CNB CORP /SC/ - 10-Q Quarterly Report

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

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

For the quarterly period ended            March 31, 2004

                                            OR

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

        For the transition period from                        to



                         Commission file number:  2-96350

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

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

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

(Registrant's telephone number, including area code):  (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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).Yes ____. No X .

State the number of shares outstanding of each of the issuer's shares of common equity as of the latest practical date: 717,542 shares of common stock, par value $10 per share, April 30, 2004.

CNB Corporation

PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements:

           Consolidated Balance Sheets as of March 31, 2004,
           December 31, 2003 and March 31, 2003

           Consolidated Statements of Income for the Three Months
           Ended March 31, 2004 and 2003

           Consolidated Statements of Comprehensive Income
           for the Three Months Ended March 31, 2004 and 2003

           Consolidated Statements of Changes in Stockholders'
           Equity for the Three Months Ended March 31, 2004
           and 2003

           Consolidated Statements of Cash Flows for the Three Months
           Ended March 31, 2004 and 2003

           Notes to Consolidated Financial Statements

Item 2.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations

Item 3.    Qualitative and Quantitative Disclosures About Market Risk

Item 4.    Controls and Procedures

SIGNATURE

PART II.   OTHER INFORMATION

Item 5.    Exhibits and Reports on Form 8-K

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PART I.

Item 1. Financial Statements

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

ASSETS:

    Cash and due from banks
    Interest bearing deposits with banks
    Investment Securities
      (Fair values of $7,887 at
       March 31, 2004, $8,516 at
       December 31, 2003, and $10,149
       at March 31, 2003)
    Securities Available for Sale
      (Amortized cost of $175,132 at
       March 31, 2004, $177,825 at
       December 31, 2003, 149,800
       at March 31, 2003)
    Federal Funds sold and securities
       purchased under agreement
       to resell
    Loans:
       Loans
       Less reserve for loan losses
         Net loans
    Bank premises and equipment
    Other assets
Total assets

LIABILITIES AND STOCKHOLDERS' EQUITY:
    Deposits:
       Non-interest bearing
       Interest-bearing
          Total deposits
    Federal funds purchased and
       securities sold under agreement
       to repurchase
    Other short-term borrowings
    Other liabilities
Total liabilities
   Stockholders' equity:
       Common stock, par value $10 per
       share: Authorized 1,500,000 in
       2004 and 2003; issued 718,246
       in 2004 and 2003
       Surplus
       Undivided Profits
       Net Unrealized Holding
       Gains (Losses) on
        Available-For-Sale Securities
         Less: Treasury stock
            Total stockholders' equity
           Total liabilities
             and stockholders' equity

March 31,
2004
$ 24,385
0
7,440

180,276

33,000

376,718
  (4,706)
372,012
17,783
   9,585
$644,481

$ 112,620
433,245
545,865

25,674
1,187
   4,653
577,379

7,182
34,815
22,122
3,086

    (103)
  67,102

$644,481

December 31,
2003
$ 25,021
0
8,081

182,210

1,000

362,034
  (4,524)
357,510
17,068
   9,088
$599,978

$ 101,684
401,429
503,113

24,760
970
   6,512
535,355

7,182
34,801
20,113
2,631

    (104)
  64,623

$599,978

March 31,
2003
$ 24,097
0
9,488

156,656

23,000

343,686
  (4,377)
339,309
13,069
   9,043
$574,662

$ 94,781
382,711
477,492

27,096
1,316
   5,456
511,360

7,182
34,791
17,227
4,114

     (12)
  63,302

$574,662

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

Three Months Ended March 31,
Interest Income: Interest and fees on loans Interest on investment securities: Taxable investment securities Tax-exempt investment securities Interest on federal funds sold and securities purchased under agreement to resell Total interest income Interest Expense: Interest on deposits Interest on federal funds purchased and securities sold under agreement to repurchase Interest on other short-term borrowings Total interest expense Net interest income Provision for loan losses Net interest income after provision for loan losses Other income: Service charges on deposit accounts Gains on sale of securities available-for-sale Other operating income Total other income Other expenses: Salaries and employee benefits Occupancy expense Other operating expenses Total operating expenses Income before income taxes Income tax provision Net income Per share data: Net income per weighted average shares outstanding Cash dividend paid per share Book value per actual number of shares outstanding Weighted average number of shares outstanding Actual number of shares outstanding	2004 $ 5,729 1,616 245 46 7,636 1,550 67 2 1,619 6,017 235 5,782 858 0 496 1,354 2,681 605 909 4,195 2,941 932 $ 2,009 $ 2.80 $ 0 $ 93.52 717,450 717,512	2003 $ 5,566 1,700 271 49 7,586 1,873 91 5 1,969 5,617 280 5,337 837 154 478 1,469 2,602 542 900 4,044 2,762 854 $ 1,908 $ 2.66 $ 0 $ 88.15 718,024 718,143

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

Three Months Ended March 31, 2004 2003
Net Income	$ 2,009	$ 1,908
Other comprehensive income, net of tax Unrealized gains/(losses) on securities: Unrealized holding gains/(losses) during period	455	170
Net Comprehensive Income	$ 2,464	$ 2,078

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

Three Months Ended March 31, 2004 2003
Common Stock: ($10 par value; 1,500,000 shares authorized) Balance, January 1 Issuance of Common Stock Balance at end of period	$ 7,182 None 7,182	$ 7,182 None 7,182
Surplus: Balance, January 1 Issuance of Common Stock Gain on sale of Treasury stock Balance at end of period	34,801 None 14 34,815	34,783 None 8 34,791
Undivided profits: Balance, January 1 Net Income Cash dividends declared Balance at end of period	20,113 2,009 None 22,122	15,318 1,908 None 17,227
Net unrealized holding gains/(losses) on Available-for-sale securities: Balance, January 1 Change in net unrealized gains/(losses) Balance at end of period	2,631 455 3,086	3,944 170 4,114
Treasury stock: Balance, January 1 (837 shares in 2004; 951 shares in 2003) Purchase of treasury stock Reissue of treasury stock Balance at end of period (734 shares in 2004; 103 shares in 2003) Total stockholders' equity	(104) (141) 142 (103) $67,102	(102) (40) 130 (12) $63,302

Note: Columns may not add due to rounding

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

For the three-month period ended March 31, 2004 2003
OPERATING ACTIVITIES Net Income Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Provision for loan losses Provision for deferred income taxes Gain on sale of investment securities Decrease in accrued interest receivable (Increase) decrease in other assets Increase in other liabilities	$ 2,009 213 235 386 0 365 (862) 282	$ 1,908 172 280 113 (154) 293 2 633
Net cash provided by operating activities	2,628	3,247
INVESTING ACTIVITIES Proceeds from sale of investment securities available for sale Proceeds from maturities/calls of investment securities held to maturity Proceeds from maturities/calls of investment securities available for sale Purchase of investment securities available for sale Net increase in federal funds sold Net increase in loans Premises and equipment expenditures	0 641 23,694 (21,000) (32,000) (14,684) (928)	6,529 3,617 14,166 (11,000) (1,000) (18,064) (792)
Net cash used for investing activities	(44,277)	(6,544)
FINANCING ACTIVITIES Dividends paid Net increase in deposits Net increase in securities sold under repurchase agreement Net (Decrease) increase in other short-term borrowings	(2,870) 42,752 914 217	(2,690) 9,183 877 (5,193)
Net cash provided by financing activities Net decrease in cash and due from banks CASH AND DUE FROM BANKS, BEGINNING OF YEAR CASH AND DUE FROM BANKS, March 31, 2004 AND 2003 CASH PAID FOR: Interest Income taxes	41,013 (636) 25,021 $ 24,385 $ 1,789 $ 203	2,177 (1,120) 25,217 $ 24,097 $ 2,088 $ 72

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CNB CORPORATION AND SUBSIDIARY (The "Corporation")

CNB CORPORATION (The "Parent")

THE CONWAY NATIONAL BANK (The "Bank")

NOTES TO 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, 717,450 for the three-month period ended March 31, 2004 and 718,024 for the three-month period ended March 31, 2003.

NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required to maintain average reserve balances either at the Bank or on deposit with the Federal Reserve Bank. The average amount of these reserve balances for the three-month period ended March 31, 2004 and for the years ended December 31, 2003 and 2002 were approximately $12,648, $11,823, and $10,346, respectively.

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NOTE 3 - INVESTMENT SECURITIES

Investment securities with a par value of approximately $90,735 at March 31, 2004 and $85,195 at December 31, 2003 were pledged to secure public deposits and for other purposes required by law.

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

March 31, 2004 Book Unrealized Holding Fair Value Gains Losses Value Yield(1)
AVAILABLE FOR SALE United States Treasury	$ 0	$ -	$ -	$ 0	-%
Federal agencies Within one year One to five years Mortgage Backed Securities over ten years	15,844 140,391 156,235 1,055	362 3,495 3,857 -	- 6 6 18	16,206 143,880 160,086 1,037	4.73% 3.77 3.87 3.59%
State, county and municipal Within one year One to five years Six to ten years Other-CRA Qualified Investment Fund Total available for sale	482 10,535 6,506 17,523 319 $175,132	11 678 622 1,311 - $5,168	- - - - - $ 24	493 11,213 7,128 18,834 319 $180,276	5.29 5.77 6.78 6.13 - 4.09%
HELD TO MATURITY United States Treasury	$ 0	-	-	0	-%
Federal agencies One to Five years	2,000 2,000	29 29	- -	2,029 2,029	6.44% 6.44%
State, county and municipal Within one year One to five years Six to ten years Total held to maturity	1,141 3,399 900 5,440 $ 7,440	25 284 109 418 $ 447	- - - - $ -	1,166 3,683 1,009 5,858 $ 7,887	7.01% 7.27 7.28 7.22 7.01%

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

As of the quarter ended March 31, 2004, the Bank did not hold any securities of an issuer that exceeded 10% of stockholders' equity. The net unrealized holding gains/(losses) on available-for-sale securities component of capital is $3,086 as of March 31, 2004.

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NOTE 3 - INVESTMENT SECURITIES (Continued)

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

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

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

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NOTE 4 - LOANS AND RESERVE FOR LOAN LOSSES

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

March 31, December 31, 2004 2003
Real estate loans - mortage - construction Commercial and industrial loans Loans to individuals for household, family and other consumer expenditures Agriculture All other loans, including overdrafts Gross loans Less reserve for loan losses Net loans	$235,535 44,358 60,501 32,945 1,954 1,425 376,718 (4,706) $372,012	$228,556 44,099 53,559 32,884 1,537 1,399 362,034 (4,524) $357,510

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NOTE 4 - LOANS AND RESERVE FOR LOAN LOSSES, continued

Changes in the reserve for loan losses for the quarter ended March 31, 2004 and 2003 and the year ended December 31, 2003 are summarized as follows:

	Quarter Ended March 31, December 31, 2004 2003 2003
Balance, beginning of period Charge-offs: Commercial, financial, and agricultural Real Estate - construction and mortgage Loans to individuals Total charge-offs Recoveries: Commercial, financial, and agricultural Real Estate - construction and mortgage Loans to individuals Total recoveries Net charge-offs Additions charge to operations Balance, end of period	$ 4,524 9 17 91 $ 117 $ 13 1 50 $ 64 $ 53 $ 235 $ 4,706	$ 4,155 30 5 91 $ 126 $ 33 3 32 $ 68 $ 58 $ 280 $ 4,377	$ 4,155 431 59 392 $ 882 $ 115 26 150 $ 291 $ 591 $ 960 $ 4,524
Ratio of net charge-offs during the period to average loans outstanding during the period	.01%	.02%	.17%

The entire balance is available to absorb future loan losses.

At March 31, 2004 and December 31, 2003 loans on which no interest was being accrued totaled approximately $260 and $351, respectively; foreclosed real estate totaled $80 and $0 respectively; and loans 90 days past due and still accruing totaled $44 and $130, respectively.

OTHER INTEREST-BEARING ASSETS

As of March 31, 2004, the Company does not have any interest-bearing assets that would be required to be disclosed under Item III.C.1. or 2. if such assets were loans.

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NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES

From time to time the bank subsidiary is a party to various litigation, both as plaintiff and as defendant, arising from its normal operations. No material losses are anticipated in connection with any of these matters at March 31, 2004.

Also, in the normal course of business, the bank subsidiary has outstanding commitments to extend credit and other contingent liabilities, which are not reflected in the accompanying financial statements. At March 31, 2004, commitments to extend credit totalled $39,870; financial standby letters of credit totalled $1,314; and performance standby letters of credit totalled $77. In the opinion of management, no material losses or liabilities are expected as a result of these transactions.

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

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

	March 31,2004
Loan Commitments	$ 39,870
Standby letters of credits	1,391

Loan commitments involve agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and some involve payment of a fee. Many of the commitments are expected to expire without being fully drawn. Therefore, the total amount of loan commitments does not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, upon extension of credit is based on management's credit evaluation of the borrower. Collateral held varies but may include commercial and residential real properties, accounts receivable, inventory and equipment.

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

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

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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 quarter ended March 31, 2004 and years ended December 31, 2003, 2002 and 2001, $147, $558, $510, and $426, respectively, was charged to operations under the plan.

NOTE 12 - REGULATORY MATTERS

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

Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Tier I capital to adjusted total assets (Leverage Capital ratio) and minimum ratios of Tier I and total capital to risk-weighted assets. To be considered adequately capitalized under the regulatory framework for prompt corrective action, the Bank must maintain minimum Tier I leverage, Tier I risk-based and total risked-based ratios as set forth in the table. The Bank's actual capital ratios are also presented in the table below as of March 31, 2004:

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) Tier I Capital (to risk weighted assets) Tier I Capital (to avg. assets)	$64,485 59,779 59,779	16.22% 15.03 9.60	31,814 15,907 24,899	8.0% 4.0 4.0	$39,767 23,860 31,123	10.0% 6.0 5.0

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NOTE 13 - CONDENSED FINANCIAL INFORMATION

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

CONDENSED BALANCE SHEET MARCH 31, 2004 (Unaudited)
ASSETS Cash Investment in subsidiary Fixed assets Other assets	$ 2,389 62,865 1,811 37 $ 67,102
LIABILITIES AND STOCKHOLDERS' EQUITY Other liability Stockholders' equity	$ 0 67,102 $ 67,102
CONDENSED STATEMENT OF INCOME For the three-month period ended March 31, 2004 (Unaudited)
EQUITY IN NET INCOME OF SUBSIDIARY OTHER INCOME OTHER EXPENSES Net Income	$ 2,048 0 (39) $ 2,009

DISCUSSION OF FORWARD-LOOKING STATEMENTS

Information in the enclosed report, other than historical information, may contain forward-looking statements that involve risks and uncertainties, including, but not limited to, timing of certain business initiatives of the Company, the Company's interest rate risk condition, and future regulatory actions of the Comptroller of the Currency and Federal Reserve System. It is important to note that the Company's actual results may differ materially and adversely from those discussed in forward-looking statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis is provided to afford a clearer understanding of the major elements of the corporation's results of operations, financial condition, liquidity, and capital resources. The following discussion should be read in conjunction with the corporation's financial statements and notes thereto and other detailed information appearing elsewhere in this report. In addition, the results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. The accompanying consolidated financial statements include all accounts of the Company and the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements at March 31, 2004 and for the three-month periods ending March 31, 2004 and 2003 have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q for the Securities and Exchange Commission. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

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DISTRIBUTION OF ASSETS AND LIABILITIES

The Company maintains a conservative approach in determining the distribution of assets and liabilities. Loans have increased 9.6% from $343,686 at March 31, 2003 to $376,718 at March 31, 2004 but have decreased as a percentage of total assets from 59.8% to 58.4% over the same period. Securities and federal funds sold have increased as a percentage of total assets from 32.9% at March 31, 2003 to 34.3% at March 31, 2004. This level of investments and federal funds sold provides for a more than adequate supply of secondary liquidity. Management has sought to build the deposit base with stable, relatively non-interest-sensitive deposits by offering the small to medium deposit account holders a wide array of deposit instruments at competitive rates. Non-interest-bearing demand deposits increased as a percentage of total assets from 16.5% at March 31, 2003 to 17.5% at March 31, 2004. As more customers, both business and personal, are attracted to interest-bearing deposit accounts, we expect the percentage of demand deposits to decline over the long-term. Interest-bearing deposits have increased from 66.6% of total assets at March 31, 2003 to 67.2% at March 31, 2004 while securities sold under agreement to repurchase have decreased from 4.7% to 4.0% over the same period.

The following table sets forth the percentage relationship to total assets of significant component's of the corporation's balance sheets as of March 31, 2004 and 2003:

March 31, 2004 2003
Assets: Earning assets: Loans Investment securities Securities Available for Sale Federal funds sold and securities purchased under agreement to resell Total earning assets Other assets Total assets	58.4% 1.2 28.0 5.1 92.7 7.3 100.0%	59.8% 1.6 27.3 4.0 92.7 7.3 100.0%
Liabilities and stockholder's equity: Interest-bearing liabilities: Interest-bearing deposits Federal funds purchased and securities sold under agreement to resell Other short-term borrowings Total interest-bearing liabilities Noninterest-bearing deposits Other liabilities Stockholders' equity Total liabilities and stockholders' equity	67.2% 4.0 .2 71.4 17.5 .7 10.4 100.0%	66.6% 4.7 .2 71.5 16.5 1.0 11.0 100.0%

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RESULTS OF OPERATION

CNB Corporation experienced earnings for the three-month periods ended March 31, 2004 and 2003 of $2,009 and $1,908, respectively, resulting in a return on average assets of 1.29% and 1.35% and a return on average stockholders' equity of 12.16% and 12.24%.

The earnings were primarily attributable to net interest margins in each period (see Net Income-Net Interest Income). Other factors include management's ongoing effort to maintain other income at adequate levels (see Net Income - Other Income) and to control other expenses (see Net Income - Other Expenses). This level of earnings, coupled with a moderate dividend policy, have supplied the necessary capital funds to support the growth in total assets. Total assets have increased $69,819 or 12.1% from $574,662 at March 31, 2003 to $644,481 at March 31, 2004. The following table sets forth the financial highlights for the three-month periods ending March 31, 2004 and March 31, 2003:

CNB Corporation and Subsidiary FINANCIAL HIGHLIGHTS (All Dollar Amounts, Except Per Share Data, in Thousands) Three-Month Period Ended March 31,
Net interest income after provision for loan losses Income before income taxes Net Income Per Share Cash dividends declared Per Share Total assets Total deposits Loans Investment securities Stockholders' equity Book value per share Ratios: Annualized return on average total assets Annualized return on average stockholders' Equity	Percent Increase 2004 2003 (Decrease)
	5,782 2,941 2,009 2.80 0 0 644,481 545,865 376,718 187,716 67,102 93.52 1.29% 12.16%	5,337 2,762 1,908 2.66 0 0 574,662 477,492 343,686 166,144 63,302 88.15 1.35% 12.24%	8.3% 6.5 5.3 5.3 0 0 12.1% 14.3 9.6 13.0 6.0 6.1 (4.4)% (.7)%

(1) For the three-month period ended March 31, 2004 and March 31, 2003, average total assets amounted to $624,314 and $565,042 with average stockholders' equity totaling $66,061 and $62,361 respectively.

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NET INCOME

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

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

The Bank has maintained net interest margins for the three-month period ended March 31, 2004, of 4.2% and 4.4% for the same period in 2003, as compared to management's long-term target of 4.5%. Net interest margins have been compressed at the bank and industry-wide as we are experiencing almost 50 year lows in market interest rates. We anticipate interest rates to increase in late 2004 and during 2005 which will enhance our earnings potential through a wider net interest margin.

Fully-tax-equivalent net interest income showed a 6.7% increase from $5,757 for the three-month period ended March 31, 2003 to $6,143 for the three-month period ended March 31, 2004. During the same period, total fully-tax-equivalent interest income increased slightly by .5% from $7,726 to $7,762 and total interest expense decreased by 17.8% from $1,969 to $1,619. Fully-tax-equivalent net interest income as a percentage of total earning assets has shown a decrease of .13% from 4.37% for the three-month period ended March 31, 2003 to 4.24% for the three-month period ended March 31, 2004.

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

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CNB Corporation and Subsidiary Selected Financial Data
Assets: Earning assets: Loans Securities: Taxable Tax-exempt Federal funds sold and securities purchased under agreement to resell Total earning assets Other assets Total assets Liabilities and stockholder equity Interest-bearing liabilities: Interest-bearing deposits Federal funds purchased and securities sold under agreement to repurchase Other short-term borrowings Total interest-bearing liabilities Noninterest-bearing deposits Other liabilities Stockholders' equity Total liabilities and stockholders' equity Net interest income as a percent of total earning assets (1) Tax-equivalent adjustment based on a 34% tax rate	Three Months Ended 3/31/04 Three Months Ended 3/31/03 Avg. Interest Avg. Ann. Avg. Interest Avg. Ann. Balance Income/ Yield or Balance Income/ Yield or Expense Rate Expense(1) Rate
	$369,700 164,534 24,657 20,890 579,781 44,533 $624,314 $421,662 26,073 1,017 $448,752 104,651 4,850 66,061 $624,314 $579,781	$ 5,729 1,616 371 46 7,762 1,550 67 2 $ 1,619 $ 6,143 $ 126	6.20% 3.93 6.02 .88 5.36 1.47 1.03 .79 1.44 4.24	$335,376 147,350 26,782 17,251 526,759 38,283 $565,042 $374,096 26,836 1,388 $402,320 95,259 5,102 62,361 $565,042 $526,759	$ 5,566 1,700 411 49 7,726 1,873 91 5 $ 1,969 $ 5,757 $ 140	6.64% 4.61 6.14 1.14 5.87 2.00 1.36 1.44 1.96 4.37
Ratios: Annualized return on average total assets Annualized return on average stockholders' equity Cash dividends declared as a percent of net income Average stockholders' equity as a percent of: Average total assets Average total deposits Average loans Average earning assets as a percent of average total assets			1.29 12.16 0 10.58 12.55 17.87 92.87	1.35 12.24 0 11.04 13.29 18.59 93.22

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NET INCOME (continued)

Provision for Loan Losses - It is the policy of the Bank to maintain the reserve for loan losses at the greater of 1.20% of net loans or the percentage based on the actual loan loss experience over the previous five years. In addition, management may increase the reserve to a level above these guidelines to cover potential losses identified in the portfolio.

The provision for loan losses was $235 for the three-month period ended March 31, 2004 and $280 for the three-month period ended March 31, 2003. Net loan charge-offs totalled $53 for the three-month period ended March 31, 2004 and $58 for the same period in 2003.

The reserve for loan losses as a percentage of net loans was 1.27% at March 31, 2004 and 1.29% at March 31, 2003. The provision for possible loan losses decreased from $280 during the first quarter of 2003 to $235 during the first quarter of 2004 to reflect continued low net charge-off's in the loan portfolio.

Securities Transactions - At March 31, 2004, December 31, 2003, and March 31, 2003 market value appreciation in the investment portfolio totalled $5,591, $4,820, and $7,517, respectively. As indicated, market values have remained strong due to lower market interest rates. Security gains of $154 were taken during the first quarter of 2003 to supplement liquidity and to take advantage of a steeply-sloping yield curve.

Other Income - Other income, net of any gains/losses on security transactions, increased by 3.0% from $1,315 for the three-month period ended March 31, 2003 to $1,354 for the three-month period ended March 31, 2004 primarily due to an increase in deposit account volumes and higher merchant discount income, offset somewhat by a decrease in mortgage refinancing activity.

Other Expenses - Other expenses increased by 3.7% from $4,044 for the three-month period ended March 31, 2003 to $4,195 for the three-month period ended March 31, 2004. The major components of other expenses are salaries and employee benefits which increased 3.0% from $2,602 to $2,681; occupancy expense which increased 11.6% from $542 to $605; and other operating expenses which increased by 1.0% from $900 to $909. The increase in the three-month period ended March 31, 2004 salaries and employee benefits was due to normal pay increments and the increased costs of providing employee benefits, particularly health insurance coverage. Occupancy expense grew in 2004 due to the construction of a new banking office in Conway.

Income Taxes - Provisions for income taxes increased 9.1% from $854 for the three-month period ended March 31, 2003 to $932 for the three-month period ended March 31, 2004. Income before income taxes less interest of tax-exempt investment securities increased by 8.2% from $2,491 for the three-month period ended March 31, 2003 to $2,696 for the same period in 2004. State tax liability increased as income before income taxes increased 6.5% from $2,762 to $2,941 during the same period.

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LIQUIDITY

The bank's liquidity position is primarily dependent on short-term demands for funds caused by customer credit needs and deposit withdrawals and upon the liquidity of bank assets to meet these needs. The bank's liquidity sources include cash and due from banks, federal funds sold, and short-term investments. In addition, the bank has established federal funds lines of credit from correspondent banks and has the ability to borrow funds from the Federal Reserve System and the Federal Home Loan Bank of Atlanta. Management feels that short-term and long-term liquidity sources are more than adequate to meet funding needs.

CAPITAL RESOURCES

Total stockholders' equity was $67,102, $64,623, $61,125 and $53,996 at March 31, 2004, December 31, 2003, December 31, 2002, and December 31, 2001, representing 10.41%, 10.77%, 10.73%, and 10.68% of total assets, respectively. At March 31, 2004, the Bank exceeds quantitative measures established by regulation to ensure capital adequacy (see NOTE 12 - REGULATORY MATTERS). Capital is considered sufficient by management to meet current and prospective capital requirements and to support anticipated growth in bank operations.

EFFECTS OF REGULATORY ACTION

Effective March 11, 2000, the Gramm-Leach-Bliley Act of 1999 allows bank holding companies to elect to be treated as financial holding companies which may engage in a broad range of securities, insurance, and other financial activities. At this time, neither the Company nor the Bank plan to enter these new lines of business. The management of the Company and the Bank is not aware of any other current recommendations by the regulatory authorities which, if they were to be implemented, would have a material effect on liquidity, capital resources, or operations.

ACCOUNTING ISSUES

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

RISKS AND UNCERTAINTIES

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

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

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Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4. CONTROLS AND PROCEDURES

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

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

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SIGNATURE

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

                                    CNB Corporation
                                    (Registrant)

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

Date:  May 14, 2004

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PART II.

Item 5. EXHIBITS AND REPORTS ON FORM 8-K

See Exhibit Index appearing below.

(b) Reports on Form 8-K - No reports on Form 8-K were filed during the quarter covered by this report.

EXHIBIT INDEX

All exhibits, the filing of which are required with this Form, are listed below

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

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

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

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