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 September 30, 2011

Or

o TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period ______ to ______

Commission file # 033-00737

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

Michigan	38-2662386
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

303 North Main Street, Cheboygan MI 49721

(Address of principal executive offices, including Zip Code)

(231) 627-7111

(Registrant’s telephone number, including area code)

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 o

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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 or the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(Do not check if a small reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

Yes o                                 No x

As of November 7, 2011 there were 1,212,098shares of the issuer’s common stock outstanding.

CNB CORPORATION

Index

PART I - FINANCIAL INFORMATION
Item 1 – Financial Statements (Condensed):	3
Consolidated Balance Sheets –September30, 2011 and December 31, 2010	3
Consolidated Statements of Income–Three and nine Months Ended September 30, 2011 and 2010	4
Consolidated Statements of Cash Flows - Six Months Ended September 30, 2011 and 2010	5
Notes to Consolidated Financial Statements	6
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	22
Item 4 – Controls and Procedures	22
PART II - OTHER INFORMATION
Item 1 – Legal Proceedings	23
Item 1A – Risk Factors	23
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3 – Defaults Upon Senior Securities	23
Item 4 – (Removed and Reserved)	23
Item 5 – Other Information	23
Item 6 – Exhibits and Reports on Form 8-K	23
Signatures	24
Exhibit Index	25

2

PART I – FINANCIAL INFORMATION

ITEM 1-FINANCIAL STATEMENTS (CONDENSED)

CONSOLIDATED BALANCE SHEETS (dollars in thousands,except per share data)

	September 30,			December 31,
	2011			2010
ASSETS	(Unaudited)
Cash and due from banks	$	10,101		$	3,958
Interest-bearing deposits with other financial institutions		20,802			18,595
Total cash and cash equivalents		30,903			22,553
Time Deposits with other financial institutions		11,511			9,626
Securities available for sale		69,324			66,588
Securities held to maturity (market value of $5,946 in 2011 and $8,727 in 2010)		5,489			8,442
Other securities		997			999
Loans, held for sale		1,468			386
Loans, net of allowance for loan losses of $2,963 in 2011 and $2,354 in 2010		120,519			128,776
Premises and equipment, net		5,280			5,499
Other real estate owned		2,867			2,180
Other assets		11,490			10,049
Total assets	$	259,848		$	255,098
LIABILITIES
Deposits
Noninterest-bearing	$	51,150		$	42,106
Interest-bearing		184,556			188,060
Total deposits		235,706			230,166
Other liabilities		4,465			4,291
Total liabilities		240,171			234,457
SHAREHOLDERS’ EQUITY
Common stock - $2.50 par value; 2,000,000 shares authorized; and 1,212,098 shares issued and outstanding in 2011 and 2010		3,030			3,030
Additional paid-in capital		19,499			19,499
Accumulated deficit		(2,526	)		(1,137	)
Accumulated other comprehensive loss, net of tax		(326	)		(751	)
Total shareholders’ equity		19,677			20,641
Total liabilities and shareholders’ equity	$	259,848		$	255,098

See accompanying notes to consolidated financial statements.

3

CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data)

	Three months ended						Nine months ended
	September 30,						September 30,
	2011			2010			2011			2010
	(Unaudited)						(Unaudited)
INTEREST INCOME
Loans, including fees	$	1,980		$	2,101		$	5,864		$	6,567
Securities
Taxable		235			232			784			708
Tax exempt		110			120			356			398
Other interest income		54			64			160			179
Total interest income		2,379			2,517			7,164			7,852
INTEREST EXPENSE ON DEPOSITS		356			511			1,148			1,640
NET INTEREST INCOME		2,023			2,006			6,016			6,212
Provision for loan losses		1,275			150			1,975			525
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		748			1,856			4,041			5,687
NONINTEREST INCOME
Service charges and fees		276			283			774			798
Net realized gains from sales of loans		63			120			130			200
Loan servicing fees, net of amortization		19			(6	)		65			39
Gains on life insurance proceeds		—			—			—			189
Gain on the sale of investment securities		—			—			—			5
Other income		116			119			390			289
Total noninterest income		474			516			1,359			1,520
NONINTEREST EXPENSES
Salaries and employee benefits		1,011			1,016			2,977			2,975
Deferred compensation		65			66			192			174
Occupancy		247			247			749			743
Legal and professional		195			191			543			554
FDIC Premiums		97			142			316			404
ORE losses and carrying costs		1,460			391			1,664			656
Securities impairment write-down		470			—			470			—
Other expenses		264			265			827			746
Total noninterest expense		3,809			2,318			7,738			6,252
INCOME(LOSS) BEFORE INCOME TAXES		(2,587	)		54			(2,338	)		955
Income tax expense (benefit)		(916	)		(33	)		(949	)		96
NET INCOME (LOSS)	$	(1,671	)	$	87		$	(1,389	)	$	859
TOTAL COMPREHENSIVE INCOME (LOSS)	$	(1,624	)	$	159		$	(964	)	$	932
Return on average assets (annualized)		-2.62	%		0.14	%		-0.73	%		0.46	%
Return on average equity (annualized)		-31.69	%		1.64	%		-8.83	%		5.49	%
Basic earnings (loss) per share	$	-1.38		$	0.07		$	-1.15		$	0.71
Diluted earnings (loss) per share	$	-1.38		$	0.07		$	-1.15		$	0.71
Dividends declared per share	$	—		$	—		$	—		$	—

See accompanying notes to consolidated financial statements.

4

CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands).

	Nine months ended September 30,
	2011			2010
	(Unaudited)
Cash flows from operating activities
Net Income (loss)	$	(1,389	)	$	859
Adjustments to reconcile net income (loss) to net cash from operating activities
Depreciation, amortization and accretion, net		427			485
Provision for loan losses		1,975			525
Loans originated for sale		(8,117	)		(11,501	)
Proceeds from sales of loans originated for sale		6,729			11,025
Losses on impairment of investment securities		470			—
Gain on sales of loans		(130	)		(200	)
Gain on sales of other real estate owned properties		(23	)		(5	)
Other real estate owned writedowns/losses		1,345			387
Net gains on sales of investment securities		—			(5	)
Increase in deferred tax benefit		(219	)		(167	)
(Increase) decrease in other assets		(454	)		1,510
Increase (decrease) in other liabilities		174			(339	)
Total adjustments		2,177			1,715
Net cash provided by operating activities		788			2,574
Cash flows from investing activities
Proceeds from sales of securities available for sale		—			420
Proceeds from maturities of securities available for sale		29,023			29,663
Purchase of securities available for sale		(31,234	)		(31,176	)
Proceeds from maturities of securities held to maturity		2,483			3,871
Purchase of securities held to maturity		—			(960	)
Proceeds from sales of other securities		2			—
Proceeds from maturities of time deposits		3,364			1,485
Purchase of time deposits		(5,249	)		(1,572	)
Net change in portfolio loans		3,722			11,699
Premises and equipment expenditures		(89	)		(74	)
Net cash provided by investing activities		2,022			13,356
Cash flows from financing activities
Net decrease in deposits		5,540			10,714
Dividends paid		—			(2	)
Purchases of common stock		—			(15	)
Net cash provided by financing activities		5,540			10,697
Net change in cash and cash equivalents		8,350			26,627
Cash and cash equivalents at beginning of year		22,553			17,247
Cash and cash equivalents at end of period	$	30,903		$	43,874
Cash paid during the period for:
Interest	$	1,171		$	1,663
Income taxes		—			—
Non-cash transactions:
Transfer from loans to other real estate owned		2,946			1,564

See accompanying notes to consolidated financial statements.

5

Notes to Consolidated Financial Statements

FORWARD-LOOKING STATEMENTS

When used in this filing and in future filings involving the Company with the Securities and Exchange Commission, in the Company’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases, “anticipate,” “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “project,” or similar expressions are intended to identify, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties, including but not limited to changes in economic conditions in the Company’s market area, and competition, all or some of which could cause actual results to differ materially from historical earnings and those presently anticipated or projected.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as to the date made, and advise readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investing activities, and competitive and regulatory factors, could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected.

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

Note 1-Basis of Presentation

The consolidated financial statements for September 30, 2011 and December 31, 2010 include CNB Corporation (“Company”) and its wholly-owned subsidiary, Citizens National Bank of Cheboygan (“Bank”). All significant intercompany accounts and transactions are eliminated in the consolidation process. The statements have been prepared by management without an audit by independent certified public accountants. However, these statements reflect all adjustments (consisting of normal recurring accruals) and disclosures which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented and should be read in conjunction with the notes to the consolidated financial statements included in the CNB Corporation’s Form 10-K for the year ended December 31, 2010.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

Because the results of operations are so closely related to and responsive to changes in economic conditions, the results for any interim period are not necessarily indicative of the results that can be expected for the entire year.

Note 2 – New Accounting Standards

The FASB has issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staffs, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments to the Codification in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The impact of adoption of this ASU is not expected to be material.

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring (ASU 2011-02). ASU 2011-02 provides additional clarifying guidance for creditors in determining whether modifications to a loan constitute a concession granted by the creditor; evaluating whether a restructuring results in a delay in payment that is insignificant; and determining whether a debtor is experiencing financial difficulties. ASU 2011-02 also establishes the effective date for certain disclosures about loans modified under troubled debt restructurings that had been delayed by

6

the FASB’s issuance of ASU No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. For public entities, ASU 2011-02 (including related disclosures) is effective for the first interim or annual period beginning on or after June 15, 2011, with earlyadoption permitted. The adoption of ASU 2011-02 as of July 1, 2011 did not have a material impact on the Company’s consolidated financial condition or results of operations.

As a result of adopting the amendments of ASU 2011-02, the Company reassessed all loan restructurings that occurred on or after January 1, 2011 for identification as a TDR. No new TDRs resulted from this assessment.

FASB ASU 2011-05, Presentation of Comprehensive Income. In June 2011, the FASB issued ASU 2011-05, which provides entities with the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income, along with a total for other comprehensive income, and a total amount for comprehensive income. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. This update should be applied retrospectively effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We anticipate this statement will be adopted with our 2012 annual financial statements.

Note 3 – Securities

The securities portfolio decreased $219,000 since December 31, 2010. The available for sale portfolio increased to 91.4% of the investment portfolio at September 30, 2011 compared to 87.6% at December 31, 2010.

During the third quarter of 2011 an other-than-temporary impairment of $470,000 was recorded through the income statement as a securities impairment write-downs. The impairment is relating to two bonds from the same issuer. The remaining balance of the investments are held in the held to maturity investments on the balance sheet. The Bank is closely monitoring the Bond issuer.

7

The fair values and related unrealized gains and losses for securities available for sale were as follows, in thousands of dollars:

			Gross		Gross
	Fair		Unrealized		Unrealized
	Value		Gains		Losses
Available for Sale
September 30, 2011
U.S. Government and agency	$	44,486	$	257	$	(1	)
Mortgage-backed		12,893		274		(26	)
State and municipal		9,797		361		—
Corporate Obligations		1,014		14		—
Auction rate securities		1,000		—		—
Preferred Shares		134		112		—
	$	69,324	$	1,018	$	(27	)
December 31, 2010
U.S. Government and agency	$	38,100	$	133	$	(123	)
Mortgage-backed		15,902		139		(24	)
State and municipal		10,527		216		(32	)
Corporate Obligations		1,023		24		—
Auction rate securities		1,000		—		—
Preferred Shares		36		14		—
	$	66,588	$	526	$	(179	)

The carrying amount, unrecognized gains and losses, and fair value of securities held to maturity were as follows, in thousands of dollars:

			Gross		Gross
	Carrying		Unrecognized		Unrecognized		Fair
	Amount		Gains		Losses		Value
Held to Maturity
September 30, 2011
State and municipal	$	5,489	$	457	$	—	$	5,946
December 31, 2010
State and municipal	$	8,442	$	285	$	—	$	8,727

The carrying amount and fair value of securities by contractual maturity at September 30, 2011 are shown below, in thousands of dollars.

	Available for sale		Held to Maturity
	Fair		Carrying		Fair
	Value		Amount		Value
Due in one year or less	$	14,343	$	374	$	382
Due from one to five years		39,080		3,218		3,352
Due from five to ten years		1,392		1,287		1,491
Due after ten years		482		610		721
Subtotal		55,297		5,489		5,946
Mortgage-backed securities		12,893		—		—
Auction Rate Securities		1,000		—		—
Preferred Shares		134		—		—
	$	69,324	$	5,489	$	5,946

8

The following schedule summarizes information for both available-for-sale and held-to-maturity investment securities with gross unrealized lossesat September 30, 2011 and December 31, 2010aggregated by category and length of time that individual securities have beenin a continuous unrealized loss position.

September 30, 2011	Less Than 12 Months					12 Months or More				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
	Value		Loss			Value		Loss		Value		Loss
U.S. Government and agency	$	1,000	$	(1	)	$	—	$	—	$	1,000	$	(1	)
Mortgage-backed		3,335		(26	)		—		—		3,335		(26	)
State and municipal		—		—			626		—		626		—
Corporate obligations		—		—			—		—		—		—
Auction rate securities		—		—			—		—		—		—
Preferred shares		—		—			—		—		—		—
Total temporarily impaired	$	4,335	$	(27	)	$	626	$	—	$	4,961	$	(27	)

December 31, 2010	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
U.S. Government and agency	$	12,865	$	(123	)	$	—	$	—		$	12,865	$	(123	)
Mortgage-backed		6,066		(24	)		—		—			6,066		(24	)
State and municipal		2,982		(23	)		626		(9	)		3,608		(32	)
Corporate obligations		—		—			—		—			—		—
Auction rate securities		—		—			—		—			—		—
Preferred shares		—		—			—		—			—		—
Total temporarily impaired	$	21,913	$	(170	)	$	626	$	(9	)	$	22,539	$	(179	)

An assessment is performed quarterly by the Company to determine whether unrealized losses in its investment securities portfolio are temporary or other-than-temporary by carefully considering all available information.Management did notbelieve any individual unrealized loss on any investment security, as of September 30, 2011, represented an other-than-temporary impairment(OTTI). Management believed that the unrealized losses on investment securities at September 30, 2011 were temporary in nature and due primarilyto changes in interest rates, increased credit spreads and reduced market liquidity and not as a result of credit-related issues.

At September 30, 2011, the Company did not have the intent to sell any of its impaired investment securities and believed that it was more-likely-than-not that the Company will not have to sell any such investment securities before a full recovery of amortized cost. Accordingly, atSeptember 30, 2011, the Company believed the impairments in its investment securities portfolio were temporary in nature. Impairment lossesof $470,000 were realized in the Company’s consolidated statement of operations for the nine months ended September 30, 2011. The Company does not anticipate additional investment impairment losses during 2011, however, thereis no assurance that OTTI may not occur in the future.

9

Note 4 – Loans

The table below shows total loans outstanding by type, in thousands of dollars, at September 30, 2011 and December 31, 2010 and their percentages of the total loan portfolio. All loans are domestic.

	September 30, 2011						December 31, 2010
	Balance			% of total			Balance			% of total
Portfolio loans:
Residential real estate	$	63,970			51.71	%	$	67,309			51.24	%
Consumer		5,303			4.28	%		6,016			4.58	%
Commercial real estate		49,992			40.41	%		52,654			40.09	%
Commercial		4,451			3.60	%		5,375			4.09	%
Gross Loans		123,716			100.00	%		131,354			100.00	%
Deferred loan origination fees, net		(234	)					(224	)
Allowance for loan losses		(2,963	)					(2,354	)
Loans, net	$	120,519					$	128,776

Net portfolio loans at September 30, 2011 decreased $8.3 million from December 31, 2010. During the first nine months of 2011 and over the most recent twelve months total loans has decreased as a result of slowing loan demand, charge-offs, and the Company’s effective use of loan sales and servicing to mitigate interest rate risk. The Company generally sells its fixed long-term mortgages on the secondary market. Since December 31, 2010 commercial real estate mortgages have decreased $2.7 million while consumer mortgages have decreased $3.3 million. This decrease in commercial real estate mortgage loans is primarily due to the foreclosure of a few large commercial mortgage loans. The foreclosure process transfers the loan balance from a commercial mortgage loan to other real estate owned. Minimal loan demand is expected to continue and overall total loan growth is not expected in 2011.

A quarterly review of loan concentrations at September 30, 2011 indicates the pattern of loans in the portfolio has not changed significantly. There is no individual industry with more than a 10% concentration. However, all tourism related businesses, when combined, total 14.6% of total loans. For purposes of this definition, tourism related businesses includes loans to motels, hotels, restaurants, novelty & gift shops, golf course, marine and campgrounds.

The Company uses a seven grade risk rating system to monitor the ongoing credit quality of its commercial loan portfolio. These loan ratings rank the credit quality of a borrower by measuring liquidity, debt capacity, and payment behavior as shown in the borrower’s financial statements. The loan ratings also measure the quality of the borrower’s management and the repayment support offered by any guarantors. A summary of the Company’s loan ratings (or, characteristics of the loans within each rating) follows:

Credit Quality Indicators

Risk Ratings 1-3 (Pass) — All loans in risk ratings 1— 3 are considered to be acceptable credit risks by the Company and are grouped for purposes of allowance for loan loss considerations and financial reporting. The three ratings essentially represent a ranking of loans that are all viewed to be of acceptable credit quality, taking into consideration the various factors mentioned above, but with varying degrees of financial strength, debt coverage, management and factors that could impact credit quality.

Risk Rating 4 (Special Mention) — A special mention business credit has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects or in the Company’s credit position at some future date. Special mention business credits are not adversely ranked and do not expose the Company to sufficient risk to warrant adverse ranking.

Risk Rating 5 (Substandard) — A substandard business credit is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Business credit classified as substandard must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. If the likelihood of full collection of interest and principal may be in doubt; such loans are placed on nonaccrual status.

Risk Rating 6 (Doubtful) — A business credit rated as doubtful has all the weaknesses inherent in substandard as risk rating 5 with the added characteristic that the weaknesses make collection or liquidation in full, on the basis or currently existing fact, conditions, and values, highly questionable and improbable. Due to the high probability of loss, nonaccrual treatment is required for doubtful rated loans.

10

Risk Rating 7 (Loss) — A business credit rated as loss is considered uncollectible and of such little value that its continuance as a collectable loan is not warranted. This rating does not necessarily result in absolutely no recovery or salvage value, but rather it is not practical or desirable to defer charging off even if partial recovery may be a consideration in the future.

The following table presents the recorded investment of loans in the commercial loan portfolio by risk rating categories:

	Commercial				Commercial Real Estate
	September 30,		December 31,		September 30,		December 31,
	2011		2010		2011		2010
	(In thousands)
1	$	216	$	18	$	1,021	$	148
2		1,828		1,334		5,492		5,166
3		2,210		3,318		31,171		28,903
4		19		35		3,956		4,582
5		166		670		8,352		13,855
6		12		—		—		—
7		—		—		—		—
Total	$	4,451	$	5,375	$	49,992	$	52,654

The Company evaluates the credit quality of loans in the residential loan portfolio based primarily on the aging status of the loan and payment activity. The following schedule presents the recorded investment of loans in the residential loan portfolio based on the credit risk profile of loans in a pass, special mention and substandard rating:

	Residential
	September 30,		December 31,
	2011		2010
	(In thousands)
Grade:
Pass	$	62,986	$	66,884
Special mention		117		—
Substandard		867		425
Total	$	63,970	$	67,309

The Company evaluates the credit quality of loans in the consumer loan portfolio, based primarily on the aging status of the loan. Accordingly loans past due as to principal or interest 90 days or more are considered in a nonperforming status for purposes of credit quality evaluation. The following schedule presents the recorded investment of loans in the consumer loan portfolio based on the credit risk profile of loans in a performing status and loans in a nonperforming status:

	Consumer
	September 30,		December 31,
	2011		2010
	(In thousands)
Performing	$	5,303	$	6,008
Nonperforming		—		8
Total	$	5,303	$	6,016

11

Note 5 – Allowance for Loan Losses

The following is a summary of transactions in the allowance for loan losses for the three and nine month periods ending September 30, in thousands of dollars:

	Three Months Ended						Nine Month Ended
	September 30,						September 30,
	2011			2010			2011			2010
Beginning balance	$	2,090		$	1,214		$	2,354		$	2,863
Provision for loan losses		1,275			150			1,975			525
Charge-offs		(449	)		(234	)		(1,579	)		(2,365	)
Recoveries		47			18			213			125
Ending balance	$	2,963		$	1,148		$	2,963		$	1,148

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The following schedule presents, by loan type, the changes in the allowance for the period ending June 30 and details regarding the balance in the allowance and the recorded investment in loans at September 30 by impairment evaluation method (in thousands).

	Commercial			Commercial Real Estate			Consumer			Residential			Unallocated		Total
For the nine months ended September 30, 2011
Allowance for credit losses:
Beginning balance	$	43		$	2,000		$	107		$	186		$	18	$	2,354
Charge-offs		(436	)		(1,009	)		(23	)		(110	)		—	$	(1,578	)
Recoveries		3			164			16			30			—	$	213
Provision		462			1,487			(51	)		35			41		1,974
Ending Balance	$	72		$	2,642		$	49		$	141		$	59	$	2,963
Ending balance: individually evaluated for impairment	$	12		$	1,270		$	—		$	3		$	—	$	1,285
Ending balance: collectively evaluated for impairment	$	60		$	1,372		$	49		$	138		$	59	$	1,678
For the nine months ended September 30, 2010
Allowance for credit losses:
Beginning balance	$	116		$	2,277		$	107		$	343		$	20	$	2,863
Charge-offs		(305	)		(1,897	)		(95	)		(68	)		—	$	(2,365	)
Recoveries		8			41			25			51			—	$	125
Provision		291			229			75			(198	)		128	$	525
Ending Balance	$	110		$	650		$	112		$	128		$	148	$	1,148
Ending balance: individually evaluated for impairment	$	97		$	207		$	—		$	—		$	—	$	304
Ending balance: collectively evaluated for impairment	$	13		$	443		$	112		$	128		$	148	$	844

Net charge-offs for the year to date period totaled $1.4 million as of September 30, 2011 compared to $2.2million at September 30, 2010. The majority of the net charge offs from 2010 was related to 5 loans; all 5 loans had a specific allocation in the allowance for loan losses prior to being charged off.

The balance of the allowance for loan loss at September 30, 2011 is $3.0 million compared to $1.1 million at September 30, 2010. Management performs an analysis of the adequacy of the allowance on a regular basis. Based on the most recent analysis, management believes the current level to be adequate to provide for potential losses.

Management continually monitors its allowance for loan losses and as a result of this monitoring process recorded a loan loss provision of $2.0 million for the first nine months of 2011 compared to the prior year amount of $525,000 in the first nine months of 2010. The amount of provision for loan losses recognized by the Company is based on management’s evaluation as to the amount required to maintain an allowance adequate to provide for potential losses inherent in the loan portfolio.

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Note 6 – Fair Value Measurements

The following tables present information about the Company’s assetsmeasured at fair value on a recurring basis at September 30, 2011, and the valuation techniques used by the Company to determine those fair values.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the company has the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements required judgment and considers factors specific to each asset or liability.

Disclosures concerning assets measured at fair value are as follows:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Assets
September 30, 2011
Investment securities-available-for-sale:
U.S. Government and agency	$	44,486	$	—	$	—	$	44,486
Mortgage-backed		12,893		—		—		12,893
State and municipal		—		—		9,797		9,797
Corporate Obligations		1,014		—		—		1,014
Auction rate securities		—		—		1,000		1,000
Preferred Shares		134		—		—		134
	$	58,527	$	—	$	10,797	$	69,324
December 31, 2010
Investment securities-available-for-sale:
U.S. Government and agency	$	38,100	$	—	$	—	$	38,100
Mortgage—backed		15,902		—		—		15,902
State and municipal		—		—		10,527		10,527
Corporate Obligations		1,023		—		—		1,023
Auction rate securities		—		—		1,000		1,000
Preferred Shares		36		—		—		36
	$	55,061	$	—	$	11,527	$	66,588

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Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

(dollars in thousands)

	Investment securities available-for-sale:
	September 30,			December 31,
	2011			2010
Balance at January 1,	$	11,527		$	8,836
Total realized and unrealized gains (losses) included in income		—			—
Total unrealized gains (losses) included in other comprehensive income		176			(80	)
Net purchases, sales, calls and maturities		(906	)		2,771
Net transfers in/out of Level 3		—			—
	$	10,797		$	11,527

Available-for-sale investment securities categorized as Level 3 assets primarily consist of bonds issued by local municipalities and an auction rate security which has no recent trades. The Company estimates the fair value of these assets based on the present value of expected future cash flows using management’s best estimate of key assumptions, including forecasted interest yield and payment rates, credit quality and a discount rate commensurate with the current market and other risks involved.

Both observable and unobservable inputs may be used to determine the fair value of positions classified as Level 3 assets and liabilities. As a result, the unrealized gains and losses for these assets and liabilities presented in the tables above may include changes in fair value that were attributable to both observable and unobservable inputs.

Assets Measured at Fair Value on a Nonrecurring Basis

(dollars in thousands)

	Balance		Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses for the Period
Assets
September 30, 2011
Impaired loans	$	36		—		—	$	36	$	(16	)
Other real estate owned		2,826		—		—		2,826		(1,079	)
December 31, 2010
Impaired loans	$	2,343		—		—	$	2,343	$	(890	)
Other real estate owned		978		—		—		978		(346	)

Loans categorized as Level 3 assets consist of non-homogeneous loans that are considered impaired. The Company estimates the fair value of the loans based on using management’s best estimate of key assumptions. These assumptions include future payment ability and estimated realizable values of available collateral (typically based on outside appraisals). The impaired loanlosses for the period ending September 30, 2011 represents charge-offs of loan balances written down through the allowance for loan losses.

The Company’s other real estate owned is held at an estimated fair value and that value changes periodically with the real estate market. Losses for the period associated with other real estate owned represent valuation adjustments and are write downs through the income statement.

Note 7 – Fair Value of Financial Instruments

The following methods and assumptions were used to estimate fair values for financial instruments. The carrying amount is considered to estimate fair value for cash and variable rate loans or deposits that reprice frequently and fully. Securities fair values are based on quoted market prices or, if no quotes are available, on the rate and term of the security and on information about the issuer. For fixed rate loans or deposits and for variable loans or deposits with infrequent repricing or repricing limits, the fair value is estimated by discounted cash flow analysis or underlying collateral values, where applicable. The fair value of off-balance sheet items approximates cost and is not considered significant to this presentation.

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The estimated values of financial instruments were:

	September 30, 2011						December 31, 2010
	Carrying			Fair			Carrying			Fair
	Amount			Value			Amount			Value
	(In thousands)
Assets
Cash and cash equivalents	$	30,903		$	30,903		$	22,553		$	22,553
Time Deposits with other financial institutions		11,511			11,511			9,626			9,626
Securities available for sale		69,324			69,324			66,588			66,588
Securities held to maturity		5,489			5,946			8,442			8,727
Other securities		997			997			999			999
Loans held for sale		1,468			1,489			386			392
Loans, net		120,519			122,730			128,776			130,286
Accrued interest receivable on loans		375			375			433			433
Liabilities
Deposits:
Noninterest-bearing	$	(51,150	)	$	(51,150	)	$	(42,106	)	$	(42,106	)
Interest bearing		(184,556	)		(184,944	)		(188,060	)		(188,329	)
Accrued interest payable on deposits		(36	)		(36	)		(59	)		(59	)

Note 8 – Stock Options

The Company adopted a stock option plan in May 1996 under which the stock options may be issued at market prices to employees. The plan states that no grant or award shall be made under the plan more than ten years from the date of adoption of the plan and therefore the plan ended in 2006. Stock options were used to reward certain officers and provide them with an additional equity interest. Options were issued for 10 year periods and have varying vesting schedules. The exercise price of options granted is equivalent to the market value of underlying stock at the grant date. The Company has a policy of issuing new shares to satisfy option exercises. There were no modification of awards during the periods ended September 30, 2011 and 2010.

Due to the plan end date, there are no options available for grant as of September 30, 2011 and 2010.

Information about options outstanding and options exercisable follows:

					Weighted
			Weighted		Average
			Average		Remaining	Aggregate
	Options		Exercise		Contractual	Intrinsic
	Outstanding		Price		Term	Value
Balance at January 1, 2011		4,462	$	48.57
Options exercised		—		—
Options expired		—		—
Options forfeited		—		—
Balance at September 30, 2011		4,462	$	48.57	2.2 years	$	—
Exercisable at September30, 2011		4,462	$	48.57

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There were no options exercised during the nine months ended September 30, 2011 and 2010 therefore the aggregate intrinsic value of options exercised was $0 for both periods. There were no shares vested for the same periods. Also, there was no cash received or tax benefits realized from option exercises during the same periods

There have been no significant changes in the Company’s critical accounting policies since December 31, 2010.

Note 9 – Earnings Per Share

Basic earnings per share are calculated solely on weighted-average common shares outstanding. Diluted earnings per share will reflect the potential dilution of stock options and other common stock equivalents.For the three and nine month periods ending September 30, 2011 the weighted average shares outstanding in calculating basic and diluted earnings per share were 1,212,098. For the three and nine month periods ending September 30, 2010 the weighted average shares outstanding in calculating basic and diluted earnings per share were 1,212,098 and 1,212,900. As of September 30, 2011 and 2010 there were 4,462 options not considered in the three and nine month earnings per share calculations because they were antidilutive.

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

This discussion provides information about the consolidated financial condition and results of operations of CNB Corporation (“Company”) and its wholly owned subsidiary, Citizens National Bank of Cheboygan (“Bank”) for the six month period ending September 30, 2011.

Critical Accounting Policies

Certain of the Company’s accounting policies are important to the portrayal of the Company’s financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in fact and circumstances. Facts and circumstances which could affect these judgments include, but without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses and determining the fair value of securities. The Company’s critical accounting policies are described in the Management Discussion and Analysis section of its 2010 Annual Report.

Financial Condition

As of September 30, 2011 total assets of the company were $259.8 million which represents an increase of $4.8 million or 1.9% from December 31, 2010. The Company recognized adecrease in the net loan portfolio of $8.3 million or 6.4% while deposits decreased $5.5 million.

Credit Quality

The Company has experienced a decrease in the quality of its loan portfolio in recent years as a result of persisting strain on the Michigan economy and the results of recognizing and working out of problem commercial real estate credits. Since December 31, 2010 the Company has experienced improvements in the delinquencies, non accruals and substandard assets.The Company maintains an acceptable level of asset quality as a result of actively managing delinquencies, nonperforming assets, and potential loan problems. The Company performs an ongoing review of all large credits to watch for any deterioration in quality. Nonperforming assets are comprised of: (1) loans accounted for on a nonaccrual basis; (2) loans contractually past due 90 days or more as to interest or principal payments (but not included in nonaccrual loans in (1) above); (3) other loans whose terms have been renegotiated to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower (exclusive of loans in (1) or (2) above); and (4) other real estate owned properties . The aggregate amount of nonperforming assets is shown in the table below.

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	September 30,			December 31,
	2011			2010
Nonaccrual loans	$	3,429		$	6,892
Nonaccrual investments		2,466			—
Loans past due 90 days or more		—			99
Troubled debt restructurings		4,195			233
Other real estate owned		2,867			2,180
Total nonperforming assets	$	12,957		$	9,404
Percent of total assets		4.99	%		3.69	%

At September 30, 2011, total nonperforming assets increased by $3.6 million from December 31, 2010. The overall increase in nonperforming assets is due to the $4.0 million increase in loans identified as troubled debt restructurings. Nonaccrual loans decreased $3.5 million. The overall decrease in nonaccrual loans is due to the final resolution of a large volume of problem loans combine with no identification of additional problem loans. Final resolution of nonperforming loans has come in the form of loan charge-offs and transfers to other real estate owned. Included in nonperforming assets as of September 30, 2011 is $2.5 million attributable to an investment that is considered to be impaired. The bond issuer has notified the Bank that it will no longer be making principal and interest payments effective November 1, 2011. An other-than-temporary impairment of $470,000 has been recorded through the income statement for the third quarter for this investment. The investment is held in the held to maturity investments on the balance sheet. The Bank is closely monitoring and managing nonperforming assets. Loans past due 90 days and still accruing are loans that management considers to be collectable including accrued interest. Uncertainty in the local economic conditions continues to contribute to the weakness in credit quality.

Because of the continuing efforts to identify and analyze the overall amount of credit risk in the Company’s loan portfolio, the Company expects the level of non-performing assets to remain at current levels throughout the remainder of 2011. The Bank believes it is adequately reserved on these loans.

Detail of the loans on nonaccrual status by loan type is presented in the table below:

	September 30,		December 31,
	2011		2010
	(In thousands)
Commercial	$	82	$	503
Commercial real estate		3,251		6,363
Consumer		—		—
Residential		96		26
Total	$	3,429	$	6,892

Loans modified under troubled debt restructurings (TDRs) involve a concession to a borrower who is experience financial difficulty.  Concessions generally include modifications to original loan terms, including changes to a loan’s payment schedule or interest rate, which general would not otherwise be considered.  The Company’s loans reported as TDRs continue to accrue interest at the loan’s effective interest rate.  TDR’s are reported as nonperforming TDRs until a six-month payment history of principal and interest payments, in accordance with the loan modification, is sustained at which time the Company moved them to a performing TDR status.  All TDRs are accounted for as impaired loans and are considered accordingly as part of the analysis of the allowance for loan losses.

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The following provides information on performing and nonperforming TDRs as of September 30, 2011 that were modified during the three and nine months ended September 30, 2011:

CNB Corporation - Modifications
	Three Months Ended September 30, 2011						Nine Months Ended September 30, 2011
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial real estate		9	$	3,434	$	3,434		9	$	3,434	$	3,434
Residential		3		271		262		3		271		262
Total		12	$	3,705	$	3,696		12	$	3,705	$	3,696

No restructured loans have subsequently defaulted during the nine month period ended September 30, 2011.

The following schedule represents the aging analysis of past due loans by loan type reported (in thousands):

	30-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loan		Accruing Loans 90 Days or More Days Past Due
September 30, 2011
Commercial	$	—	$	—	$	—	$	4,451	$	4,451	$	—
Commercial Real Estate		209		—		209		49,783		49,992		—
Consumer		4		—		4		5,299		5,303		—
Residential		589		72		661		63,309		63,970		—
Total	$	802	$	72	$	874	$	122,842	$	123,716	$	—
December 31, 2010
Commercial	$	39	$	402	$	441	$	4,934	$	5,375	$	—
Commercial Real Estate		404		2,689		3,093		49,561		52,654		—
Consumer		31		8		39		5,977		6,016		8
Residential		824		91		915		66,394		67,309		91
Total	$	1,298	$	3,190	$	4,488	$	126,866	$	131,354	$	99

There were twenty-six loans in the loan portfolio that were considered impaired as of September 30, 2011. Six of the twenty-six loans considered impaired have a valuation allowance against probable losses. There were twenty-two loans that were considered impaired as of year-end December 31, 2010. Eight of the twenty-two loans considered impaired had a valuation allowance against probable losses.

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Impaired loans are presented in the table below (in thousands):

	Unpaid Contractual Principal Balance		Loans With No Allowance		Loans With Allowance		Total Impaired Loans		Related Allowance		Average Impaired Loan Balance		Interest Income Recognized
September 30, 2011
Commercial	$	118	$	28	$	12	$	40	$	12	$	295	$	1
Commercial Real Estate		5,010		1,942		3,068		5,010		1,271	$	3,564		20
Consumer		—		—		—		—		—	$	3		—
Residential		610		565		12		577		2	$	296		20
Total	$	5,738	$	2,535	$	3,092	$	5,627	$	1,285	$	4,158	$	41
December 31, 2010
Commercial	$	514	$	417	$	—	$	417	$	—	$	410	$	—
Commercial Real Estate		7,323		2,113		4,320		6,433		965		5,679		5
Consumer		10		10		—		10		—		17		1
Residential		76		26		34		60		15		278		2
Total	$	7,923	$	2,566	$	4,354	$	6,920	$	980	$	6,384	$	8

Deposits

Deposits atSeptember 30, 2011increased$5.5 million since December 31, 2010.Customers of the Bank are maintaining higher than normal levels of liquidity and cash balances due to continued uncertainty in the economy.Interest-bearing deposits decreased $3.5 million or 1.9% for the nine months ended September 30, 2011, while noninterest-bearing deposits increased$9.0 million or 21.5%.

Liquidity and Capital

The Company maintains an adequate liquidity position in order to respond to extensions of credit, the short-term demand for funds caused by withdrawals from deposit accounts, and for the payment of operating expenses. Maintaining adequate liquidity is accomplished through the management of a combination of liquid assets – those which can be converted into cash – and access to additional sources of funds. If necessary, additional sources of funds include Federal Home Loan Bank advances, Federal Home Loan Bank overdraft line of credit and Federal Reserve Discount Window availability. Primary liquid assets of the Company are cash and due from banks, federal funds sold, investments held as “available for sale” and maturing loans. The company does not rely on borrowings for sources of liquidity. Liquidity management is both a daily and long-term function of business management. Maturities in the Company’s loan and investment portfolios are monitored regularly to avoid matching short-term deposits with long-term investments and loans. Other assets and liabilities are also monitored to provide the proper balance between liquidity, safety, and profitability. This monitoring process must be continuous due to the constant flow of cash that is inherent in a financial institution.

The Company’s balances of cash and cash equivalents increased $8.4 million or 37.0% to $30.9 million. During the nine month period ending September 30, 2011, $788,000 in cash was provided byoperating activities. Investing activities provided$2.0 million during the nine months ended September 30, 2011, primarily due to a decrease in net portfolio loans and financing activities provided$5.5 million due to increasedtotal deposits.

As of September 30, 2011, the Company had no federal funds sold, $20.8 million on deposit at the Federal Reserve, $69.3 million in securities available for sale and $374,000in held to maturity securities maturing within one year. These sources of liquidity are supplemented by new deposits and loan payments received by customers. These short-term assets represent 38.4% of total deposits as of September 30, 2011.

Total equity of the Company at September 30, 2011 was $19.7million compared to $20.6 million at December 31, 2010. The decrease in equity for the nine months ended September 30, 2011is due to a decrease in retained earnings from the year to date net loss. The Board of Directors of CNB Corporation voted at its September8, 2011 meeting that no dividend will be paid for the third quarter of 2011.

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RESULTS OF OPERATIONS

CNB Corporation’s 2011 net loss for the first nine months was ($1.4 million), a decrease of $2.2 million compared to 2010 results. This decrease in net income can be attributed for the most part to the fact that provision expense of $2.0 million was recorded as of September 30, 2011 as compared to $525,000 for the same period in 2010. The Bank also recorded $1.7 million in ORE losses and carrying costs for the current year to day period compared to $656,000 in 2010. The increased 2011 ORE losses include losses on sales and write-down as part of a strategy to eliminate Bank ORE therefore also eliminating the high carrying costs of these properties.Also contributing to the year over year difference in net income is the fact that in 2010 the Company recorded gains on life insurance proceeds in the amount of $189,000 due to the death of a retired director.The return on assets was (0.73%) for the first nine months of the year versus 0.46% for the same period in 2010. The return on equity was (8.83%) compared to 5.49% for the same period last year.

Net loss for the three months ending September 30, 2011 was ($1.7 million) compared to a net income of $87,000 for 2010. This was a decrease of $1.6 million. The return on average assets was (2.62%) compared to 0.14% for 2010. The return on average equity was (31.69%) compared to 1.64% for 2010. This decrease in quarterly earnings is due to the provision expense and ORE loss reasons as mentioned above for the year to date period.

Interest income for the first nine months of 2011 was $7.2 million, a decrease of $688,000 or 8.8% compared to the 2010 results. This decrease in interest income can be attributed to a continuing low rate environment coupled with a shrinking loan portfolio. The low interest rates cause customers to refinance their loans to take advantage of the decreased rates which in turn decreases the interest income earned on those loans. The extended low rate environment also causes customers to take money from low yielding savings accounts and use the money to payoff loans thus decreasing total loans outstanding and total interest income. Additional reasons for the decreases in the total loan portfolio are a result of decreasing loan demand, loans being sold to the secondary market, loan charge-offs, and loan balances being transferred to Other Assets as collateral is collected on loans through the foreclosure process.

Interest income for the quarter ending September 30, 2011 was $2.4 million compared to $2.5 million for the same period last year. This decrease is primarily for the same reasons as noted above for the year to date period.

Interest expense for the first nine months of 2011 was $1.1 million, a decrease of $492,000 or 30.0% compared to 2010 results. This decrease can be attributed to the continued low rate environment and change in deposit mix.

Interest expense for the quarter ending September 30, 2011 was $356,000 compared to $511,000 for the same period last year. This decrease is attributed to the same reasons as noted above for the year to date period.

For the first nine months of 2011, net interest income was $6.0 million representing a decrease of 3.2% from the same period in 2010. The fully taxable equivalent net interest margin decreased to 3.58% for the nine month period ending September 30, 2011 compared to 3.73% for the period ending September 30, 2010.

Year to date net charge-offs recorded in the allowance for loan losses were $1.4 million for 2011 compared to $2.2 million for the same period in 2010. A provision expense of $2.0 millionwas recorded in the first nine months of 2011 compared to $525,000 in the first nine months in 2010 in order to maintain an acceptable allowance for loan loss level. The increased provision expense is in response to the need to replenish the allowance for loan losses due to the continued high level of charge-offs.

Noninterest income for the nine months ending September 30, 2011 was $1.4 million, a decrease of $161,000 from the same period last year. This change between the two periods is attributed, mostly, due to one of the same reasons as indicated for the change in year to date net income. 2010 noninterest income included $189,000 of gains on life insurance proceeds while there was no life insurance gains recorded in 2011. The decrease in noninterest income between the two periods is also due, in part, to the continued decreasing rate environment in 2010resulting in an increased number of refinances of mortgages sold to the secondary market during that year thus increasing the Bank’s gains from the sales of these types of loans in 2010. There have been fewer mortgage refinances in 2011 and therefore fewer gains realized from the sales of mortgages.

21

Noninterest income for the three month period ending September 30, 2011 was $474,000compared to $516,000 for the same period last year. This represents adecrease of $42,000. This increase is attributable, mostly, to thedecreased gains from the sales of loans as noted above for the nine month period.

Noninterest expense for the first nine months of 2011 was $7.7 million, anincrease of$1.5 million compared to 2010 results. The change between the two periods is attributable, for the most part, to the increased ORE losses and carrying costs as previously discussed. ORE losses and carrying cost totaled $1.7 million for the nine month period ending September 30, 2011 as compared to $656,000 for the same period in 2010. Management has expressed the need to eliminate the continued carrying cost associated with ORE properties and has therefore discounted many properties to facilitate sales. Also increasing the 2011 noninterest expenses was an other-than-temporary impairment of $470,000 on a held to maturity investment security as discussed in the credit quality section above. Offsetting the increased expenses was a decreased to FDIC premiums. The Bank’s FDIC premiums decreased for the first nine months of 2011 compared to the same period last year. In 2010 the FDIC announced a change to the FDIC assessment calculation to base premiums on Bank assets rather than Bank deposits. Along with that change was a decrease in the assessment rates. The change was effective for the 2nd quarter of 2011.The Company continues to monitor and control expenses at all levels.

Noninterest expense for the three month period ending September 30, 2011 was $3.8 million, anincrease of $1.5 million compared to 2010 results. This change is primarily for the same reasons as noted above for the year to date period.

The provision for federal income tax was a tax benefit of 40.6% of pretax income for the nine months ended September 30, 2011 as compared to tax expense of 10.1% for the same period in 2010. The difference between the effective tax rate and the federal corporate tax rate of 34% is generally due to tax-exempt interest earned on investments and loans and other tax-related items.

ITEM 3-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary source of market risk for the financial instruments held by the Company is interest rate risk. That is, the risk that a change in market rates will adversely affect the market value of the instruments. Generally, thelonger the maturity, the higher the interest rate risk exposure. While maturity information does not necessarily present all aspects of exposure, it may provide an indication of where risks are prevalent.

All financial institutions assume interest rate risk as an integral part of normal operations. Managing and measuring interest rate risk is a dynamic, multi-faceted process that ranges from reducing the exposure of the Company’s net interest margin to swings in interest rates, to assuring sufficient capital and liquidity to support future balance sheet growth. The Company manages interest rate risk through the Asset Liability Committee. The Asset Liability Committee is comprised of bank officers from various disciplines. The Committee reviews policies and establishes rates which lead to prudent investment of resources, the effective management of risks associated with changing interest rates, the maintenance of adequate liquidity, and the earning of an adequate return of shareholders’ equity.

Management believes that there has been no significant changes to the interest rate sensitivity since the presentation in the December 31, 2010 Management Discussion and Analysis appearing in the December 31, 2010 10K.

ITEM 4-CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report (the “Evaluation Date”) an evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Treasurer who serves as our Chief Financial and Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Treasurer have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that material information relating to the Company known to others within the Company required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

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Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2011 that materially affected, or is reasonably likely to materially affect the Company’s internal control over financial reporting.

Limitations of the Effectiveness of Internal Controls

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective, provide only reasonable assurance with respect to financial statement preparation and presentation.

PART II-OTHER INFORMATION

Item 1-Legal Proceedings

None

Item 1A.-Risk Factors

Not applicable.

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

None

Item 3-Defaults Upon Senior Securities

None

Item 4-(Removed and Reserved)

Item 5-Other Information

None

Item 6-Exhibits and Reports of Form 8-K

a.)	Exhibits
31.1	Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer
31.2	Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 by the Principal Financial Officer
32.1	Certificationpursuant to section 906 of the Sarbanes-Oxley Actof 2002 by the Chief Executive Officer
32.2	Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002 by the Principal Financial Officer
b.)	Reports on Form 8-K

A Current Report on Form 8-K was filed on October18, 2011 announcing third quarter earnings.

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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/ Susan A. Eno
Date: November 14, 2011	Susan A. Eno
	President and Chief Executive Officer
	/s/ Douglas W. Damm
Date: November 14, 2011	Douglas W. Damm
	Executive Vice President

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EXHIBIT INDEX

Number	Exhibit
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer
31.2	Certification pursuant to Section 302 of he Sarbanes-Oxley Act of 2002 by the Principal Financial Officer
32.1	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer
32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Principal Financial Officer
101	INS XBRL Instance Document
101	SCH XBRL Taxonomy Extension Schema Document
101	CAL XBRL Taxonomy Extension Calculation Document
101	DEF XBRL Taxonomy Extension Definition Document
101	LAB XBRL Taxonomy Extension Label Linkbase Document
101	PRE XBRL Taxonomy Extension Presentation Document

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