CNB BANCORP INC/VA - FORM 10-Q

CNB BANCORP INC/VA - FORM 10-Q - May 13, 2011

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EX-31.2 - SECTION 302 CFO CERTIFICATION - CNB BANCORP INC/VA	dex312.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - CNB BANCORP INC/VA	dex311.htm
EX-32.1 - SECTION 906 CEO AND CFO CERTIFICATION - CNB BANCORP INC/VA	dex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2011

¨	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: 000-50729

CNB Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Virginia

54-2059214

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

11407 Windsor Blvd., Windsor, VA 23487

(Address of principal executive offices)

(757) 242-4422

(Registrant’s telephone number)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes ¨ 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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 4, 2011, 1,500,427 shares of the registrant’s common stock, $.01 par value, were issued and outstanding.

CNB BANCORP, INC.

INDEX


		Page No.

PART I.	FINANCIAL INFORMATION

Item 1 - Financial Statements of CNB Bancorp, Inc.			1

	Consolidated Balance Sheets at March 31, 2011 (unaudited) and December 31, 2010		1

	Consolidated Statements of Income (unaudited) for the three month periods ended March 31, 2011 and 2010		2

	Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the three months ended March 31, 2011 and 2010		3

	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2011 and 2010		4

	Notes to Consolidated Financial Statements (unaudited)		5-13

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations			13-20

Item 3 - Quantitative and Qualitative Disclosures About Market Risk			20

Item 4 - Controls and Procedures			21

PART II.	OTHER INFORMATION

Item 1 - Legal Proceedings			22

Item 1A - Risk Factors			22

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			22

Item 3 - Defaults Upon Senior Securities			22

Item 4 - Removed and Reserved			22

Item 5 - Other Information			22

Item 6 - Exhibits			22

Signatures			23

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS OF CNB BANCORP, INC.

CNB BANCORP, INC.

CONSOLIDATED BALANCE SHEETS


(In thousands, except share and per share data)	March 31, 2011 (unaudited)			December 31, 2010
Assets
Cash and due from banks	$	520		$	597
Federal funds sold		3,422			3,454
Securities available for sale, at fair value		8,678			7,754
Restricted securities, at cost		246			246
Loans, net of allowance for loan losses of $572 on March 31, 2011 and $620 on December 31, 2010		36,305			35,201
Premises and equipment, net		1,365			1,370
Foreclosed real estate		302			270
Other assets		481			454

Total assets	$	51,319		$	49,346


Liabilities and Shareholders’ Equity
Liabilities
Non-interest bearing deposits	$	2,987		$	2,766
Interest bearing deposits		41,488			39,771

Total deposits		44,475			42,537
Accrued interest payable		96			87
Other liabilities		73			61

Total liabilities		44,644			42,685


Shareholders’ Equity
Common stock, $.01 par, 10,000,000 shares authorized, 1,500,427 shares issued and outstanding at March 31, 2011 and December 31, 2010		15			15
Additional paid-in capital		9,567			9,567
Retained earnings (deficit)		(2,860	)		(2,872	)
Accumulated other comprehensive (loss)		(47	)		(49	)

Total shareholders’ equity		6,675			6,661

Total liabilities and shareholders’ equity	$	51,319		$	49,346

See Notes to Consolidated Financial Statements.

CNB BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	For the Three Months Ended March 31,
(In thousands, except share and per share data)	2011		2010
Interest and Dividend Income
Loans, including fees	$	610	$	643
Investment securities, taxable		63		69
Federal funds sold		3		1

Total Interest and Dividend Income		676		713


Interest Expense
Deposits		210		243

Total Interest Expense		210		243


Net Interest Income		466		470

Provision for Loan Losses		23		—

Net Interest Income after Provision for Loan Losses		443		470


Non-Interest Income
Service charges on deposit accounts		2		3
Other fees and commissions		14		23
Net realized gains on disposition of securities		20		7
Income from investment in title company		1		3
Other income		11		9

Total Non-Interest Income		48		45


Non-Interest Expense
Personnel		266		266
Occupancy and equipment		30		34
Professional fees		44		48
Advertising		5		3
Computer services		30		26
Other		104		103

Total Non-Interest Expense		479		480

Net Income	$	12	$	35


Earnings per share, basic and diluted	$	0.01	$	0.02


Weighted average shares outstanding, basic and diluted		1,500,427		1,500,427

See Notes to Consolidated Financial Statements.

CNB BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2011 and 2010

(unaudited)


(Dollars in thousands)	Shares of Common Stock		Common Stock		Additional Paid-in Capital		Retained Earnings (Deficit)			Accumulated Other Compre- hensive (Loss)			Comprehen- sive Income (Loss)			Total
Balance - December 31, 2010		1,500,427	$	15	$	9,567	$	(2,872	)	$	(49	)				$	6,661

Comprehensive income:
Net income		—		—		—		12			—		$	12			12
Other comprehensive income:
Unrealized gain on securities available for sale		—		—		—		—			—			22			—
Reclassification adjustment		—		—		—		—			—			(20	)		—

Total other comprehensive income		—		—		—		—			2		$	2			2

Total comprehensive income		—		—		—		—			—		$	14			—


Balance - March 31, 2011		1,500,427	$	15	$	9,567	$	(2,860	)	$	(47	)				$	6,675


Balance - December 31, 2009		1,500,427	$	15	$	9,567	$	(2,967	)	$	(105	)				$	6,510

Comprehensive income:
Net income		—		—		—		35			—		$	35			35
Other comprehensive income:
Unrealized gain on securities available for sale		—		—		—		—			—			11			—
Reclassification adjustment		—		—		—		—			—			(7	)		—

Total other comprehensive income		—		—		—		—			4		$	4			4
Total comprehensive income		—		—		—		—			—		$	39			—


Balance - March 31, 2010		1,500,427	$	15	$	9,567	$	(2,932	)	$	(101	)				$	6,549

See Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	For the Three Months Ended March 31,
(Dollars in thousands)	2011			2010
Cash Flows From Operating Activities
Reconciliation of net income to net cash provided by operating activities:
Net income	$	12		$	35
Provision for loan losses		23			—
Depreciation and amortization		18			21
Net amortization of securities		24			17
Realized gain on securities		(20	)		(7	)
Changes in:
Interest receivable		(20	)		8
Other assets		(11	)		20
Interest payable		9			(3	)
Other liabilities		11			33

Net cash provided by operating activities		46			124


Cash Flows From Investing Activities
Purchase of available for sale securities		(2,269	)		(2,555	)
Proceeds from sales, calls and maturities of available for sale securities		1,343			1,828
Purchase of property and equipment		(9	)		—
Net (increase) decrease in loans		(1,314	)		656
Proceeds from sale of foreclosed real estate		156			—

Net cash used in investing activities		(2,093	)		(71	)


Cash Flows From Financing Activities
Net increase in non-interest bearing deposits		221			164
Net increase (decrease) in interest bearing deposits		1,717			(787	)

Net cash provided by (used in) financing activities		1,938			(623	)


Net decrease in cash and cash equivalents	$	(109	)	$	(570	)

Cash and Cash Equivalents
Beginning		4,051			1,831


Ending	$	3,942		$	1,261


Supplemental Disclosures of Cash Flow Information
Cash payments for interest	$	201		$	246

Unrealized gain on available for sale securities	$	2		$	4

Transfer between loans and other real estate owned	$	187		$	—

See Notes to Consolidated Financial Statements.

CNB BANCORP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Nature of Business Activities and Significant Accounting Policies

Business

CNB Bancorp, Inc. (the Company or CNB) is a Virginia bank holding company with a wholly owned subsidiary, Citizens National Bank (the Bank). The Bank is a national bank chartered under the laws of the United States located in Windsor, Virginia. The Bank commenced operations on April 29, 2003.

Basis of Presentation and Consolidation

The consolidated financial statements include the accounts of the Company and the Bank. In consolidation, all intercompany accounts and transactions have been eliminated. These statements conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of March 31, 2011 and December 31, 2010; the results of operations for the three month periods ended March 31, 2011 and 2010; changes in shareholders’ equity for the three months ended March 31, 2011 and 2010; and cash flows for the three months ended March 31, 2011 and 2010. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year. The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in CNB Bancorp, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2010.

Estimates

The financial statements include estimates and assumptions that affect the Company’s financial position and results of operations and disclosure of contingent assets and liabilities. Actual results could differ from these estimates.

Note 2. Securities

The amortized cost and fair value of securities available for sale as of March 31, 2011 and December 31, 2010, are as follows:


	March 31, 2011
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government and federal agencies	$	6,659	$	42	$	(76	)	$	6,625
Corporate bonds		500		—		(2	)		498
State and municipals, taxable		1,566		23		(34	)		1,555

	$	8,725	$	65	$	(112	)	$	8,678


	December 31, 2010
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
U.S. Government and federal agencies	$	6,235	$	63	$	(82	)	$	6,216
Corporate bonds		500		—		(4	)		496
State and municipals, taxable		1,068		2		(28	)		1,042

	$	7,803	$	65	$	(114	)	$	7,754

Proceeds from available for sale securities that matured, were sold, or were called by their issuers in the first three months of 2011 were $1.3 million. During the same period, the Company realized gains of $20,000 on the sale of securities.

The primary purpose of the Company’s investment securities portfolio is to generate income and meet liquidity needs of the Company through readily saleable financial instruments. The portfolio is made up of fixed rate bonds, whose prices move inversely with changes in interest rates. At the end of each accounting period, the investment portfolio evidences certain unrealized gains and losses. The Company monitors the portfolio, which is subject to liquidity needs, market rate changes and credit risk changes, to determine whether adjustments are needed. The Company’s primary concern when selling securities at a loss is the credit quality of the issuer of the instrument being sold. A primary cause of temporary impairments would be a decline in the prices of bonds, generally as rates rise. At March 31, 2011, the portfolio had eight accounts with unrealized losses, all of which were in an unrealized loss position for less than 12 months. Unrealized losses are relative to the market rates and the timing of purchases and do not, in management’s opinion, materially negatively affect the Company’s operations, but remain subject to internal monitoring and controls. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis.

Note 3. Loans

The consolidated loan portfolio at March 31, 2011 and December 31, 2010 is composed of the following:


	March 31,		December 31,
(Dollars in thousands)	2011		2010
Commercial - Non Real Estate
Commercial and Industrial	$	2,380	$	2,758
Commercial Real Estate
Owner occupied		9,075		9,924
Non-owner occupied		4,727		4,254
Construction and Land Development
Residential		2,387		1,568
Commercial		3,014		2,191
Consumer - Non Real Estate		2,904		2,889
Consumer Real Estate
Single Family		10,932		10,869
Multifamily		187		189
Equity Lines		1,271		1,179

Total loans		36,877		35,821
Less: Allowance for loan losses		572		620

Net loans	$	36,305	$	35,201

The aging of past due and nonaccrual loans as of March 31, 2011 by class is summarized as follows:


(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due and Still Accruing		Nonaccrual Loans		Total Past Due		Current		Total Loans
Commercial - Non Real Estate
Commercial and Industrial	$	23	$	—	$	—	$	—	$	23	$	2,357	$	2,380
Commercial Real Estate
Owner occupied		—		—		—		—		—		9,075		9,075
Non-owner occupied		—		—		—		—		—		4,727		4,727
Construction and Land Development
Residential		—		—		—		—		—		2,387		2,387
Commercial		69		—		—		824		893		2,121		3,014
Consumer - Non Real Estate		35		4		—		248		287		2,617		2,904
Consumer Real Estate
Single Family		59		—		176		592		827		10,105		10,932
Multifamily		—		—		—		—		—		187		187
Equity Lines		—		—		—		—		—		1,271		1,271

Total	$	186	$	4	$	176	$	1,664	$	2,030	$	34,847	$	36,877

Credit quality as of March 31, 2011 by class is summarized as follows:


(Dollars in thousands)	Pass		Special Mention		Sustandard		Doubtful		Loss
Commercial - Non Real Estate
Commercial and Industrial	$	2,380	$	—	$	—	$	—	$	—
Commercial Real Estate
Owner occupied		8,725		350		—		—		—
Non-owner occupied		4,727		—		—		—		—
Construction and Land Development
Residential		2,387		—		—		—		—
Commercial		2,191		—		386		437		—
Consumer - Non Real Estate		2,604		52		248		—		—
Consumer Real Estate
Single Family		10,073		70		335		454		—
Multifamily		187		—		—		—		—
Equity Lines		1,271		—		—		—		—

Total	$	34,545	$	472	$	969	$	891	$	—

Note 4. Allowance for Loan Losses

Changes in the allowance for loan losses and the allowance for loan losses by segment as of March 31, 2011 are as follows:


(Dollars in thousands)	Commercial - Non Real Estate			Commercial Real Estate			Construction		Consumer - Non Real Estate			Consumer Real Estate		Unallocated		Total
Allowance for loan losses:
Balance, beginning		109			205			106		77			123		—		620
Charge-offs		(62	)		—			—		(10	)		—		—		(72	)
Recoveries		—			—			—		1			—		—		1
Provision		19			(58	)		47		2			13		—		23

Ending Balance	$	66		$	147		$	153	$	70		$	136	$	—	$	572


Individually evaluated for impairment		—			—			102		12			45		—		159
Collectively evaluated for impairment		66			147			51		58			91		—		413

Loans:
Ending Balance	$	2,380		$	13,802		$	5,401	$	2,904		$	12,390			$	36,877

Individually evaluated for impairment		—			—			823		245			593		—		1,661
Collectively evaluated for impairment		2,380			13,802			4,578		2,659			11,797		—		35,216

The decrease and increase in Provision related to Commercial Real Estate and Construction, respectively, resulted from the reclassification of an impaired credit during the first quarter of 2011 out of the Commercial Real Estate segment into the Construction segment.

Changes in the allowance for loan losses at December 31, 2010 are as follows:


(Dollars in thousands)	December 31, 2010
Balance, beginning	$	686
Provision charged to operating expense		91
Loans charged off		(157	)
Recoveries of loans previously charged off		—

Balance, ending	$	620

The allowance for loan losses by segment as of December 31, 2010 follows:


(Dollars in thousands)	Commercial- Non Real Estate		Commercial Real Estate		Construction		Consumer- Non Real Estate		Consumer Real Estate		Unallocated		Total
Allowance for loan losses:
Ending Balance	$	109	$	205	$	106	$	77	$	123	$	—	$	620

Individually evaluated for impairment		62		34		71		16		31		—		214
Collectively evaluated for impairment		47		171		35		61		92		—		406

Loans:
Ending Balance	$	2,758	$	14,178	$	3,759	$	2,889	$	12,237			$	35,821

Individually evaluated for impairment		87		389		624		250		474		—		1,824
Collectively evaluated for impairment		2,671		13,789		3,135		2,639		11,763		—		33,997

Impaired loans by class as of March 31, 2011 are summarized below:


(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Construction and Land Development
Commercial	$	166	$	468	$	—	$	166	$	—
Consumer Real Estate
Single Family		335		335		—		335		—

With an allowance recorded:
Construction and Land Development Commercial	$	657	$	784	$	102	$	668	$	4
Consumer - Non Real Estate		245		245		12		245		—
Consumer Real Estate
Single Family		258		258		45		258		—

Total
Construction and Land Development	$	823	$	1,252	$	102	$	834	$	4
Consumer - Non Real Estate		245		245		12		245		—
Consumer Real Estate		593		593		45		593		—

Total	$	1,661	$	2,090	$	159	$	1,672	$	4

Impaired loans by class as of December 31, 2010 are summarized as follows:


(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance:
Construction and Land Development
Commercial	$	353	$	655	$	—	$	368	$	6
Consumer Real Estate
Single Family		335		335		—		336		20

With an allowance recorded:
Commercial - Non Real Estate
Commercial and Industrial	$	87	$	87	$	62	$	133	$	8
Construction and Land Development
Commercial		660		787		105		660		16
Consumer - Non Real Estate		250		250		16		253		13
Consumer Real Estate
Single Family		139		139		31		140		8

Total
Commercial - Non Real Estate	$	87	$	87	$	62	$	133	$	8
Construction and Land Development		1,013		1,442		105		1,028		22
Consumer - Non Real Estate		250		250		16		253		13
Consumer Real Estate		474		474		31		476		28

Total	$	1,824	$	2,253	$	214	$	1,890	$	71

The Recorded Investment amounts in the tables above represent the outstanding principal balance on each loan represented in the table. The Unpaid Principal Balance represents the outstanding principal balance on each loan represented in the table plus any amounts that have been charged off on each loan and/or payments that have been applied towards principal on nonaccrual loans. No additional funds are committed to be advanced in connection with impaired loans.

Note 5. Premises and Equipment

Premises and equipment consists of the following:


(Dollars in thousands)	March 31, 2011		December 31, 2010
Land	$	301	$	301
Building		1,255		1,255
Furniture, fixtures and equipment		155		226
Construction in progress		—		9

		1,711		1,791
Less accumulated depreciation		346		421

	$	1,365	$	1,370

Note 6. Earnings Per Share

For the three months ended March 31, 2011 and 2010, the weighted average number of shares outstanding for calculating basic and diluted earnings per share was 1,500,427. Stock options outstanding of 79,027 and 82,527 shares, respectively, and warrants outstanding of 81,375 shares were excluded from each calculation of diluted earnings per share as the impact was anti-dilutive.

Note 7. Stock Option Plan

The Company sponsors a stock option plan, which allows employees and directors to increase their personal financial interest in the Company. This plan provides the ability to grant equity-based incentives in the form of either incentive or nonqualified options. The plan authorizes the issuance of up to 126,255 shares of common stock, subject to adjustment for certain recapitalizations. At March 31, 2011, there were 79,027 options issued and outstanding, all of which were exercisable. No options were granted or exercised and 1,500 options were forfeited during the first three months of 2011. Options outstanding and exercisable had no intrinsic value at March 31, 2011. The following table summarizes options outstanding at March 31, 2011. Refer to Note 8 of the Company’s 2010 Form 10-K for a full description of the plan.


		Options Outstanding and Exercisable
Exercise Price		Number		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
	$ 6.67		62,625		4.75	$	6.67
	8.33		375		3.25		8.33
	8.67		16,027		4.75		8.67

Note 8. Warrants

In connection with the initial offering of the Company, 153,750 warrants were issued to the original directors to purchase common shares. During the first three months of 2011, there were no warrants granted, exercised, or forfeited. All of the remaining warrants are held by the organizing directors of the Company and became fully vested during 2005. Warrants outstanding and exercisable had no intrinsic value at March 31, 2011 and are summarized in the following table. Refer to Note 8 of the Company’s 2010 Form 10-K for more information on the warrants.


		Warrants Outstanding and Exercisable
Exercise Price		Number		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
	$ 6.67		81,375		1.75	$	6.67

Note 9. Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure. In accordance with the Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimate may not be realized in an immediate settlement of an instrument.

Fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in market 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 asset or liability.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets of 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 determination of far value requires significant management judgment or estimation.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities available for sale. Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). Restricted securities are recorded at cost based on the redemption provisions of the correspondent banks and therefore are not included in the following table.

The following tables present the balances of financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2011 and December 31, 2010.


	Fair Value Measurements at March 31, 2011 Using
	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description (Dollars in thousands)	March 31, 2011		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government and federal agencies	$	6,625	$	—	$	6,625	$	—
Corporate bonds		498		—		498		—
State and municipals, taxable		1,555		—		1,555		—

	$	8,678	$	—	$	8,678	$	—


	Fair Value Measurements at December 31, 2010 Using
	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description (Dollars in thousands)	December 31, 2010		(Level 1)		(Level 2)		(Level 3)
Assets:
U.S. Government and federal agencies	$	6,216	$	—	$	6,216	$	—
Corporate bonds		496				496
State and municipals, taxable		1,042		—		1,042		—

	$	7,754	$	—	$	7,754	$	—

Certain assets are measured at fair value on a nonrecurring basis in accordance with generally accepted accounting principles. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:

Impaired Loans. Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the Bank’s loan collateral is real estate. The value of real estate collateral is determined by utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business

equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

The value of foreclosed real estate owned is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). Any fair value adjustments are recorded in the period incurred in the Consolidated Statements of Income.

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis during the period.


	Carrying Value at March 31, 2011
	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description (Dollars in thousands)	March 31, 2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans	$	1,001	$	—	$	1,001	$	—
Foreclosed real estate		302		—		302		—

	$	1,303	$	—	$	1,303	$	—


	Carrying Value at December 31, 2010
	Balance as of		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description (Dollars in thousands)	December 31, 2010		(Level 1)		(Level 2)		(Level 3)
Assets:
Impaired loans	$	926	$	—	$	926	$	—
Foreclosed real estate		270		—		270		—

	$	1,196	$	—	$	1,196	$	—

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash and Short-Term Investments. For those short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities. For securities, excluding restricted securities, fair values are based on quoted market prices or dealer quotes. The carrying value of restricted securities approximates fair value based on the redemption provision of each issuer.

Loans. For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values of other loans were estimated using discounted cash flow analyses, using interest rates currently being offered.

Accrued Interest. The carrying amounts of accrued interest approximate fair values.

Deposits. The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. For all other deposits, the fair value is determined using the discounted cash flow method. The discount rate was equal to the rate currently offered on similar products.

Unused Portions of Lines of Credit. The fair value of unused loan commitments is estimated considering the remaining terms of the agreement and the difference between the current levels of interest rate and the committed rate. The fair value of the unused portions of lines of credit is deemed immaterial.

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows:


	March 31,				December 31,
	2011				2010
(Dollars in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and short-term investments	$	3,942	$	3,942	$	4,051	$	4,051
Securities		8,678		8,678		7,754		7,754
Loans, net		36,305		36,226		35,201		35,196
Accrued interest receivable		225		225		205		205
Financial liabilities:
Non-interest bearing deposits		2,987		2,987		2,766		2,766
Interest bearing deposits		41,488		41,906		39,771		40,113
Accrued interest payable		96		96		87		87

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rate and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

Note 10. Other Expenses

The Company had the following other expenses as of the dates indicated.


	For the three months ended March 31,
(Dollars in thousands)	2011		2010
ATM expense	$	14	$	12
Insurance		4		6
FDIC assessments		15		15
Regulatory assessments		7		7
Supplies and stationery		3		2
Taxes		11		12
Other		50		49

Total Other	$	104	$	103

Note 11. Subsequent Event

On May 10, 2011, the Company filed a Schedule 13E-3, Going Private Transaction by Certain Issuers, and a preliminary Schedule 14-A proxy statement for the primary purpose of proposing a merger agreement between the Company and the Bank, whereby the Bank will be the surviving entity and provide to shareholders of the Company the right to receive one share of common stock of the Bank for each share of common stock of the Company.

The primary effect of the above transaction will be to terminate the registration of the Company’s common stock under federal securities laws, which will allow the Company to realize significant cost savings because we will no longer have reporting obligations related to compliance with the eXtensible Business Reporting Language (“XBRL”) and other newly implemented rules and regulations.

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

General Information

CNB Bancorp, Inc. (the Company or CNB) was organized on November 12, 2001 to serve as a holding company for Citizens National Bank (the Bank). Other than its investment in the Bank, the Company has no other material asset, nor does it conduct any

other business activity. The Company is headquartered in Windsor, Virginia. The Bank is a community bank serving the County of Isle of Wight, the Cities of Franklin and Suffolk, and portions of Southampton, Surry and Sussex Counties with one full service branch, all within the state of Virginia.

Like most financial institutions, our profitability depends largely upon net interest income, which is the difference between the interest received on earning assets, such as loans and investment securities, and the interest paid on interest-bearing liabilities, principally deposits and borrowings. Our results of operations are also affected by our provision for loan losses; non-interest expenses, such as salaries, employee benefits, and occupancy expenses; and non-interest income, such as mortgage loan fees and service charges on deposit accounts.

Economic conditions, competition and federal monetary and fiscal policies also affect financial institutions. The year 2010 continued to be a challenging year in margin management as we worked to balance asset repricing that occurs sooner than deposit repricing in a lower interest rate environment. In a normal slow rate decline as seen in many business cycles in the past, this process would be relatively straight forward, but in the worldwide economic downturn that surfaced in 2007 and has remained prevalent, we remain more challenged. While community banks like us for the most part have not been involved in subprime lending, we are exposed to a broad market reaction to the financial services industry which has lowered stock prices and negatively affected certain of the larger institutions that took part in sub-prime loans or utilized hedge funds relying on these loans. The economic environment that has been created has and may continue to influence the ability of some of our customers to repay their loans. The fast downward movement of interest rates may also influence our investment portfolio. The drop in rates may cause bonds to be called faster than normal, prompting close management attention to maintain the yield on the portfolio. Until rates stabilize, we will operate in an environment that will likely negatively influence our earnings in the short term.

Financial Condition

At March 31, 2011, CNB Bancorp, Inc. had total assets of $51.3 million compared to $49.3 million at December 31, 2010, an increase of $2.0 million. The increase in total assets is primarily due to a $1.1 million increase in net loans and a $924,000 increase in securities available for sale. At March 31, 2011, assets consisted principally of cash and cash equivalents of $3.9 million, $8.9 million in securities available for sale, $36.3 million in loans, net of allowance for loan losses, and $1.4 million in premises and equipment, net of accumulated depreciation.

Total liabilities at March 31, 2011 were $44.6 million, compared to $42.7 million at December 31, 2010. Total liabilities at March 31, 2011 consisted primarily of $3.0 million in non-interest bearing deposits and $41.5 million in interest bearing deposits. Non-interest bearing and interest bearing deposits increased $221,000 and $1.7 million, respectively in the first three months of 2011.

As of March 31, 2011, CNB had off-balance sheet financial instruments from unfulfilled loan commitments of $4.0 million. At March 31, 2011, the Company had eight loans in the amount of $1.7 million on non-accrual status. The Company had seven loans totaling $1.7 million classified as impaired, all of which were on non-accrual. The Company had one loan past due 90 days and still accruing interest in the amount of $176,000 at March 31, 2011 and no loan classified as loss for regulatory purposes. CNB had other real estate owned in the amount of $302,000 at March 31, 2011.

Asset Quality

The Company’s allowance for loan losses is an estimate of the amount needed to provide for possible losses in its loan portfolio. In determining the adequacy of the allowance, management considers the Company’s historical loss experience, the size and composition of the loan portfolio, specific impaired loans, the overall level of nonperforming loans, the value and adequacy of collateral and guarantors, experience and depth of lending staff, and the effects of credit concentrations and economic conditions. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge offs, net of recoveries. Because the risk of loan loss includes general economic trends as well as conditions affecting individual borrowers, the allowance for loan losses can only be an estimate. (See the Allowance for Loan Losses discussion under Critical Accounting Policies later in this section.)

Total nonperforming assets at March 31, 2011 consisted of nonaccrual loans of $1.7 million, other real estate owned of $302,000 and one loan past due 90 days and still accruing interest in the amount of $176,000. The Company had seven loans totaling $1.7 million classified as impaired, all of which were on non-accrual. Two of these loans totaling $438,000 were also classified for regulatory purposes as doubtful. At December 31, 2010, the Company had nonperforming assets of twelve loans on non-accrual totaling $1.8 million. Of these twelve loans, nine loans totaling $1.8 million were classified as impaired. Two loans, which were also non-accrual and impaired, totaling $437,000 were classified as doubtful for regulatory purposes, There were no loans delinquent 90 days or more and still accruing and no loans classified for regulatory purposes as loss. The Company had other real estate owned in the amount of $270,000 at December 31, 2010. The slow economy has adversely affected collateral values and our customers’ ability to pay, subjecting the Company to similar risks many financial institutions are facing as a result of the weakening economy. These risks include increased charge-offs, levels of past due loans, and nonperforming assets.

The following table sets forth selected asset quality data and ratios (dollars in thousands) for the period ended:


	March 31, 2011			December 31, 2010
Nonaccrual loans	$	1,664		$	1,837
Loans past due 90 days and accruing interest		176			—
Total nonperforming loans		1,840			1,837
Foreclosed real estate		302			270

Total nonperforming assets	$	2,142		$	2,107


Balances
Allowance for loan losses	$	572		$	620
Gross loans		36,877			35,821
Ratios
Allowance for loan losses to loans		1.55	%		1.73	%
Allowance for loan losses to nonperforming loans		31.09	%		33.75	%

Total loan charge-offs, less recoveries, for the three months ended March 31, 2011 and 2010 amounted to $71,000 and $6,000, respectively. Credit quality management continues to be a top priority, however the Company recognizes an increased potential for charge-offs in this environment. With the high level of real estate secured debt and active monitoring of the loan portfolio and reserves, management is attempting to mitigate the effects of the economic downturn.

The allowance for loan losses of $572,000 representing 1.55% of gross loans, at March 31, 2011 decreased $48,000 compared to $620,000, or 1.73% of gross loans, at December 31, 2010. The recessionary economic environment would not normally support a decline in the allowance for loan losses; however, during the first quarter of 2011, the Company fully charged off three impaired loans that were fully reserved in 2010 which resulted in a decrease to the specific reserves of $66,000. The Company continues to assess adequate reserve levels in accordance with interagency guidance, focusing primarily on proper impairment analyses and monitoring of the qualitative, subjective factor weighting to ensure adequate reserves for the recessionary economic environment observed during 2009, which continued throughout 2010 and in anticipation of a potential recessionary economic environment through 2011.

Liquidity and Interest Rate Sensitivity

CNB management believes its current working capital amount will be sufficient to fund the activities of the Bank on an ongoing basis. There can be no assurance, however, that CNB will achieve any particular level of profitability.

Net interest income, CNB’s primary source of consolidated earnings, will fluctuate with changes to prevailing interest rates. To lessen the impact of these interest rate changes, CNB intends to structure the balance sheet so that repricing opportunities exist for both assets and liabilities in roughly equal amounts at approximately the same time intervals. Imbalances in these repricing opportunities at any point in time constitute interest rate sensitivity.

Interest rate sensitivity refers to the responsiveness of interest-bearing assets and liabilities to changes in market interest rates. The rate sensitive position, or gap, is the difference in the volume of rate sensitive assets and liabilities at a given time interval. The general objective of gap management is to manage rate sensitive assets and liabilities in order to reduce potential negative the impact of interest rate fluctuations on net interest income. CNB will generally attempt to maintain a balance between rate sensitive assets and liabilities as the exposure period is lengthened to minimize the overall interest rate risks.

CNB will evaluate regularly its balance sheet’s asset mix in terms of several variables: yield, credit quality, appropriate funding sources and liquidity. To manage effectively its balance sheet’s liability mix, CNB plans to focus on expanding the Bank’s deposit base and converting non-cash assets to cash as necessary.

As the Bank’s operations grow, CNB will continuously structure its rate sensitivity position in an effort to hedge against rapidly rising or falling interest rates. The Bank’s Asset and Liability Management Committee meets on a quarterly basis to develop strategy for the upcoming period. The committee’s strategy will include anticipating future interest rate movements.

Liquidity represents the ability to provide steady sources of funds for loan commitments and investment activities, as well as to maintain sufficient funds to cover deposit withdrawals and payment of debt and operating obligations. CNB can obtain these funds by converting assets to cash, by attracting new deposits, or by seeking alternate sources of funding such as those provided by the Federal Home Loan Bank. The Bank’s ability to maintain and increase deposits will serve as its primary source of liquidity.

Capital Resources

At March 31, 2011 and December 31, 2010, consolidated shareholders’ equity was $6.7 million, representing 13.0% and 13.6% of total assets, respectively. The Company’s common stock had a tangible book value of $4.45 and $4.44 per share at March 31, 2011 and December 31, 2010, respectively.

The Bank and the Company (on a consolidated basis) are subject to the capital requirements of the OCC and the Federal Reserve, respectively. The OCC and Federal Reserve have adopted risk-based capital guidelines for all national banks and bank holding companies, respectively. To be “adequately capitalized,” all national banks are expected to maintain a minimum ratio of total capital (after deductions) to risk-weighted assets of 8% (of which at least 4% must consist of Tier 1 Capital, which is essentially common shareholders’ equity less intangible assets).

The following table sets forth information with respect to the risk-based and leverage ratios for the Company and Bank at March 31, 2011 compared to minimum ratios required by regulation.


	Actual					Minimum Capital Requirement					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of March 31, 2011:
Total Capital (to Risk-Weighted Assets)
Consolidated	$	7,181		19.64	%	$	2,925		8.00	%		N/A		N/A
Bank	$	7,004		19.16	%	$	2,925		8.00	%	$	3,656		10.00	%
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated	$	6,723		18.39	%	$	1,462		4.00	%		N/A		N/A
Bank	$	6,546		17.90	%	$	1,462		4.00	%	$	2,194		6.00	%
Tier 1 Capital (to Average Assets)
Consolidated	$	6,723		13.20	%	$	2,037		4.00	%		N/A		N/A
Bank	$	6,546		12.85	%	$	2,037		4.00	%	$	2,547		5.00	%

Results of Operations

CNB had net income of $12,000 and $35,000 for the three months ended March 31, 2011 and 2010, respectively. Factors such as controlled asset growth, asset/liability repricing and management, and non-interest income have combined to provide the necessary income to maintain profitability; however the combination of increased industry-wide FDIC premium assessments and the potential for significant additional provisions for loan losses may negatively affect earnings for 2011.

Total interest income for the three months ended March 31, 2011 was $676,000. Total interest expense for the same period was $210,000. For the three months ended March 31, 2010, total interest income was $713,000 and total interest expense was $243,000. The decreased interest income and expense from 2010 to 2011 is indicative of stable growth and asset/liability repricing in a low market rate environment. The net interest margin, which is calculated by expressing net interest income as a percentage of average interest earning assets, is an indicator of effectiveness in generating income from earning assets. CNB’s net interest margin compressed slightly to 3.87% during the first three months of 2011, down from 4.17% for the same period in 2009.

Total non-interest income for the three months ended March 31, 2011 was $48,000, consisting primarily of other fees and commissions and net realized gains on disposition of securities. For the same period, total non-interest expense was $479,000. Personnel expense and professional fees accounted for 55.5% and 9.2% of non-interest expense, respectively. Non-interest income for the three months ended March 31, 2010 was $45,000, while non-interest expense was $480,000. Significantly higher compliance costs with federal rules and regulation such as FDIC premiums, which have been assessed industry-wide, were and will continue to be the primary component of increased non-interest expense during 2010 and 2011.

Off-Balance Sheet Arrangements

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments consist of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are written conditional commitments issued by a bank to guarantee the performance of a customer to a third party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. Exposure to credit loss in the event of non-performance by the other party to the instrument is represented by the contractual notional amount of the instrument.

Because certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank uses the same credit policies in making commitments to extend credit as we do for on-balance-sheet instruments. Collateral held for commitments to extend credit varies but may include accounts receivable, inventory, property, plant, equipment, and income-producing commercial properties.

Off-balance-sheet financial instruments whose contract amounts represented credit risk as of March 31, 2011 were unfulfilled loan commitments totaling $4.0 million.

No losses are anticipated as a result of the foregoing commitments; therefore the Company does not expect a material effect on our consolidated financial condition.

Critical Accounting Policies

The financial condition and results of operations presented in the consolidated financial statements, accompanying notes to the consolidated financial statements and management’s discussion and analysis are, to a large degree, dependent upon the accounting policies of the Company. The selection and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change and require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.

Allowance for Loan Losses.

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses for each segment are charged against the allowance for loan losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when:

•

Management believes that the collectability of the principal is unlikely regardless of delinquency status.

•

The loan is a consumer loan and is 120 days past due.

•

The loan is a non-consumer loan and is 180 days past due, unless the loan is well secured and recovery is probable; or

•

The borrower is in bankruptcy, unless the debt has been reaffirmed, is well secured and recovery is probable.

Subsequent recoveries, if any, are credited to the allowance.

The allowance represents an amount that, in management’s judgment, will be adequate to absorb any losses on existing loans that may become uncollectible. Management’s judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs, changes in the nature and volume of the loan portfolio, current economic conditions that may affect a borrower’s ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The evaluation also considers the following risk characteristics of each loan segment:

•

Consumer real estate loans carry risk associated with the continued credit-worthiness of the borrower and changes in the value of collateral.

•

Construction and land development loans carry risks that the project will not be finished according to schedule, the project will not be finished according to budget and the value of the collateral may, at any point in time, be less than the principal amount of the loan. Construction loans also bear the risk that the general contractor, who may or may not be a loan customer, may be unable to finish the construction project as planned because of financial pressure unrelated to the project.

•

Commercial – non real estate loans carry risks associated with continued successful operation of a business because the repayment of these loans is generally dependent upon the profitability and cash flows of the business. In addition, there is risk associated with the value of collateral other than real estate which may depreciate over time and cannot be appraised with as much precision.

•

Commercial real estate loans carry risks associated with the successful operation of a business or a real estate project, in addition to other risks associated with the ownership of real estate, because the repayment of these loans may be dependent upon the profitability and cash flows of the business or project, and changes in the value of collateral.

•

Consumer – non real estate loans carry risks associated with the continued credit-worthiness of the borrower and the value of the collateral (e.g., rapidly-depreciating assets such as automobiles), or lack thereof. Consumer loans are more likely than real estate loans to be immediately adversely affected by job loss, divorce, illness or personal bankruptcy.

The allowance consists of specific and general components. The specific component relates to loans that are classified as either doubtful or substandard. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. For collateral dependent loans, an updated appraisal will be ordered if a current one is not on file. Appraisals are performed by independent third-party appraisers with relevant industry experience. Adjustments to the appraised value may be made based on recent sales of comparable properties or general market conditions when appropriate. The general component covers non-classified, or performing loans, special mention loans, and those loans classified as substandard that are not impaired. The general component is based on historical loss experience adjusted for changes in the following qualitative factors: value of underlying collateral, lending policy/underwriting practices, national and local economic conditions, portfolio volume and nature, staff experience and depth, levels of past due, levels of non-accrual, portfolio quality, loan review/oversight, impact and effects of concentrations, legal matters, and competition . Non-impaired classified loans are assigned a higher allowance factor, which increases with the severity of classification, than non-classified loans. The characteristics of the loan ratings are as follows:

•

Pass rated loans are to persons or business entities with an acceptable financial condition, appropriate collateral margins, appropriate cash flow to service the existing loan, and an appropriate leverage ratio. The borrower has paid all obligations as agreed and it is expected that this type of payment history will continue. When necessary, acceptable personal guarantors support the loan.

•

Special mention loans have a specific defined weakness in the borrower’s operations and the borrower’s ability to generate positive cash flow on a sustained basis. The borrower’s recent payment history is characterized by late payments. The Company’s risk exposure is mitigated by collateral supporting the loan. The collateral is considered to be well-margined, well maintained, accessible and readily marketable.

•

Substandard loans are considered to have specific and well-defined weaknesses that jeopardize the viability of the Company’s credit extension. The payment history for the loan has been inconsistent and the expected or projected primary repayment source may be inadequate to service the loan. The estimated net liquidation value of the collateral pledged and/or ability of the personal guarantor(s) to pay the loan may not adequately protect the Company. There is a distinct possibility that the Company will sustain some loss if the deficiencies associated with the loan are not corrected in the near term. A substandard loan would not automatically meet our definition of impaired unless the loan is significantly past due and the borrower’s performance and financial condition provide evidence that it is probable that the Company will be unable to collect all amounts due.

•

Substandard nonaccrual loans have the same characteristics as substandard loans; however, they have a non-accrual classification.

•

Doubtful rated loans have all the weaknesses inherent in a loan that is classified substandard but with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high.

•

Loss rated loans are not considered collectible under normal circumstances and there is no realistic expectation for any future payment on the loan. Loss rated loans are fully charged off.

A loan is considered impaired when, based on current information and events, it is probable that the Company’s subsidiary bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. As of March 31, 2011, the Company did not have any loans classified as troubled debt restructurings.

Accounting for Income Taxes. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company has recorded a 100% deferred tax valuation allowance related to various temporary differences, principally consisting of the provision for loan losses and its net operating loss carryforwards. Since the Company has only been in operation since April 29, 2003 and did not show a profit during 2003, 2004, 2005 or 2009, it is management’s opinion that it is prudent at this time to only recognize the deferred tax asset to the extent that income tax benefits are realized.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (FASB) issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures, and includes conforming amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The new disclosure guidance significantly expands the existing requirements and will lead to greater transparency into a company’s exposure to credit losses from lending arrangements. The extensive new disclosures of information as of the end of a reporting period became effective for both interim and annual reporting periods ending on or after December 15, 2010. Specific disclosures regarding activity that occurred before the issuance of the ASU, such as the allowance roll forward and modification disclosures, will be required for periods beginning on or after December 15, 2010. The Company has included the required disclosures in its consolidated financial statements.

In December 2010, the FASB issued ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.” The guidance requires pro forma disclosure for business combinations that occurred in the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma information should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. ASU 2010-29 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In December 2010, the FASB issued ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The amendments in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

The Securities Exchange Commission (SEC) has issued Final Rule No. 33-9002, “Interactive Data to Improve Financial Reporting”, which requires companies to submit financial statements in XBRL (extensible business reporting language) format with their SEC filings on a phased-in schedule. Large accelerated filers and foreign large accelerated filers using U.S. GAAP were required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2010. All remaining filers are required to provide interactive data reports starting with their first quarterly report for fiscal periods ending on or after June 15, 2011.

In March 2011, the SEC issued Staff Accounting Bulletin (SAB) 114. This SAB revises or rescinds portions of the interpretive guidance included in the codification of the Staff Accounting Bulletin Series. This update is intended to make the relevant interpretive guidance consistent with current authoritative accounting guidance issued as a part of the FASB’s Codification. The principal changes involve revision or removal of accounting guidance references and other conforming changes to ensure consistency of referencing through the SAB Series. The effective date for SAB 114 is March 28, 2011. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In April 2011, the FASB issued ASU 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” The amendments in this ASU clarify the guidance on a creditor’s evaluation of whether it has granted a concession to a debtor. They also clarify the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulty. The amendments in this Update are effective for the first interim or annual period beginning on or after June 15, 2011. Early adoption is permitted. Retrospective application to the beginning of the annual period of adoption for modifications occurring on or after the beginning of the annual adoption period is required. As a result of applying these amendments, an entity may identify receivables that are newly considered to be impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. The Company is currently assessing the impact that ASU 2011-02 will have on its consolidated financial statements.

Caution Regarding Forward Looking Statements

Various statements contained in this quarterly report on Form 10-Q and the exhibits to this quarterly report which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the “Act”). In addition, various statements in future filings by the Company with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of the Company which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to:

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projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial items;

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statements of plans and objectives of the Company or its management or board of directors, including those relating to products or services;

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statements of future economic performance; and

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statements of assumptions underlying such statements.

Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those in such statements. Facts that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

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the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations;

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the effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System;

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inflation, interest rate, market and monetary fluctuations;

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the timely development of new products and services and the overall value of these products and services to users;

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changes in consumer spending, borrowing and saving habits;

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technological changes;

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acquisitions;

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the ability to increase market share and control expenses;

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the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which the Company and its subsidiaries must comply;

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the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board;

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changes in the Company’s organization, compensation and benefit plans;

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the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and

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the success of the Company at managing the risks involved in the foregoing.

Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update any forward-looking statement to reflect unanticipated events or circumstances after the date on which a statement is made.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and principal financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Our management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based upon their controls evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective at a reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions are executed in accordance with appropriate management authorization and accounting records are reliable for the preparation of financial statements in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2011. Management based this assessment on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of our Board of Directors.

Based on this assessment, management believes that the Company maintained effective internal control over financial reporting as of March 31, 2011.

This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during our third fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no material pending legal proceedings to which CNB or its subsidiary is a party or of which any of their property is the subject.

ITEM 1A. RISK FACTORS

Not applicable to smaller reporting companies.

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

We did not sell any unregistered securities during the three months ended March 31, 2011. No shares were redeemed during the three months ended March 31, 2011.

The information required for limitations upon payment of dividends is incorporated herein by reference to the Company’s annual report on Form 10-K, as filed with the Securities and Exchange Commission for the year ended December 31, 2010.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. REMOVED AND RESERVED.

ITEM 5. OTHER INFORMATION

(a) Required 8-K Disclosures. None

(b) Changes in Procedures for Director Nominations by Security Holders. None

ITEM 6. EXHIBITS

The exhibits listed on the Exhibit Index (following the signatures section of this Quarterly Report on Form 10-Q) are included herewith, or incorporated by reference.

SIGNATURES

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 BANCORP, INC. (Registrant)

DATE: May 13, 2011	BY:	/s/ Jeffrey H. Noblin
		Jeffrey H. Noblin Chief Executive Officer

DATE: May 13, 2011	BY:	/s/ Elizabeth T. Beale
		Elizabeth T. Beale Chief Financial Officer (Principal Financial Officer)

EXHIBIT INDEX

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 (and are numbered in accordance with Item 601 of Regulation S-K).


Exhibit Number		Exhibit

3.1		Articles of Incorporation (incorporated herein by reference to exhibit of same number in the Company’s Registration Statement on SB-2, as amended)

3.2		Amended and Restated Bylaws (incorporated herein by reference to exhibit of same number in the Company’s Form 8-K filed with SEC on November 23, 2005)

31.1		CEO Certification pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended.

31.2		CFO Certification pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended.

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

In accordance with Item 601(b)(32) of Regulation S-K, this exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certification will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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