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
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
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
[ ] 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):
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.
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: 1,661,912 shares of common stock, par value $5 per share, November 1, 2011.
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 September 30, 2011, December 31, 2010, and September 30, 2010	2
Condensed Consolidated Balance Sheets as of March 31, 2012, December 31, 2011, and March 31, 2011	2
Condensed Consolidated Statements of Income/(Loss) for the Nine Months Ended September 30, 2011 and 2010	3
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2012 and 2011	3
Condensed Consolidated Statements of Comprehensive Income for the Nine Months Ended September 30, 2011 and 2010	4
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 Nine Months Ended September 30, 2011 and 2010	5
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 Nine Months Ended September 30, 2011 and 2010	6
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011	6
Notes to Consolidated Financial Statements	7-2829
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	2930-3938
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3938
Item 4. Controls and Procedures	3938
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	4039
Item 6. Exhibits	4039
SIGNATURE	4039

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.

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PART I. Item 1. Financial Statements CNB Corporation and Subsidiary Condensed Consolidated Balance Sheets (All Dollar Amounts, Except Per Share Data, in Thousands) ASSETS: September 30, December 31, September 30, 2011 2010 2010 (Unaudited) (Unaudited) Cash and cash equivalents: Cash and due from banks $ 26,742 $ 20,699 $ 23,593 Due from Federal Reserve Bank, balance in excess of requirement 60,989 11,818 28,051 Federal funds sold 13,000 14,000 14,000 Total cash and cash equivalents 100,731 46,517 65,644 Investment securities available for sale 306,324 275,381 259,811 (Amortized cost of $302,883 at September 30, 2011, $275,606 at December 31, 2010, and $257,773 at September 30, 2010) Investment securities held to maturity 11,019 20,678 34,915 (Fair values of $11,700 at September 30, 2011, $20,784 at December 31, 2010, and $35,450 at September 30, 2010) Other investments 2,092 2,729 2,832 Loans: Total loans 494,014 534,186 548,041 Less allowance for possible loan losses (12,126) (11,627) (12,431) Net loans 481,888 522,559 535,610 Bank premises and equipment 21,445 22,088 22,443 Other real estate owned 8,525 5,476 5,297 Accrued interest receivable 4,178 4,650 4,812 Other assets 9,341 11,193 10,978 Total assets $945,543 $911,271 $942,342 LIABILITIES AND STOCKHOLDERS' EQUITY: Deposits: Noninterest-bearing $131,331 $ 108,031 $105,555 Interest-bearing 624,089 610,109 635,565 Total deposits 755,420 718,140 741,120 Securities sold under agreement to repurchase 95,151 99,153 103,623 United States Treasury demand notes 1,561 2,324 741 Federal Home Loan Bank advances - - 5,000 Other liabilities 4,267 5,321 5,501 Total liabilities 856,399 824,938 855,985 Stockholders' equity: Common stock, par value $5 per share; authorized 3,000,000; 8,309 8,323 8,332 issued 1,661,913 at September 30, 2011, 1,664,622 at December 31, 2010, and 1,666,449 at September 30, 2010. Capital in excess of par value of stock 50,343 50,486 50,613 Retained earnings 28,452 27,660 26,190 Accumulated other comprehensive income/(loss) 2,040 (136) 1,222 Total stockholders' equity 89,144 86,333 86,357 Total liabilities and stockholders' equity $945,543 $911,271 $942,342

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

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CNB Corporation and Subsidiary Condensed Consolidated Statements of Income/(Loss) (All Dollar Amounts, Except Per Share Data, in Thousands) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, Interest Income: 2011 2010 2011 2010 Interest and fees on loans $ 7,721 $ 8,524 $ 23,615 $ 26,080 Interest on investment securities: Taxable investment securities 802 1,069 2,506 3,320 Nontaxable investment securities 301 312 848 925 Interest on federal funds sold and Federal Reserve Bank 43 40 111 117 balances in excess of required balance Other interest income 4 3 18 11 Total interest income 8,871 9,948 27,098 30,453 Interest Expense: Interest on deposits 1,227 2,124 4,138 6,805 Interest on securities sold under agreement to repurchase 64 184 224 654 Interest on other short-term borrowings - 37 - 141 Total interest expense 1,291 2,345 4,362 7,600 Net interest income 7,580 7,603 22,736 22,853 Provision for loan losses 2,296 4,379 7,473 11,948 Net interest income after provision for loan losses 5,284 3,224 15,263 10,905 Noninterest income: Service charges on deposit accounts 830 892 2,442 2,698 Gains on sale of securities - 910 - 1,066 Other operating income 930 532 2,220 1,804 Total noninterest income 1,760 2,334 4,662 5,568 Noninterest expenses: Salaries and employee benefits 3,570 3,391 10,189 10,149 Occupancy expense 820 859 2,475 2,475 Examination and professional fees 237 278 784 670 FDIC deposit insurance assessments 359 297 1,067 876 Net cost of operation of other real estate owned 624 300 1,466 416 Other operating expenses 1,057 818 3,145 2,932 Total noninterest expenses 6,667 5,943 19,126 17,518 Income/(loss) before income taxes 377 (385) 799 (1,045) Income tax provision/(benefit) (3) (217) 7 (614) Net income/(loss) $ 380 $ (168) $ 792 $ (431) Per Share Data Net income/(loss) per weighted average shares outstanding $ .23 $ (.10) $ .48 $ (.26) Book value per actual number of shares outstanding $ 53.64 $ 51.82 $ 53.64 $ 51.82 Weighted average number of shares outstanding 1,664,344 1,668,854 1,664,526 1,673,716 Actual number of shares outstanding, end of period 1,661,913 1,666,449 1,661,913 1,666,449

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

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CNB Corporation and Subsidiary Condensed Consolidated Statements of Comprehensive Income (All Dollar Amounts in Thousands) (Unaudited)
		Three Months Ended September 30,		Nine Months Ended September 30,
		Three Months Ended March 31,
		2011	2010	2011	2010
			2012		2011
	Net income/(loss)	$ 380	$ (168)	$ 792	$ (431)
	Net income	$	557	$	382
	Other comprehensive income, net of tax
	Other comprehensive income/(loss), net of tax
	Unrealized gains on securities:
	Unrealized holding gains during period, net	648	320	2,176	889
	Unrealized holding gains/(losses) during period, net		(230)		389
	Reclassification adjustment for gains included in net income, net	-	(~~573~~294)	-	~~(672)~~-
	Net other comprehensive income/(loss)	$ 1,028	$ (421)	$ 2,968	$ (214)
	Other comprehensive income/(loss)		(524)		389
	Comprehensive income	$	33	$	771

See Notes to Condensed Consolidated Financial Statements

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CNB Corporation and Subsidiary Condensed Consolidated Statements of Changes in Stockholders' Equity (All Dollar Amounts in Thousands) (Unaudited) Nine Months Ended September 30, 2011 2010 Common Stock: ($5 par value, 3,000,000 shares authorized) Balance, January 1 $ 8,323 $ 8,386 Issuance of Common Stock 2 1 Repurchase of Common Stock (16) (55) Balance at end of period 8,309 8,332 Capital in excess of par value of stock Balance, January 1 50,486 51,418 Issuance of Common Stock 24 19 Repurchase of Common Stock (167) (824) Balance at end of period 50,343 50,613 Retained earnings: Balance, January 1 27,660 26,620 Net Income/(loss) 792 (431) Balance at end of period 28,452 26,190 Net unrealized holding gains/(losses) on securities: Balance, January 1 (136) 1,005 Change in net unrealized gains/(losses), net 2,176 217 Balance at end of period 2,040 1,222 Total stockholders' equity $89,144 $86,357 Note: Columns may not add due to rounding.

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

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CNB CORPORATION AND SUBSIDIARY Condensed Consolidated Statements of Cash Flows (All Dollar Amounts in Thousands) (Unaudited) For the Nine Months Ended September 30, 2011 2010 OPERATING ACTIVITIES Net Income/(Loss) $ 792 $ (431) Adjustments to reconcile net income/(loss) to net cash provided by operating activities Depreciation and amortization 1,062 1,144 Provision for loan losses 7,473 11,948 Provision for deferred income taxes (360) (1,476) Net discount accretion and premium amortization on investment securities 1,445 994 Gain on sale of investment securities - (1,066) (Gain)/loss on sale of foreclosed assets 228 (15) Write-down of foreclosed assets 716 243 Decrease in accrued interest receivable 472 686 Decrease in other assets 761 720 Decrease in other liabilities (1,054) (40) Net cash provided by operating activities 11,535 12,707 INVESTING ACTIVITIES Proceeds from sale of investment securities available for sale - 21,889 Proceeds from sale of investment securities held to maturity - 2,322 Proceeds from maturities/calls of investment securities available for sale 165,541 146,338 Proceeds from maturities/calls of investment securities held to maturity 10,390 10,645 Purchase of investment securities available for sale (194,273) (213,042) Purchase of investment securities held to maturity (760) (32,880) Proceeds from sale of foreclosed assets 2,568 1,911 Net decrease in federal funds sold 1,000 - Net decrease in loans 26,637 17,282 Sale of equity securities 637 209 Premises and equipment expenditures (419) (336) Net cash provided/(used) for investing activities 11,321 (45,662) FINANCING ACTIVITIES Dividends paid - (2,096) Net increase in deposits 37,280 35,850 Net decrease in securities sold under repurchase agreement (4,002) (1,031) Net increase/(decrease) in United States Treasury demand notes (763) 91 Net decrease in Federal Home Loan Bank advances - (10,000) Common shares purchased (184) (879) Common shares sold 27 20 Net cash provided by financing activities 32,358 21,955 Net increase/(decrease) in cash and due from banks 55,214 (11,000) CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 32,517 62,644 CASH AND DUE FROM BANKS, END OF PERIOD $ 87,731 $ 51,644 CASH PAID FOR: Interest $ 5,681 $ 7,848 Income taxes $ 407 $ 789 SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCIAL ACTIVITIES Change in unrealized gain/loss on securities available for sale $ 3,627 $ 362 Real estate acquired through foreclosure $ 6,670 $ 5,814 Change in dividends payable $ - $ -

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

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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,~~664~~661,~~526shares~~636 shares for the ~~nine~~three-month period ended ~~September~~March 3031, ~~2011 and 1,673,716 for the nine-month period ended September 30, 2010~~2012.

Fair values of financial instruments

~~FinancialAccounting~~ 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~~ 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 ~~values~~, 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.

Federal Home Loan Bank Advances - Fair value is estimated based on discounted cash flows using current market rates for borrowings with similar terms.

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 ~~July~~In ~~2010~~April 2011, the ~~Receivables~~criteria used to determine effective control of transferred assets in the Transfers and Servicing topic of the Accounting Standards ~~Codification~~ Codification ("ASC") was amended by Accounting Standards Update ("ASU") ~~2010~~ 2011-2003. The torequirement ~~require expanded~~for ~~disclosures~~the ~~related~~transferor to ahave ~~company's~~the ~~allowance~~ability ~~for~~to ~~credit~~repurchase or ~~losses~~redeem ~~and~~ the ~~credit~~ ~~quality~~financial ofassets ~~its~~on ~~financing~~substantially ~~receivables.~~the ~~The~~agreed ~~amendments~~terms ~~require~~and the ~~allowance~~collateral ~~disclosures~~maintenance implementation guidance related to bethat ~~provided~~criterion onwere removed afrom ~~disaggregated~~the ~~basis~~assessment of effective control. The ~~Company~~other ~~is required~~criteria to ~~include~~assess effective ~~these~~control ~~disclosures~~were innot ~~its~~changed. The ~~interim~~amendments ~~and~~were ~~annual~~effective ~~financial~~for the ~~statements. See~~Company ~~Note~~on 4January to1, ~~the~~2012 ~~financial~~and ~~statements~~had -no ~~Loans~~effect ~~and~~on ~~Allowance~~the ~~for Loan~~financial ~~Losses~~statements.

~~Disclosures about Troubled Debt~~ ~~Restructurings ("TDRs") required by~~ ASU ~~2010-20 were deferred by the Financial Accounting Standards Board ("FASB") in ASU~~ 2011-0104 was issued in ~~January~~May 2011. ~~In April~~to ~~2011~~amend the ~~FASB~~Fair ~~issued~~Value ~~ASU~~Measurement ~~2011-02~~topic ~~to assist creditors with their~~of ~~determination~~the ofASC ~~when~~by aclarifying ~~restructuring~~the isapplication aof ~~TDR. The~~existing ~~determination~~fair isvalue ~~based~~measurement onand ~~whether~~disclosure ~~the~~requirements ~~restructuring~~and ~~constitutes~~by achanging ~~concession~~particular ~~and~~principles ~~whether~~or ~~the~~requirements for ~~debtor~~measuring ~~is experiencing~~fair ~~financial~~value ~~difficulties~~or asfor ~~both~~disclosing ~~events~~information ~~must~~about befair ~~present~~value measurements. ~~Disclosures related~~The toamendments ~~TDRs~~were ~~under~~effective ~~ASU~~for ~~2010-20~~the ~~have~~Company ~~been~~beginning ~~presented in Note 4 to the~~January ~~financial~~1, ~~statements~~2012 -and ~~Loans~~had ~~and~~no ~~Allowance~~effect ~~for~~on ~~Loan~~the ~~Losses~~financial statements.

In The ~~April~~Comprehensive ~~2011,~~Income ~~the~~topic ~~criteria~~of ~~used~~the toASC ~~determine~~was ~~effective~~amended ~~control~~in ofJune ~~transferred~~2011. The ~~assets~~amendment ineliminates the ~~Transfers~~option ~~and~~to ~~Servicing~~present ~~topic~~other comprehensive income as a part of the ~~ASC~~statement ~~was~~of ~~amended~~changes byin ~~ASU 2011-03. The~~stockholders’ ~~requirement~~equity ~~for~~and requires consecutive presentation of the ~~transferor~~statement toof ~~have~~net ~~the~~income ~~ability~~and toother ~~repurchase~~comprehensive income. orThe ~~redeem~~amendments ~~the~~were ~~financial~~applicable ~~assets~~to onthe ~~substantially~~Company ~~the~~on ~~agreed~~January ~~terms~~1, 2012 and ~~the~~have been ~~collateral~~applied ~~maintenance~~retrospectively. In ~~implementation~~December ~~guidance~~2011, ~~related~~the totopic ~~that~~was ~~criterion~~further ~~were~~amended to ~~removed~~defer ~~from~~ the ~~assessment~~effective date of ~~effective~~presenting ~~control. The~~reclassification adjustments from other ~~criteria~~comprehensive income to ~~assess effective~~net ~~control~~income ~~were~~on ~~not~~the ~~changed. The~~face ~~amendments~~of ~~are~~the ~~effective~~financial ~~for~~statements. Companies ~~the~~should ~~Company~~continue ~~beginning~~to ~~January~~report 1,reclassifications ~~2012~~out ~~but~~of ~~are~~accumulated ~~not~~other ~~expected~~comprehensive income toconsistent ~~have~~with athe ~~material~~ presentation requirements in effect onprior to the amendments ~~financial~~while ~~statements~~FASB redeliberates future requirements.

~~ASU 2011-04 was issued in May 2011 to~~ ~~amend~~ Other ~~the~~accounting ~~Fair~~standards ~~Value~~that ~~Measurement~~have ~~topic~~been ofissued ~~the~~or ~~ASC~~proposed by ~~clarifying~~ the ~~application of~~FASB ~~existing fair value measurement and disclosure requirements and by changing~~or ~~particular~~other ~~principles~~standards-setting orbodies ~~requirements~~are ~~for~~not ~~measuring~~expected ~~fair~~to ~~value~~have ora ~~for disclosing~~material ~~information~~impact ~~about fair value measurements. The amendments will be~~on ~~effective for~~ the Company’s ~~beginning~~financial ~~January 1~~position, ~~2012~~results ~~but~~of ~~are~~operations ~~not~~and ~~expected~~cash ~~to have a material effect on the financial statements~~flows.

~~The Comprehensive Income topic of the~~ ~~ASC was amended in June 2011. The amendment eliminates the option to present~~ ~~other~~NOTE ~~comprehensive~~2 ~~income~~– asRESTRICTIONS aON ~~part~~CASH ofAND ~~the~~DUE ~~statement~~FROM of changes in stockholders' equity. The amendment requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The amendments will be applicable to the Company on January 1, 2012 and will be applied retrospectively. BANKS

~~Other~~ The ~~accounting~~Bank ~~standards~~is ~~that~~required ~~have been~~to ~~issued~~maintain oraverage ~~proposed~~reserve bybalances either at the ~~FASB~~Bank or on ~~other~~deposit ~~standards-setting~~with ~~bodies~~the ~~are~~Federal ~~not~~Reserve Bank. The average amounts of these reserve ~~expected~~balances tofor ~~have~~the athree-month ~~material~~period ~~impact~~ended onMarch 31, 2012 and for the ~~Company's~~year ~~financial~~ended ~~position~~December 31, ~~results~~2011 were ofapproximately ~~operations~~$1,312 and ~~cash~~$1,193 ~~flows~~respectively.

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 nine-month period ended September 30, 2011 and for the year ended December 31, 2010 were approximately $1,194 and $2,001 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 ~~September~~March 3031, ~~2011~~2012 and at December 31, ~~2010~~2011.

September 30, 2011 Book Unrealized Holding Fair Value Gains Losses Value Yield(1) AVAILABLE FOR SALE Government Sponsored Enterprises Within one year $ 38,233 $ 92 $ - $ 38,325 .55% One to five years 186,265 1,122 48 187,339 1.01% Six to ten years 28,964 150 37 29,077 1.43% 253,462 1,364 85 254,741 .99% Mortgage Backed Securities One to five years 96 7 - 103 5.86% Six to ten years 2,338 154 - 2,492 4.15% Over ten years 20,631 369 - 21,000 2.52% 23,065 530 - 23,595 2.70% State, county and municipal Within one year 265 2 - 267 5.47% One to five years 1,469 56 - 1,525 4.29% Six to ten years 17,557 1,285 4 18,838 5.18% Over ten years 5,958 252 - 6,210 4.79% 25,249 1,595 4 26,840 5.04% Other Investments CRA Qualified Investment Fund 1,071 41 - 1,112 -% Other 36 - - 36 -% 1,107 41 - 1,148 -% Total available for sale $302,883 $ 3,530 $ 89 $306,324 1.45% HELD TO MATURITY State, county and municipal Within one year $ 529 $ 9 $ - $ 538 4.43% One to five years 565 36 - 601 5.04% Six to ten years 7,049 441 - 7,490 5.38% Over ten years 2,876 195 - 3,071 4.86% 11,019 681 - 11,700 5.18% Total held to maturity $ 11,019 $ 681 $ - $ 11,700 5.18% (1) Tax equivalent adjustment based on a 34% tax rate.

	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 ~~September~~March 3031, ~~2011~~2012, the Bank did not hold any securities of an issuer ~~that~~ that exceeded 10% of stockholders'’ equity. The net unrealized holding gains on available for sale securities component of capital was $21,~~040~~351, net of deferred income taxes, as of ~~September~~March 3031, ~~2011~~2012.

-9-

NOTE 3 - INVESTMENT SECURITIES (Continued)

December 31, 2010 Book Unrealized Holding Fair Value Gains Losses Value Yield(1) AVAILABLE FOR SALE Government Sponsored Enterprises Within one year $ 6,035 $ 21 $ 2 $ 6,054 .98% One to five years 180,903 328 650 180,581 1.13% Six to ten years 58,047 137 322 57,862 1.87% 244,985 486 974 244,497 1.30% Mortgage Backed Securities Six to ten years 2,112 90 - 2,202 4.01% Over ten years 8,090 102 86 8,106 3.31% 10,202 192 86 10,308 3.46% State, county and municipal Within one year 950 4 - 954 6.26% One to five years 1,395 40 - 1,435 6.28% Six to ten years 12,531 332 82 12,781 5.41% Over ten years 4,442 5 142 4,305 4.93% 19,318 381 224 19,475 5.41% Other Investments CRA Qualified Investment Fund 1,065 - - 1,065 -% Other 36 - - 36 -% 1,101 - - 1,101 -% Total available for sale $ 275,606 $ 1,059 $ 1,284 $ 275,381 1.67% HELD TO MATURITY Government Sponsored Enterprises One to five years 10,000 25 4 10,021 1.33% State, county and municipal One to five years $ 1,103 $ 46 $ - $ 1,149 4.74% Six to ten years 5,847 149 14 5,982 5.60% Over ten years 3,728 - 96 3,632 4.85% 10,678 195 110 10,763 5.25% Total held to maturity $ 20,678 $ 220 $ 114 $ 20,784 3.34%


	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, ~~2010~~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 ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011:

September 30, 2011 AVAILABLE FOR SALE Government Sponsored Enterprises State, county, and municipal Total Less than twelve months Twelve months or more Total Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses $ 31,723 $ 85 - - $ 31,723 $ 85 259 4 - - 259 4 $ 31,982 $ 89 $ - $ - $ 31,982 $ 89

	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

December 31, 2010 Less than twelve months Twelve months or more Total AVAILABLE FOR SALE Government Sponsored Enterprises State, county, and municipal Mortgage backed securities Total Fair value Unrealized losses Fair value Unrealized losses Fair value Unrealized losses $ 132,747 5,882 5,005 $ 973 207 87 $ - 323 - $ - 17 - $ 132,747 6,205 5,005 $ 973 224 87 $ 143,634 $ 1,267 $ 323 $ 17 $ 143,957 $ 1,284 HELD TO MATURITY Government Sponsored Enterprises State, county, and municipal $ 1,996 4,534 $ 4 110 $ - - $ - - 1,996 4,534 $ 4 110 Total $ 6,530 $ 114 $ - $ - $ 6,530 $ 114

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

Securities classified as available for sale are recorded at fair market value. At September 30 2011, there were no available for sale securities in a continuous loss position for twelve months or more. At December 31, 2010, the Company owned $323 of available for sale securities in a continuous loss position for twelve months or more with $17 of unrealized losses consisting of one municipal security.

	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 ~~held~~available tofor ~~maturity~~sale are recorded at ~~cost. At~~fair ~~September~~market ~~30, 2011 there were no held to maturity securities in a continuous loss position for less than twelve months~~value. At March ~~September 30~~31, ~~2011,~~ 2012 and December 31, ~~2010~~2011, there were no ~~held~~available tofor ~~maturity~~ sale securities in a continuous loss position for twelve months or more.

~~Investment~~ ~~securities~~ Securities ~~with~~classified anas ~~aggregate~~held ~~par~~to ~~value~~maturity ofare ~~$179~~recorded at cost. At March 31,~~284~~ (2012, the Company owned $~~183~~6,~~599~~285, fair value), atof ~~September~~held to maturity ~~30,~~securities ~~2011~~in ~~and~~a ~~$204,917~~continuous (loss position for less than twelve months with $~~207,349~~12 of ~~fair~~unrealized ~~value)~~losses atconsisting ~~December~~of one agency and three municipal securities. At March 31, ~~2010~~2012, there were ~~pledged~~ no held to ~~secure~~maturity ~~public~~securities ~~deposits~~in ~~and~~a continuous loss position for ~~other~~twelve ~~purposes~~months ~~required~~or bymore. ~~law~~At December 31, 2011, there were no held to maturity securities in a loss position.

~~For~~Investment ~~the~~securities ~~nine-month~~with ~~period~~an ~~ended~~aggregate ~~September~~par ~~30, 2011~~value ~~there were no sales~~ of ~~available~~$181,971 ($185,765 ~~for~~fair ~~sale~~value) ~~securities. For~~at ~~the~~March ~~nine-month period~~31, ~~ended~~2012 ~~September~~and 30$175,457 ~~2010, the Company sold~~ ($18179,252 ~~(book~~fair value) ofat ~~available~~December ~~for sale securities for a gain of $1~~31,~~004. During~~ ~~all~~2011 ofwere ~~2010~~pledged ~~$20,758 of~~to ~~par~~secure ~~value~~public ~~available~~deposits ~~for~~and ~~sale securities were sold~~ for aother ~~gain~~purposes required ofby ~~$993~~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 ~~nine~~three-month ~~periods~~period ended ~~September~~March 3031, ~~2011~~2012 and ~~2010, there were no sales of held to maturity securities. During all of 2010,~~ the ~~Company~~year ~~sold~~ended ~~$2,255 par~~December ~~value ($2~~31,~~370~~ ~~fair value) of held to maturity securities~~2011, ~~consisting of~~ ~~four~~there ~~securities, for a net gain of $73. Two of these held to maturity securities, $770 par value ($785 fair value),~~ were ~~sold~~no ~~under~~sales ~~exception "a."~~ of ~~ASC~~ ~~320-10-25-6 as a result of both securities losing their rating due to a downgrade of the insurer. Two of these~~ held to maturity securities~~, $1,485 par value ($1,585 fair value), were sold under exception "d~~." of ASC 320-10-25-6 because the primary regulator of the Company's subsidiary bank has increased scrutiny of capital and its components and, consequently, due to continued uncertainty in the municipal bond markets, the amount of investment in individual municipal securities issuers. In response to these regulatory concerns related to capital and its components, the Company sold all of its municipal securities of individual issuers in excess of $600, including all municipal securities in this size category classified held to maturity as well as those classified available for sale. We believe that the sale of these held to maturity securities should not be considered inconsistent with the original classification and the remaining portfolio is not tainted.

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 ~~September~~March 31, 302012, December 31, 2011, and ~~December~~March 31, ~~2010~~2011 by major classification:

~~September~~March 3031, December 31, March 31, 2012 2011 ~~2010~~2011 Real estate ~~estate~~ loans - ~~mortgage~~ commercial $ 136,238 ~~341~~ $ 142,~~531~~ 513 $ ~~362~~ 152,~~998~~ 363 - construction and development 53 50,~~960~~ 795 63 52,~~080~~ 271 60,265 - residential ~~Agricultural~~ ~~loans~~ 187,270 4 191,~~751~~ 806 3 206,~~282~~ 704 Commercial and ~~industrial~~agricultural loans 51 52,~~506~~ 465 54,470 61,~~127~~ 500 Loans to to individuals for household, family and other consumer expenditures ~~41,882~~ ~~43,350~~ ~~All~~ ~~other~~ ~~loans,~~ including overdrafts ~~and~~ 42,938 42,962 42,913 ~~deferred~~ ~~loan costs~~ ~~384~~ ~~349~~ Gross loans $ 469,706 ~~494~~ $ 484,~~014~~ 022 $ ~~534~~ 523,~~186~~ 745 Less allowance for loan losses (12,~~126~~612) (12,373) (11,~~627~~803) Net loans $ 457,094 ~~481~~ $ 471,~~888~~ 649 $ ~~522~~ 511,~~559~~ 942

Changes in the allowance for loan losses for the quarters ~~and nine-month periods~~ ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~ 2011, and the year ended December 31, ~~2010~~2011 are summarized as follows:

~~Quarter~~ Quarter Ended ~~Year Ended~~ ~~Nine-Months~~Year Ended ~~September 30,~~ ~~December~~March 31, ~~September~~ 30 December 31, ~~2011~~ ~~2010~~ 2012 ~~2010~~ 2011 ~~2010~~ 2011 Balance, beginning of period $ ~~12,143~~ ~~$ 11~~ 12,~~506~~373 ~~$ 9,142~~ $ $ 11,627 $ 9 11,~~142~~ 627 Charge-offs: Commercial, ~~financial,~~ and agricultural ~~340~~ ~~746~~766 ~~3,273~~ ~~1,031~~280 2 1,~~741~~ 872 Real Estate -– commercial, construction and ~~mortgage~~ residential ~~2,375~~ 21,~~551~~207 ~~7,444~~ 61,~~588~~962 5 7,~~702~~ 798 Loans to individuals ~~198~~239 ~~251~~ ~~899~~236 ~~708~~ ~~760~~ 917 Total charge-offs $ 2,~~913~~212 ~~$ 3,548~~ $ ~~$11~~ 2,~~616~~478 ~~$ 8,327~~ $ ~~$ 9~~10,~~203~~ 587 Recoveries: Commercial, ~~financial,~~ and agricultural $ ~~144~~ 238 ~~$ 22~~ $ ~~259~~ 62 ~~$ 236~~ $ ~~206~~ 298 Real Estate -–commercial, construction and ~~mortgage~~ residential ~~392~~ 599 73 ~~919~~406 20 929 Loans to individuals 6431 67 ~~372~~ 74 ~~198~~ ~~318~~ 218 Total recoveries $ ~~600~~ 368 ~~$ 94~~ $ ~~704~~ 542 ~~$ 1,353~~ $ ~~544~~ 1,445 Net charge-offs $ 2 1,~~313~~844 ~~$ 3,454~~ $ ~~$10~~ 1,~~912~~936 ~~$ 6,974~~ $ ~~$ 8~~ 9,~~659~~ 142 Additions charged to operations $ 2,~~296~~083 ~~$ 4,379~~ $ ~~$13~~ 2,~~397~~112 ~~$ 7,473~~ $ ~~$11~~ 9,~~948~~ 888 Balance, end of period $ 12,~~126~~612 ~~$ 12,431~~ $ $11,~~627~~803 ~~$12,126~~ $ $12,~~431~~ 373 Ratio of of net charge-offs during the period .4639% ~~.62%~~ 1 .9037% ~~1.35%~~ 1.5379% 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~~ ALLOWANCE FOR LOAN LOSSES, Continued

At ~~September 30~~March 31, ~~2011~~2012, ~~December~~ December 31, ~~2010~~2011, and ~~September~~March 3031, ~~2010~~2011 loans on which no interest was being accrued totaled $22,~~787~~399, $2522,~~704~~913, and $2526,~~143~~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 ~~September~~March 3031, ~~2011~~ 2012, December 31, ~~2010~~2011, and ~~September~~March 3031, ~~2010~~2011 were $2426,~~186~~916, $2926,~~074~~036, and $2628,~~046~~803, respectively. The portion of of the allowance for loan losses specifically allocated to impaired loans at ~~September~~March 3031, ~~2011~~2012, December 31, ~~2010~~2011, and ~~September~~March 3031, ~~2010~~2011 was $~~855~~1,426, $~~709~~1,484, and $~~798~~745, respectively. The Company had $89,~~525~~262 of foreclosed real estate at March ~~September 30~~31, ~~2011~~2012, $59,~~476~~063 at December 31, ~~2010~~2011, and $56,~~297~~446 at ~~September 30~~March 31, ~~2010~~2011. Loans 90 90 days past due and still accruing interest totaled $~~839~~1,602, $12,~~042~~141, and $~~468~~ 1,431 at ~~September~~March 3031, ~~2011~~2012, December 31, ~~2010~~2011, and ~~September~~March 3031, ~~2010~~2011, respectively.

At ~~September~~March 3031, ~~2011~~2012, December 31, ~~2010~~2011, and ~~September~~March 3031, ~~2010~~2011 classified assets, the majority consisting of classified loans, were $6460,~~170~~438, $7662,~~642~~811, and $8573,~~876~~548, respectively. At ~~September~~March 3031, ~~2011~~2012, December 31, ~~2010~~2011, and March ~~September 30~~31, ~~2010~~2011 classified assets represented 6460.8638%, 7863.2403%, and 8874.2790% of of total capital (the sum of Tier 1 Capital and the Allowance for Loan Losses), respectively.

As of ~~September~~March 3031, 2012, December 31, 2011, and ~~December~~March 31, 2011 ~~2010~~ loans individually evaluated and considered impaired under ASC 310-10 "“Receivables"” were as follows ~~(tabular amounts in thousands)~~:

September 30, 2011 December 31, 2010 Total loans considered impaired $24,186 $ 29,074 Loans considered impaired for which there is a related allowance for loan loss: Outstanding loan balance 11,079 8,620 Related allowance established 855 709 Loans considered impaired and previously written down to fair value 13,107 20,454 Loans considered impaired and which are classified as troubled debt restructurings. 3,482 20 Average investment in impaired loans 27,656 25,241 Interest income recognized on impaired loans during the period of impairment. 240 636

	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 ~~(in thousands of dollars)~~ 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 ~~September~~March 31, 2012, December 3031, 2011 and ~~December~~March 31, ~~2010~~2011. The Company utilizes four "“Pass"” grade ~~categories~~ 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.

~~Commercial~~ Credit ~~Exposure Credit~~ Risk Profile by Internally Assigned Grade ~~For~~March ~~the Quarter Ended September 30~~31, ~~2011~~2012

	Commercial Other		Commercial Real Estate Construction		Commercial Real Estate- Other
PASS 1		$ 4,620		$ 37		$ 65
PASS 2		14,828		10,430		47,878
PASS 3		13,107		12,896		38,421
PASS 4		13,848		15,544		34,867
OAEM		4,968		5,059		8,743
Substandard		4,886		9,994		16,379
	Total	$ 56,257		$ 53,960		$146,353

			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

~~Consumer~~ ~~Credit~~ Real ~~Exposure~~Estate ~~Credit~~ Construction Commercial December ~~Risk~~31, ~~Profile~~2011 Real byEstate and Real ~~Internally~~Estate and Commercial Development Residential Agricultural ~~Assigned~~ PASS ~~Grade~~1 ~~For~~ $ 77 $ 37 $ 164 $ 4,720 ~~the~~ ~~Quarter~~ PASS ~~Ended~~2 46,882 10,168 67,010 15,803 ~~September~~ 30 PASS 3 38,237 11,094 42,424 12,207 ~~2011~~ 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

	Consumer Real Estate-Residential
PASS 1	$ 684
PASS 2	67,683
PASS 3	41,992
PASS 4	52,395
OAEM	9,210
Substandard	23,214
Total	$ 195,178

			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 ~~September~~March 3031, 2012, December 31, 2011, and March 31, 2011. ~~The~~ The Company does not make loans defined as "“sub-prime"” loans.

-14-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES – Continued

~~NOTE~~The 4following -table summarizes ~~LOANS~~the ~~AND~~Company’s ~~ALLOWANCE~~consumer ~~FOR~~credit ~~LOAN~~card ~~LOSSES~~and -all ~~Continued~~other consumer loans based on performance at March 31, 2012, December 31, 2011 and March 31, 2011.

~~Commercial~~ March 31, 2012 December 31, 2011 March 31, 2011 Consumer Consumer Consumer Consumer Consumer Consumer Credit ~~Exposure~~Card Other Credit ~~Risk~~Card Other Credit ~~Profile~~Card Other by ~~Internally~~ ~~Assigned~~ ~~GradeFor~~ Performing $ 3,119 $39,660 $ 3,282 $39,521 $ 3,081 $39,832 ~~the~~ ~~Year~~ ~~Ended~~ Non-Performing - 159 - 159 - - ~~December~~ 31 Total $ 3,119 $39,819 $ 3,282 $39,680 $ 3,081 $39,832 ~~2010~~

	Commercial Other		Commercial Real Estate Construction	Commercial Real Estate- Other
PASS 1		$ 7,524	$ 39	$ -
PASS 2		12,980	8,590	55,930
PASS 3		15,859	11,168	31,521
PASS 4		16,611	18,377	30,054
OAEM		6,007	9,283	14,105
Substandard		5,428	15,623	20,611
	Total	$ 64,409	$ 63,080	$152,221

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.

Consumer Credit Exposure Credit Risk Profile by Internally Assigned Grade For the Year Ended December 31, 2010

	Consumer Real Estate-Residential
PASS 1	$ 761
PASS 2	74,462
PASS 3	48,216
PASS 4	46,158
OAEM	12,687
Substandard	28,538
Total	$ 210,822

The Company had no loans classified as doubtful at December 31, 2010. The Company does not make loans defined as "sub-prime" loans.

The following table summarizes the Company's consumer credit card and all other consumer loans based on performance at September 30, 2011 and December 31, 2010 (tabular amounts in thousands).

Consumer Credit Exposure Credit Risk Profile Based on Payment Activity

	September 30, 2011			December 31, 2010
	Consumer	Consumer		Consumer	Consumer
	Credit Card	Other		Credit Card	Other
Performing	$ 3,068	$39,198	Performing	$ 3,225	$40,429
Non-Performing	-	-	Non-Performing	-	-
Total	$ 3,068	$39,198	Total	$ 3,225	$40,429

The Company had no consumer credit card or other consumer loans classified as "Non-Performing" at September 30, 2011 or December 31, 2010.

-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 ~~September~~March 3031, ~~2011~~2012, ~~and~~ December 31, ~~2010~~ ~~(tabular~~2011, ~~amounts~~and March in31, ~~thousands)~~2011.

~~Allowance for Loan Losses and Recorded Investment in Loans Receivable~~ For the ~~Nine~~Three-Months Ended ~~September~~March 3031, ~~2011~~ 2012

		Commercial
	Commercial	Real Estate	Consumer	Residential	Unallocated	Total
Allowance for loan losses:
Beginning balance	$ 2,776	$ 4,266	$ 1,361	$ 3,114	$ 110	$ 11,627
Charge-offs	(1,031)	(2,921)	(708)	(3,667)	-	(8,327)
Recoveries	236	831	198	88	-	1,353
Provisions	340	2,563	260	4,420	(110)	7,473
Ending balance	$ 2,321	$ 4,739	$ 1,111	$ 3,955	$ -	$ 12,126
Ending balances:
Individually evaluated
for impairment	$ -	$ 438	$ -	$ 417	$ -	$ 855
Collectively evaluated
for impairment	$ 2,321	$ 4,301	$ 1,111	$ 3,538	$ -	$ 11,271
Loans receivable:
Ending balance - total	$ 56,257	$ 200,314	$ 42,266	$ 195,177	$ -	$ 494,014
Ending balances:
Individually evaluated
for impairment	$ 1,065	$ 14,454	$ -	$ 8,667	$ -	$ 24,186
Collectively evaluated
for impairment	$ 55,192	$ 185,860	$ 42,266	$ 186,510	$ -	$ 469,828

				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

~~Allowance~~ ~~for Loan Losses and Recorded Investment in Loans Receivable~~ For the Year Ended December 31, ~~2010~~ 2011

		Commercial
				Real Estate
	Commercial	Real Estate	Consumer	Residential	Unallocated	Total
				Construction					Commercial
Allowance for loan losses:
	Real Estate			and			Real Estate		and
Beginning balance	$ 3,309	$ 2,246	$ 1,228	$ 2,344	$ 15	$ 9,142
	Commercial			Development			Residential		Agricultural		Consumer		Unallocated		Total
Charge-offs	(3,273)	(4,639)	(899)	(2,805)	-	(11,616)
Allowance for loan losses:
Recoveries	259	14	372	59	-	704
Beginning balance	$	1,637		$	2,628		$	3,113	$	2,774	$	1,365	$	110	$	11,627
Provisions	2,481	6,645	660	3,516	95	13,397
Charge-offs		(789)			(2,772)			(4,237)		(1,872)		(917)		-		(10,587)
Ending balance	$ 2,776	$ 4,266	$ 1,361	$ 3,114	$ 110	$ 11,627
Recoveries		-			836			93		298		218		-		1,445
Ending balances:
Provisions		1,775			1,448			4,898		993		818		(44)		9,888
Individually evaluated
Ending balance	$	2,623		$	2,140		$	3,867	$	2,193	$	1,484	$	66	$	12,373
for impairment	$ -	$ 506	$ -	$ 203	$ -	$ 709
Ending balances:
Collectively evaluated
Individually evaluated
for impairment	$ ~~2,776~~	~~$ 3,760~~265	~~$ 1,361~~	$ ~~2,911~~	~~$ 110~~469	~~$ 10,918~~	$	710	$	40	$	-	$	-	$	1,484
Loans receivable:
Collectively evaluated
Ending balance - total	$ 64,409	$ 215,301	$ 43,654	$ 210,822	$ -	$ 534,186
for impairment	$	2,358		$	1,671		$	3,157	$	2,153	$	1,484	$	66	$	10,889
Ending balances:
Loans receivable:
Individually evaluated
Ending balance - total	$	142,513		$	52,271		$	191,806	$	54,470	$	42,962	$	-	$	484,022
for impairment	$ 315	$ 19,977	$ -	$ 8,782	$ -	$ 29,074
Ending balances:
Collectively evaluated
Individually evaluated
for impairment	$ ~~64,094~~	~~$ 195~~8,~~324~~112	~~$ 43,654~~	$ ~~202,040~~	~~$ -~~5,732	~~$ 505,112~~	$	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

~~The~~ ~~following~~ For ~~tables outline~~ the ~~performance status of the Company's loan portfolio~~ byThree-Months ~~collateral~~Ended ~~type~~March ~~and purpose at September 30~~31, 2011 ~~and December 31, 2010~~ ~~(tabular amounts in thousands).~~

Real Estate ~~Greater~~ Construction ~~Greater~~ Commercial ~~Than~~ Real Estate and ~~Than~~Real Estate and 90 ~~Days~~ Commercial Development Residential Agricultural Consumer Unallocated Total ~~September~~ Allowance ~~30,~~for ~~2011~~loan losses: ~~30-59 Days~~ ~~60-89 Days~~ ~~90 Days~~ ~~Total~~ ~~Total Loans~~ ~~Past Due~~ Beginning balance ~~Past Due~~ $ ~~Past Due~~ 1,637 ~~Past~~ $ 2,628 $ 3,113 $ 2,774 $ 1,365 $ 110 $ 11,627 ~~Due~~ Charge-offs ~~Past~~ (261) (668) (1,033) (280) (236) - (2,478) ~~Due~~ Recoveries ~~Current~~ - ~~Receivable~~ 377 29 62 74 - ~~Accruing~~ 542 Provisions 676 417 1,367 (216) (22) (110) 2,112 Ending ~~Commercial~~balance $ 1 2,~~927~~052 $ ~~516~~ 2,754 $ ~~546~~ 3,476 $ 2,~~989~~340 $ 53 1,~~268~~ 181 $ ~~56,257~~ - $ 66 11,803 ~~Commercial~~ ~~real~~ ~~estate~~ Ending balances: ~~Commercial~~ Individually ~~real~~evaluated ~~estate~~ for impairment $ 41 $ 459 $ 245 $ - ~~construction~~ 1 $ - $ - $ 745 Collectively evaluated for impairment $ 2,~~048~~011 ~~363~~ 5 $ 2,~~183~~295 6 $ 3,~~594~~231 47 $ 2,~~366~~340 $ 53 1,~~960~~181 ~~117~~ $ - $ 11,058 ~~Commercial~~ ~~real~~ ~~estate~~ Loans receivable: Ending balance - ~~other~~ total 1 $ 152,~~563~~363 ~~460~~ 4 $ 60,~~804~~265 6 $ 206,~~827~~704 ~~139~~ $ 61,~~526~~ 500 ~~146~~ $ 42,~~353~~913 $ - $ 523,745 ~~Consumer~~ Ending balances: ~~Consumer-residential~~ Individually evaluated ~~1,733~~ ~~2,861~~ 5 for impairment $ 8,~~853~~497 $ 10,~~447~~207 ~~184~~ $ 9,~~731~~548 $ 551 $ - ~~195,178~~ ~~486~~ $ - $ 28,803 ~~Consumer-credit~~ ~~cards~~ 57 22 24 ~~103~~ ~~2,965~~ ~~3,068~~ 24 ~~Consumer-other~~ Collectively evaluated ~~1,150~~ ~~355~~ ~~283~~ ~~1,788~~ ~~37,410~~ ~~39,198~~ ~~146~~ ~~Total~~ for impairment $ 7 143,~~478~~ 866 $ 4 50,~~577~~ 058 $ 16 197,~~693~~156 $ 28 60,~~748~~ 949 $ ~~465~~ 42,~~266~~913 $ ~~494,014~~ - $ ~~839~~ 494,942

Greater Greater Than Than 90 Days December 31, 2010 30-59 Days 60-89 Days 90 Days Total Total Loans Past Due Past Due Past Due Past Due Past Due Current Receivable Accruing Commercial $ 877 $ 564 $ - $ 1,441 $ 62,968 $ 64,409 $ - Commercial real estate: Commercial real estate- construction 1,838 853 7,630 10,321 52,759 63,080 12 Commercial real estate- other 1,146 591 5,856 7,593 144,628 152,221 161 Consumer: Consumer-residential 3,297 4,237 5,487 13,021 197,801 210,822 695 Consumer-credit cards 36 44 26 106 3,119 3,225 27 Consumer-other 829 373 147 1,349 39,080 40,429 147 Total $ 8,023 $ 6,662 $ 19,146 $ 33,831 $ 500,355 $ 534,186 $ 1,042

-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.

In ~~addition~~ Greater to ~~those~~ Greater Than ~~loans~~ ~~placed~~ Than 90 inDays a ~~nonaccrual status~~ March 31, ~~there~~2012 30-59 ~~are~~Days ~~certain~~ 60-89 ~~loans in the portfolio which are not yet~~ Days 90 ~~days~~Days Total Total ~~past~~Loans Past ~~due~~Due ~~but~~ ~~about~~ ~~which~~ Past ~~management~~Due Past ~~has~~Due Past ~~concerns~~Due Past ~~regarding~~Due Current Receivable Accruing ~~the~~ ~~ability~~ Real estate: ~~of the borrower to comply~~ ~~with~~ ~~present loan repayment terms. Such loans~~ Commercial $ 175 $ 2,579 $ 4,044 $ 6,798 $ 129,440 $ 136,238 $ - ~~together~~ ~~with~~ ~~nonaccrual~~ Construction & ~~loans~~Development 1,394 895 3,733 6,022 44,773 50,795 80 ~~are classified as impaired. Problem loan~~ ~~identification~~ ~~includes a review of individual loans~~ Residential 3,543 3,042 8,894 15,479 171,791 187,270 1,334 ~~the~~ ~~borrower's and~~ ~~guarantor's~~ Commercial ~~financial capacity~~ and ~~position~~Agricultural 714 950 1, ~~loss potential~~063 2, ~~and present~~727 ~~economic conditions. A specific allocation is provided for impaired~~ ~~loans~~ 49,738 52,465 - ~~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~~ Consumer-credit cards 33 23 33 89 3,030 3,119 33 ~~table outlines the Company's loans classified as impaired by~~ ~~collateral~~ ~~type and purpose at September 30~~ Consumer-other 1,098 410 315 1,823 37,996 39,819 155 ~~2011~~ ~~and December 31~~ Total $ 6, ~~2010~~957 ~~(tabular~~ $ 7,899 $ 18,082 $ 32,938 $ 436,768 $ 469,706 $ 1,602 ~~amounts in thousands).~~

~~Impaired~~ Greater Greater Than Than 90 Days December 31, 2011 30-59 Days 60-89 Days 90 Days Total Total Loans ~~For~~ Past ~~the~~Due ~~Nine~~ 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 $ -~~Months~~ ~~Ended~~ ~~September~~ Construction & 30Development 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

Unpaid Average Interest Recorded Principal Related Recorded Income Investment Balance Allowance Investment Recognized With no related allowance recorded: Commercial real estate-construction $ 2/878 $ 3,284 $ - $ 5,554 $ 17 Commercial real estate-other 6,530 6,553 - 7,080 52 Commercial and industrial 1,065 1,096 - 712 14 Consumer-residential 2,634 2,694 - 4,003 78 With an allowance recorded: Commercial real estate-construction $ 3,254 $ 5,371 $ 312 $ 2,940 $ 10 Commercial real estate-other 1,791 2,182 126 1,752 - Commercial and industrial - - - 23 - Consumer-residential 6,034 7,660 417 5,592 69 Total: Commercial real estate-construction $ 6,132 $ 8,655 $ 312 $ 8,704 $ 27 Commercial real estate-other 8,321 8,735 126 8,622 52 Commercial and industrial 1,065 1,096 - 735 14 Consumer-residential 8,668 10,354 417 9,595 147 $ 24,186 $ 28,840 $ 855 $ 27,656 $ 240

Impaired Loans For the Year Ended December 31, 2010

Unpaid Average Interest Recorded Principal Related Recorded Income Investment Balance Allowance Investment Recognized With no related allowance recorded: Commercial real estate-construction $ 6,563 $ 7,977 $ - $ 8,210 $ 27 Commercial real estate-other 7,952 7,975 - 4,495 294 Commercial and industrial 315 315 - 314 13 Consumer-residential 4,455 4,743 - 4,648 211 With an allowance recorded: Commercial real estate-construction $ 4,138 $ 6,175 $ 419 $ 3,799 $ 32 Commercial real estate-other 1,324 1,705 87 729 23 Commercial and industrial - - - - - Consumer-residential 4,327 4,947 203 3,046 36 Total: Commercial real estate-construction $ 10,701 $ 14,152 $ 419 $ 12,009 $ 59 Commercial real estate-other 9,276 9,680 87 5,224 317 Commercial and industrial 315 315 - 314 13 Consumer-residential 8,782 9,690 203 7,694 247 $ 29,074 $ 33,837 $ 709 $ 25,241 $ 636

-18-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES -– Continued

~~The~~ 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 onclassified ~~nonaccrual~~as ~~status~~impaired by collateral type and purpose at ~~September 30~~March 31, ~~2011~~2012, and December 31, ~~2010~~2011 ~~(tabular~~and ~~amounts~~March 31, ~~in thousands)~~2011.

~~Loans~~ on For ~~Nonaccrual~~the ~~Status~~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

		September 30,		December 31,
For the Year Ended December 31, 2011
		2011		2010
				Unpaid				Average		Interest
Commercial		$ 928		$ 315
	Recorded			Principal		Related		Recorded		Income
Commercial real estate:
With no related allowance recorded:	Investment			Balance		Allowance		Investment		Recognized
Commercial real estate construction		6,024		9,711
Real estate - commercial	$	4,853		$	4,876	$	-	$	6,511	$	61
Commercial real estate - other		8,000		9,250
Real estate - construction and development		2,391			2,797		-		4,891		-
Consumer:
Real estate - residential		1,897			1,939		-		3,454		36
Consumer-credit card		-		-
Commercial and agricultural		939			987		-		838		17
Consumer-other		137		-
With an allowance recorded:
Residential:
Real estate - commercial	$	3,259		$	3,720	$	265	$	2,015	$	95
Residential		7,698		6,428
Real estate - construction and development		3,341			5,748		469		3,042		43
	Total		$ 22,787		$ 25,704
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

The total amount of interest earned on nonaccrual loans was $168 for the nine-month period ended September 30, 2011 and $408 for the year ended December 31, 2010. The gross interest income which would have been recorded under the original terms of the nonaccrual loans amounted to $1,319 and $1,847 for the nine-month period ended September 30, 2011 and the year ended December 31, 2010, respectively. Foregone interest on nonaccrual loans totaled $1,151 and $1,439 for the nine-month period ended September 30, 2011 and the year ended December 31, 2010, 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 $52 of interest on a cash basis on one loan relationship consisting of four nonaccrual loans totaling $1,949 during the nine-month period ended September 30, 2011. The Company did not recognize interest income on nonaccrual loans on a cash basis during any of 2010.

At September 30, 2011 and December 31, 2010 the amount of loans ninety days or more past due and still accruing interest totaled $839 and $1,042, 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.

At September 30, 2011 and December 31, 2010 classified assets, the majority consisting of classified loans, were $64,170 and $76,642, respectively. At September 30, 2011 and December 31, 2010 classified assets represented 64.86% and 78.24% of total capital (the sum of Tier 1 Capital and the Allowance for Loan Losses), respectively.

-19-

NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES -– Continued

~~Troubled~~ ~~Debt~~ For ~~Restructurings~~the ~~Footnote~~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

~~As a result of adopting the amendments in ASU 2011-02, the Company reassessed~~ ~~all~~The ~~restructurings~~following ~~that~~table ~~occurred~~outlines ~~on or after~~ the ~~beginning of the fiscal year of adoption (January 1, 2011) to determine whether they are considered troubled debt restructurings (TDRs) under the amended guidance. The~~ Company’s ~~identified six~~ loans ~~with~~on anonaccrual ~~recorded~~status ~~investment of $3,564 which met the definition of a TDR~~by ~~under~~collateral ~~the~~type ~~amended~~and ~~guidance. All~~purpose ofat ~~these~~March ~~loans were classified as impaired prior to restructuring. The allowance for loan losses associated with these loans was previously~~31, 2012 and ~~will~~December ~~continue to be~~31, ~~determined under the impairment measurement guidance in ASC 310-10-35~~2011.

~~Troubled debt restructurings that were made during the three and nine-month~~ ~~periods~~Loans ~~ended~~on ~~September~~Nonaccrual ~~30, 2011 are illustrated in the tables below.~~Status

For the three months ended September 30, 2011 Pre-Modification Post-Modification Outstanding Outstanding Number of Recorded Recorded Contracts Investment Investment Troubled Debt Restructurings Commercial - $ - $ - Commercial real estate-construction - - - Commercial real estate - other - - - Consumer - residential 2 577 577

	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

~~During~~ The total amount of interest earned on nonaccrual loans was $9 for the three-month ~~months~~period ended ~~September~~March 3031, 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 ~~two~~for the three-month period ended March 31, 2012 and the year ended December 31, 2011, respectively. Foregone interest on nonaccrual loans ~~were~~totaled ~~modified~~$464 and $1,533 for the three-month period ended March 31, 2012 and ~~considered~~the toyear beended ~~troubled~~December ~~debt~~31, ~~restructurings~~2011, respectively. ~~Both~~ The Company writes down any confirmed losses associated with nonaccrual loans ~~were~~at ~~granted~~the antime such loans are placed in a ~~extended~~nonaccrual ~~term~~status. Accrued and nounpaid current period interest ~~rate~~income on ~~concessions~~nonaccrual ~~were~~loans ~~made~~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 ~~For~~March ~~the~~31, ~~nine~~2012 ~~months~~and ~~ended September 30~~December 31, 2011 the amount ~~Pre-Modification Post-Modification~~ of loans ~~Outstanding Outstanding~~ ninety days ~~Number~~or ~~of Recorded Recorded~~ more past ~~Contracts Investment Investment~~ due and still accruing interest ~~Troubled Debt~~totaled ~~Restructurings Commercial 1~~ $ ~~247 $ 247~~ 1,602 and ~~Commercial real estate-construction~~ $2 1,~~824 1~~141,~~824~~ respectively. Loans ~~Commercial real~~ninety ~~estate~~days -or ~~other - - -~~ more past due ~~Consumer -~~and ~~residential 3 1,493 1,493~~ still accruing interest consist primarily of consumer loans which are placed in nonaccrual status at one hundred twenty days or more past due.

During the nine months ended September 30, 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.

-20-

~~Troubled debt restructurings are considered defaulted when they become~~NOTE ~~ninety~~4 ~~or more days past due. Troubled debt restructurings which have defaulted during the three and nine~~-~~month~~ ~~periods~~LOANS ~~ended~~AND ~~September~~ALLOWANCE ~~30,~~FOR ~~2011~~LOAN ~~are presented~~LOSSES in– ~~the tables below:~~Continued

Three months ended September 30, 2011 Number of Contracts Recorded Investment Troubled Debt Restructurings That Subsequently Defaulted During the Period: Commercial - $ - Commercial real estate-construction - - Commercial real estate - other 1 1,520 Consumer - residential - -

~~Nine~~The ~~months~~Company ~~ended~~had troubled debt restructurings (TDR’s) with a recorded investment ~~September~~of 30$3,897 ~~2011~~ and $3,638 included in impaired loans at March 31, 2012 and December ~~Number~~31, 2011, respectively. All of ~~Contracts Recorded~~ ~~Investment Troubled~~these ~~Debt~~loans ~~Restructurings That~~were ~~Subsequently~~classified ~~Defaulted~~as impaired prior ~~During~~to ~~the~~restructuring. The ~~Period:~~allowance ~~Commercial - $ - Commercial~~for ~~real~~loan ~~estate-construction 1 13 Commercial~~losses ~~real~~associated ~~estate~~with -these ~~other~~loans ~~1 1~~was previously,~~520 Consumer~~ -and ~~residential~~will continue to be, determined under the impairment measurement guidance in ASC 310- 10- 35.

~~During~~Troubled ~~the~~debt restructurings ~~nine~~that ~~months~~were ~~ended~~made ~~September~~during ~~30,~~the ~~2011,~~three-month ~~two~~period ~~loans~~ended ~~that~~March ~~had~~31, ~~previously~~2012 ~~been~~and ~~restructured,~~the ~~were~~year inended ~~default~~December 31, ~~one~~2011 ofare ~~which~~set ~~went~~forth ~~into~~in ~~default during~~ the ~~third~~ ~~quarter~~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 54 - ~~PREMISES~~LOANS AND ~~EQUIPMENT Property~~ALLOWANCE atFOR ~~September~~LOAN LOSSES ~~30,~~– ~~2011 and December 31, 2010 is summarized as follows:~~Continued

Troubled ~~September~~debt ~~30,~~restructurings are ~~December~~considered ~~31,~~defaulted when they become ninety or more days past due. Troubled ~~2011 2010 Land~~debt ~~and~~restructurings ~~buildings~~which have defaulted during the three-month period ended March ~~$ 26~~31,~~386 $ 26,386 Furniture,~~ ~~fixtures~~2012 and ~~equipment 9,038 8,897 Construction~~the inyear ~~progress 209 - $ 35~~ended December 31,~~633 $ 35,283 Less~~ ~~accumulated~~2011 ~~depreciation~~are ~~and~~presented in the tables ~~amortization 14,188 13,195 $ 21,445 $ 22,088~~ below:

~~Depreciation and amortization of bank premises and equipment charged to~~ ~~operating~~ ~~expense was $1,062 and $1,144for the nine-month period ended~~ ~~September~~ Three ~~30,~~months ~~2011 and 2010, respectively, and $1,493 for the year~~ ended March ~~December~~ 31, ~~2010. The construction in progress is primarily related to~~2012 an ~~Automated~~ ~~Teller Machine (ATM) kiosk and equipment replacement program at~~ ~~various branch offices and minor renovation at the Company's Operations and~~ ~~Administration Center, its branch office located at 309 Main Street, Conway,~~ ~~S.C., and its branch office located at 3591 North Gate Road, Myrtle Beach,~~ ~~S.C. There~~Number ~~are approximately $25~~ of Contracts Recorded ~~remaining~~Investment ~~costs~~ ~~associated~~ ~~with~~ ~~the~~ ~~Company's~~ Troubled Debt ~~ATM~~Restructurings ~~replacement~~ ~~program. There~~ That Subsequently ~~are~~Defaulted no ~~additional remaining~~ ~~costs~~ During ~~for~~ the Period: ~~minor~~ ~~Operations~~ ~~and Administration Center renovation.~~ ~~There~~ Real ~~are approximately~~ estate-commercial - $4 - of ~~remaining costs associated with the Main Street~~ ~~branch~~ Real ~~office,~~ estate-construction and ~~there~~development - - ~~are~~ ~~approximately~~ Real ~~$60~~estate-residential 1 871 of ~~remaining~~ Commercial ~~costs associated~~and ~~with~~agricultural - - ~~the~~ ~~North Gate Road branch office.~~

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
	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 ~~September~~March 3031, 2012 and 2011, and December 31, ~~2010~~2011, certificates of deposit of $100 or more included in time deposits totaled approximately $~~208~~200,~~758~~306, ~~and~~ $~~215~~219,~~935~~781, and $201,362, respectively. Interest expense on these deposits was approximately $~~2,192for~~532 and $819 for the ~~nine~~three-month periods ~~period~~ ended ~~September~~March 3031, ~~2011~~2012 and 2011, respectively, and $42,~~362~~783 for the year ended December 31, ~~2010~~2011.

NOTE 7 - SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

At ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, and December 31, ~~2010~~2011, securities sold under repurchase agreements totaled $9590,~~151~~248, $~~103~~111,~~623~~274, and $9987,~~153~~784, respectively. Securities with a book value of $~~100~~96,~~483~~666 ($~~101~~97,~~912~~573 fair value), $116,~~833~~969 ($117,~~741~~417 fair value), and $~~117~~101,~~386~~383 ($~~117~~101,~~549~~742 fair value), were used as collateral for the agreements for the same periods, respectively. The weighted-average interest rate of these agreements was .2722 percent, .62 26 percent, and .4622 percent at ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, and December 31, ~~2010~~ 2011, respectively.

The Company had no brokered deposits at ~~September~~March 3031, ~~2011~~2012, ~~September~~March 3031, ~~2010~~ 2011, or December 31, ~~2010~~2011.

NOTE 8 - LINES OF CREDIT

At ~~September~~March 3031, ~~2011~~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~~ 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 ~~has~~closed aits demand note through the U.S. Treasury, Tax and Loan system with the Federal Reserve Bank of Richmond (FRB) on November 30, 2011. ~~The~~However, during the portion of 2011 the Bank ~~may~~maintained this arrangement, the Bank could borrow up to $7,000 ~~under~~at varying rates set weekly by the ~~arrangement~~FRB. The atFRB adid ~~variable~~not charge interest ~~rate~~under to the ~~extent~~ ~~collateral~~arrangement isin ~~pledged~~2011. ~~The~~On March 31, 2011, the note was secured by Federal ~~bonds~~agency securities with a market value of $3,~~006 at September 30~~023, ~~2011~~ and ~~$3,076~~the atamount ~~September 30, 2010. The amounts~~ outstanding under the note totaled $1,~~561, $741,and $2,324 at September 30, 2011 and 2010, and December 31, 2010, respectively~~336.

The Bank also has a line of credit from the Federal Home Loan Bank of Atlanta for $5759,~~491~~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~~ daily by the FHLB. There were no borrowings under the agreement at ~~September~~ ~~30,~~March ~~2011 or at December~~ 31, ~~2010. At September 30~~2012, ~~2010, the~~March ~~Company~~31 ~~had $5~~2011,~~000~~ inor ~~borrowing~~at ~~under~~December ~~the~~31, ~~agreement~~2011.

-2223-

~~Income~~NOTE ~~tax~~9 expense/(benefit) for the nine months ended September 30, 2011 and September 30, 2010 on pretax income/(loss) of $799 and $(1,045) totaled $7 and $(614), 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,~~INCOME ~~state income~~TAXES 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~~Income ~~Company~~tax ~~accounts~~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 inis ~~accordance~~calculated ~~with~~by applying ~~FASB~~the ~~ASC~~34% ~~740~~statutory federal income tax rate and increasing or reducing ~~"Income~~this ~~Taxes~~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 ~~NOTE~~in 10fiscal year-end ~~COMMITMENTS~~reports ~~AND~~on ~~CONTINGENT~~Form ~~LIABILITIES~~10-K.

~~From~~The ~~time~~Company toaccounts ~~time~~for ~~the~~income ~~Bank~~taxes ~~is a party to various litigation~~in ~~matters,~~accordance ~~both~~with asFASB ~~plaintiff~~ASC ~~and~~740 as“Income ~~defendant, arising from its normal operations~~Taxes. ~~No material losses are anticipated in connection with any of~~” ~~these~~ NOTE ~~matters~~10 at- ~~September~~COMMITMENTS ~~30,~~AND ~~2011.~~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:

~~September~~ 30 March 31, ~~2011~~2012 Loan Commitments $ 3637,~~343~~037 ~~Standby~~ Standby letters of credit 1,~~491~~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 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 ~~nine~~ three-month periods ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, and the year ended December 31, ~~2010~~2011, $~~293~~93, $~~294~~92 and $~~388~~382, respectively, was charged to operations under the plan.

-2324-

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 ~~September~~March 3031, ~~2011 (Dollar amounts in thousands)~~2012:

Company
			For
			Capital adequacy
			Purposes
	Actual		Minimum
	Amount	Ratio	Amount	Ratio
Total Capital (to risk weighted assets)	$9394,~~908~~628	1718.4215%	$4341,~~121~~700	8.0%
Tier 1 Capital (to risk weighted assets)	8788,~~104~~038	16.1689	2120,~~560~~850	4.0
Tier 1 Capital (to average assets)	8788,~~104~~038	9.3050	37,~~480~~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)	$9394,~~615~~074	1718.3705%	$4341,~~118~~697	8.0%	$5352,~~897~~121	10.0%
Tier 1 Capital (to risk weighted assets)	8687,~~811~~484	16.1178	2120,~~559~~848	4.0	3231,~~338~~272	6.0
Tier 1 Capital (to average assets)	8687,~~811~~484	9.2744	37,~~478~~056	4.0	46,~~848~~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%.

-2425-

NOTE 13 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments were as follows at March ~~September 30~~31, ~~2011~~2012 and December 31, ~~2010 (amounts in thousands)~~2011:

September 30, 2011 Carrying Fair December 31, 2010 Carrying Fair FINANCIAL ASSETS Cash and due from banks and Federal Reserve balance in excess of requirement Federal funds sold Investment securities available for sale Investment securities held to maturity Other investments Loans (net) FINANCIAL LIABILITIES Deposits Securities sold under repurchase agreements U.S. Treasury demand notes Amount $ 87,731 13,000 306,324 11,019 2,092 481,888 755,420 95,151 1,561 Value $ 87,731 13,000 306,324 11,700 2,092 488,440 754,310 95,151 1,561 Amount $ 32,517 14,000 275,381 20,678 2,729 522,559 718,140 99,153 2,324 Value $ 32,517 14,000 275,381 20,784 2,729 527,787 716,733 99,153 2,324 Notional Notional Amount Amount OFF BALANCE SHEET INSTRUMENTS Commitments to extend credit $ 36,343 $ 38,343 Standby letters of credit 1,491 1,577

	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.

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.

-25-

NOTE 13 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued

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 impaired loans, other real estate owned, 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 ~~September~~March 3031, ~~2011~~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 32 measurement. When a current appraisal is not available or there is estimated further impairment the fair value measurement is considered a Level 3 measurement

Other Real Estate Owned (OREO)

-26-

NOTE 13 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued

Assets measured at fair value on a recurring basis for September 30, 2011 and December 31, 2010 are presented in the following table (dollars in thousands):

September 30, 2011 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 $ - $ 254,741 $ - State, County, and Municipal - 26,840 - Mortgage backed securities - 23,595 - Other - 1,148 - Total $ - $ 306,324 $ - December 31, 2010 Available for sale securities Government Sponsored Enterprises $ - $ 244,497 $ - State, County, and Municipal - 19,475 - Mortgage backed securities - 10,308 - Other - 1,101 - Total $ - $ 275,381 $ -

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 September 30, 2011 and December 31, 2010 for which a non-recurring change in fair value was recorded during the nine months and year ended September 30, 2011 and December 31, 2010.

September 30, 2011 Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Other real estate owned $ - $ - $ 8,525 Impaired loans - - 23,331 $ - $ - $ 31,856 December 31, 2010 Other real estate owned $ - $ - $ 5,476 Impaired loans - - 28,365 $ - $ - $ 33,841

The Company did not have any liabilities measured at fair value on a recurring or nonrecurring basis at September 30, 2011 or December 31, 2010.

-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) ~~September~~ March 3031, ASSETS 2012 2011 ~~2010~~ Cash $ ~~215~~ 487 $ ~~239~~ 421 Investment in subsidiary 88,~~893~~865 86,~~081~~ 646 Other assets 36 37 ~~$ 89,144~~ ~~$ 86,357~~ 36 $ 89,389 $ ~~LIABILITIES~~ 87,103 ~~AND~~ ~~STOCKHOLDERS' EQUITY~~ ~~Stockholders' equity~~ ~~$ 89,144~~ ~~$ 86,357~~ ~~$ 89,144~~ ~~$ 86,357~~ ~~CONDENSED~~ LIABILITIES ~~STATEMENTS~~AND OFSTOCKHOLDERS' ~~INCOME/(LOSS)~~EQUITY ~~(Unaudited)~~ ~~For~~ ~~the~~ ~~nine-month~~ Stockholders' ~~period ended September 30~~equity $ 89,389 ~~2011~~ $ ~~2010~~ 87,103 ~~Dividends~~ $ ~~387~~ 89,389 $ - 87,103 ~~Equity~~ in ~~net income/(loss) of subsidiary~~ ~~475~~ ~~(320)~~ ~~Other expenses~~ ~~(70)~~ ~~(111)~~ ~~NET~~ ~~INCOME/(LOSS)~~ ~~$ 792~~ ~~$ (431)~~

CONDENSED STATEMENTS OF INCOME (Unaudited) ~~NOTE~~ 15 For the three-month period ~~SUBSEQUENT~~ended ~~EVENTS~~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.

-2829-

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~~ following discussion should be read in conjunction with the Company'’s financial statements and notes thereto and other detailed information appearing ~~elsewhere~~ 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 ~~and nine-month~~ periods ending ~~September~~March 3031, ~~2011~~ 2012 and ~~2010~~2011 and the year ended December 31, ~~2010~~ 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 910.93% from $~~548~~523,~~041~~745 at ~~September~~March 3031, ~~2010~~2011 to $~~494~~469,~~014~~706 at ~~September~~March 3031, ~~2011~~2012, ~~and~~ and decreased 73.50%, from $~~534~~484,~~186~~022 at December 31, ~~2010~~2011 to $~~494~~469,~~014~~706 at ~~September 30,~~March ~~2011~~31, 2012. Loans decreased as a percentage of total assets from 5855.26% to 52 50.25% from March ~~September 30~~31, ~~2010~~2011 to ~~September~~March 3031, ~~2011~~2012 and decreased from 5853.60% to 5250.25% from December 31, ~~2010~~2011 to ~~September~~March 3031, ~~2011~~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 3234.71% at ~~September~~March 3031, ~~2010~~2011 to 35 37.01% at ~~September~~March 3031, ~~2011~~2012, a reflection of continued soft loan demand coupled with higher levels of deposits. Securities and federal funds sold ~~increased~~decreased as a percentage of total assets from 3437.04% at December 31, ~~2010~~ 2011 to 3537.01% at ~~September~~March 3031, ~~2011~~2012. The level of investments and ~~excess~~ 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~~ deposit account holders a wide array of deposit instruments at competitive rates. Non-interest-bearing demand deposits increased as a percentage of total ~~assets~~ assets from 11.28% at ~~September~~March 3031, ~~2010~~2011 to 1314.90% at ~~September~~March 3031, ~~2011~~2012, and increased from 1113.81% at December 31, ~~2010~~2011 to 1314.90% at ~~September~~March 3031, ~~2011~~2012. Management attributes these increases to new account openings resulting from ~~the~~ 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 6766.45% of total assets at ~~September~~March 3031, ~~2010~~2011 to 66.03% at ~~September~~March 3031, ~~2011~~2012, and ~~decreased~~ decreased from 6667.91% at December 31, ~~2010~~2011 to 66.03% at ~~September~~March 3031, ~~2011~~2012. Securities sold under agreement to repurchase decreased from 11.08% of total assets at ~~September~~March 3031, 2011 ~~2010~~ to 109.17% at ~~September~~March 3031, ~~2011~~2012, and ~~decreased~~ increased from ~~10.~~9.6% of total assets at December 31, ~~2010~~2011 to 109.17% at ~~September~~March 3031, ~~2011~~ 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. ~~Other short-term borrowings decreased from .3% of total assets at December 31, 2010 to .2% at September 30, 2011 and decreased from .6% at September 30, 2010 to .2% at September 30, 2011.~~

The following table sets forth the percentage relationship to total assets of significant components of the Company'’s balance sheets as of ~~September~~March 3031, ~~2011~~ 2012 and March ~~September 30~~31, ~~2010~~2011 and December 31, ~~2010~~2011:

~~September~~ March 3031, December 31, Assets: 2012 2011 ~~2010~~ 2011 ~~2010~~ Earning assets: Loans 52 50.25% 58 55.26% 58 53.60% ~~Securities~~ Securities held to maturity 1 3.23 3 2.71 2 1.3 2 ~~Securities~~ Securities available for sale 32.4 27 28.56 30 35.2 1 ~~Federal~~ Federal funds sold and securities purchased under agreement to resell 1.4 1 3.54 1.5 1 ~~Other~~ Other earning assets 6 8.79 3 4.35 1. 6 .0 ~~Total~~ Total earning assets 93 96.95 94.2 94 96.2 4 ~~Other~~ Other assets 6 3.15 5.8 5 3.8 6 ~~Total~~ Total assets 100.0% 100.0% 100.0% ~~Liabilities~~ Liabilities and stockholder's equity: Interest-bearing liabilities: Interest-bearing deposits 66.03% 67 66.45% 66 67.91% ~~Federal~~ Federal funds purchased and securities sold under agreement to repurchase 10 9.17 11.08 ~~10.~~ 9 .6 ~~Other~~ Other short-term borrowings .2 - .61 .3 - ~~Total~~ Total interest-bearing liabilities 76.30 79 78.04 78 76.1 7 Noninterest-bearing deposits 13 14.90 11.28 11 13.8 1 ~~Other~~ Other liabilities .4 .65 .6 4 Stockholders' equity 9.46 9.23 9.5 8 ~~Total~~ Total liabilities and stockholders' equity 100.0% 100.0% 100.0%

-2930-

RESULTS OF OPERATIONS

Earnings~~/(losses)~~ for the three-month periods ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~ 2011 were $~~380~~ 557 and $~~(168)~~382 respectively, resulting in a return on average assets of .1624% and (.~~07)~~16% and a return on average stockholders' equity of 1 2.7149% and (1.~~77)~~75%, respectively.

~~Earnings/(losses)~~ The increase in earnings for the ~~nine~~three-month ~~periods~~period ended ~~September~~March 3031, ~~2011~~2012 is primarily attributable to increased income from sales of investment securities, a decline in FDIC insurance premiums, and ~~2010~~a decrease in the provision for loan ~~were~~losses, ~~$792~~partially offset by a decline in net interest income and $increased income taxes for the three-month period ended March 31, 2012 (~~431)~~See ~~respectively~~Net Income – Net Interest Income, ~~resulting~~Net inIncome a– ~~return~~Noninterest onIncome, ~~average~~Net ~~assets~~Income of– Provision ~~.11%~~for Loan Losses, Net Income – Noninterest Expenses, and ~~(.06~~Net Income-Income Taxes)%. Management ~~and~~anticipates, abut ~~return~~cannot onassure, ~~average~~that ~~stockholders'~~earnings ~~equity~~will remain well below historical levels through 2012, but above the level of income experienced for 2011. Total assets decreased $11,366 or 1.2021% ~~and~~to $930,166 at March 31, 2012 ~~(.66)%~~from $941,532 ~~respectively~~at March 31, 2011. The following table sets forth the financial highlights for the three-month period ended at March 31, 2012:

The increase in earnings for the three-month and nine-month periods ended September 30, 2011 is primarily attributable to a decrease in provision for loan losses, partially offset by a decline in noninterest income, increased noninterest expenses, increased income taxes, and a decline in net interest income for the nine-month period ended September 30, 2011 (See Net Income - Net Interest Income, Net Income - Provision for Loan Losses, Net Income - Noninterest Expenses, and Net Income-Income Taxes). The losses for the three-month and nine-month periods ended September 30, 2010 were primarily attributable to a decline in net interest income and increased provision for loan losses. (See Net Income-Net Interest Income and Net Income - Provision for Loan Losses). Management anticipates, but cannot assure, that earnings will remain well below historical levels through 2011, but above the level of income experienced for 2010. Total assets increased $3,201 or .3% to $945,543 at September 30, 2011 from $942,342 at September 30, 2010. The following table sets forth the financial highlights for the three-month and nine-month periods ended at September 30, 2011 and September 30, 2010:

CNB Corporation and Subsidiary

FINANCIAL HIGHLIGHTS

Three-Month Period Ended September 30,

Nine-Month Period Ended September 30,

Three-Month Period Ended March 31,

2011

2010

Percent Increase (Decrease)

2011

2010

Percent Increase (Decrease)

2012

2011

Percent Increase (Decrease)

~~Net interest income~~

Net interest income

~~$ 7,580~~

$ 7,~~603~~270

~~(.3)%~~$ 7,475

(2.74)%

~~$22,736~~

~~$22,853~~

~~(.5)%~~

~~Provision for loan losses~~

Provision for loan losses

~~2,296~~

42,~~379~~083

~~(47.6)~~2,112

(1.37)

~~7,473~~

~~11,948~~

~~(37.5)~~

~~Net interest income after provision for loan losses~~

Net interest income after provision for loan losses

~~5,284~~

35,~~224~~187

~~63.9~~5,363

(3.28)

~~15,263~~

~~10,905~~

~~40.0~~

Income/(loss) before income taxes

377

(385)

197.9

799

(1,045)

176.5

Income before income taxes

722

486

48.56

Net income/(loss)

380

(168)

326.2

792

(431)

283.8

Net income

557

382

45.81

~~Per share~~

Per share

~~.23~~

(.~~10)~~34

~~330~~.023

56.52

~~.48~~

~~(.26)~~

~~284.6~~

~~Cash dividends declared~~

Cash dividends declared

~~Per share~~

Per share

~~Total assets~~

Total assets

~~945,543~~

~~942~~930,~~342~~166

.3941,532

(1.20)

~~945,543~~

~~942,342~~

~~Total deposits~~

Total deposits

~~755,420~~

~~741~~746,~~120~~699

~~1.9~~736,947

1.32

~~755,420~~

~~741,120~~

~~1.9~~

~~Loans~~

Loans

~~494,014~~

~~548~~469,~~041~~706

~~(9.9)~~523,745

(10.32)

~~494,014~~

~~548,041~~

~~(9.9)~~

Investment securities and securities available for sale

317,343

294,726

7.7

317,343

294,726

7.7

Investment securities

331,889

288,624

4.43

~~Stockholders' equity~~

Stockholders' equity

~~89,144~~

8689,~~357~~390

~~3.2~~87,103

2.62

~~89,144~~

~~86,357~~

~~3.2~~

~~Book value per share~~

Book value per share

~~53.64~~

5153.82

352.533

2.85

~~53.64~~

~~51.82~~

~~3.5~~

~~Ratios:~~

Ratios:

~~Annualized return on average total assets(1)~~

Annualized return on average total assets(1)

~~.16%~~

(.~~07)~~24%

~~328.6~~ 16%

50.0%

~~.11%~~

~~(.06)%~~

~~283.3%~~

~~Annualized return on average stockholders' equity(1)~~

Annualized return on average stockholders' equity(1)

~~1.71%~~

(2.~~77)~~49%

~~322.~~1 .75%

42.29%

~~1.20%~~

~~(.66)%~~

~~281.8%~~

(1) For the three-month period ended ~~September 30~~March 31, ~~2011~~2012, average total assets amounted to $~~939~~926,~~125~~441 with average stockholders'’ equity totaling $89,~~013~~ 324 for the same period. ~~For the nine-month period ended September 30, 2011, average total~~ ~~assets amounted to $931,924 with average stockholders'~~ ~~equity totaling $88,014 for the same period.~~

-3031-

NET INCOME~~/(LOSS)~~

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 ~~and~~period ~~nine-month periods~~ ended ~~September~~March 3031, ~~2011~~2012, of 3.5142% and 3.5450%, ~~respectively, and 3.47% and 3.52%, respectively,~~ for the same ~~periods~~period in ~~2010~~2011, as compared to management'’s long-term target of 4.20%. ~~Although~~Net ~~slightly~~interest ~~improved~~margin declined slightly from ~~2010~~ 2011 to ~~2011,~~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 ~~further~~ 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~~ low levels, which do not enhance net interest margin. Further, the persist

Filing Compare · CNB CORP /SC/