primarily attributable to sales of investment securities available for sale during the period.  The changes in market value appreciation/(depreciation) in the investment portfolio do not generally directly affect operating results since the Company does not acquire investment securities for trading.  However, the changes in the market value appreciation in the investment portfolio for the three-month periods ended March 31, 2012 and 2011 are a component of Comprehensive Income and are set forth in the Condensed Consolidated Statements of Comprehensive Income contained herein.

Noninterest Income - Noninterest income increased by 31.7% to $1,832 for the three-month period ended March 31, 2012 from $1,391 for the three-month period ended March 31, 2011. The increases in noninterest income for the three-month period ended March 31, 2012 were primarily attributable to an increase in gains on sales of investment securities and an increase in other noninterest income, partially offset by a decline in service charges on deposit accounts.

Noninterest Expenses - Noninterest expenses increased slightly,.5%, to $6,297 for the three-month period ended March 31, 2012 from $6,268 for the three-month period ended March 31, 2011.  The major components of noninterest expenses are salaries and employee benefits, which increased 1.2% to $3,464 from $3,423; occupancy expense which decreased .2% to $828 from $830; examination and professional fees which decreased 6.3% to $240 from $256; FDIC deposit insurance assessments which decreased 60.1% to $139 from $356; net cost of operation of other real estate owned which increased 85.7% to $531 from $286; and other operating expenses which decreased by 2.0% to $1,095 from $1,117. 

Income Taxes – Provisions for income taxes increased 58.7% to $165 for the three-month period ended March 31, 2012 from $104 for the three-month period ended March 31, 2011.  Income before income taxes less interest on tax-exempt investment securities and holding company expenses increased 105.8% to $463 for the three-month period ended March 31, 2012 from $225 for the same period in 2011. The Company discontinued the consolidation of holding company expenses in its determination of taxable income and has taken a 100% valuation allowance on existing holding company net operating loss carry- forwards.

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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 liquidation 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 Home Loan Bank of Atlanta. Management believes that short-term and long-term liquidity sources are adequate to meet funding needs, including the funding of off-balance sheet loan commitments and standby letters of credit, if the need arises.  Although the Bank has not experienced liquidity pressures, there can be no assurance that such pressures will not be felt in the future.  Neither the Company nor the Bank is involved in other off-balance sheet contractual relationships or other commitments that could result in liquidity needs or significantly impact earnings.

The table below summarizes future contractual obligations as of March 31, 2012.

	At March 31, 2012
	Payments Due by Period
	Within One Year	Over One to Two Years	Over Two to Three Years	Over Three to Five Years	Over Five Years	Total
Certificates of Deposit	$296,726	$31,112	$8,946	$16,136	$       -	$352,920
Borrowings	90,248	-	-	-	-	90,248
Total	$386,974	$31,112	$8,946	$16,136	$       -	$443,168

CAPITAL RESOURCES

Total stockholders' equity was $89,390 and $89,406 at March 31, 2012 and December 31, 2011, representing 9.61% and 9.78% of total assets, respectively.  At March 31, 2012, the Company and the Bank exceeded 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.

REGULATORY ACTIONS

On June 7, 2011, the Bank entered into a formal agreement with the OCC requiring the Bank to take specified actions with respect to the operation of the Bank. The substantive actions called for by the agreement should strengthen the Bank and make it more efficient in the long-term. The agreement was filed as an exhibit to a Current Report on Form 8-K filed June 10, 2011.  The Company believes the Bank is working diligently to comply with all of the terms of the formal agreement, including implementing plans, programs, and progress reports within the timeframes required by the agreement.

On June 16, 2011, the Company entered into a memorandum of understanding with the Federal Reserve Bank of Richmond (“FRB”). The memorandum of understanding requires the Company to seek permission from the FRB before it takes certain actions that would reduce its ability to serve as a source of strength for the Bank by dissipating its assets, such as payment of dividends to shareholders, or that would make changes in senior management.  The Company believes it is in compliance with the memorandum of understanding with the FRB as of March 31, 2012.

CRITICAL ACCOUNTING POLICIES

We have adopted various accounting policies which govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements.  Our significant accounting policies are described in the notes to the consolidated financial statements at December 31, 2011 as filed in our Annual Report on Form 10-K.  Certain accounting policies involve significant judgments and assumptions by us which have a material impact on the carrying value of certain assets and liabilities.  We consider these accounting policies to be critical accounting policies.  The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances.  Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates that could have a major impact on our carrying values of assets and liabilities and our results of operations.

We believe the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of our consolidated financial statements.  Refer to the portions of our 2011 Annual Report on Form 10-K and this Form 10-Q that address our allowance for loan losses for description of our processes and methodology for determining our allowance for loan losses.

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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 re-price at different speeds, or on a different basis, than its interest-earning assets.  Credit risk is the risk of default on the Company's loan portfolio that results from borrowers’ inability or unwillingness to make contractually required payments. Market risk, as it relates to lending and real estate held for operating locations, results from potential changes in the value of collateral underlying loans receivable and the market value of real estate held by the Company.

The Company is subject to the regulations of various governmental agencies.  These regulations can and do change significantly from period to period.  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 capital, and operating restrictions from the regulators' judgments based on information available to them at the time of their examination.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk, in regard to interest rate risk, is the risk of loss from adverse changes in market prices and rates.  The Company’s market risk arises principally from the 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 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - 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 such controls and procedures, as of the end of the period covered by this quarterly report, were effective.

There has been no change in the Company’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES
Period	(a) Total Number of Shares Purchased (1)	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Program	(d) Maximum Number of Shares that May Yet Be Purchased Under the Program
January 1 – January 31, 2012	-	$     -	-	-
February 1 – February 29, 2012	36	55.75	-	-
March 1 – March 31, 2012	866	55.75	-	-
Total	902	$55.75	-	-

(1) During the period covered by this report, the Company purchased 902 shares of stock from the Company sponsored profit sharing and savings plan, The Conway National Bank Profit Sharing and Savings Plan.

Item 6.  EXHIBITS
All exhibits, the filing of which are required with this Form, are listed below
31.1	Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive Data File.

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/L. Ford Sanders, II                            

L. Ford Sanders, II

Executive Vice President,

Treasurer, and Chief Financial Officer

Date:  May 10, 2012

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EXHIBIT INDEX
31.1	Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive Data File.