UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

Commission file # 033-00737

CNB CORPORATION

(Exact name of registrant as specified in its charter)

Michigan (State or other jurisdiction of incorporation or organization)		38-2662386 (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 þ   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 þ
				(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 þ

As of May 7, 2010 there were 1,213,598 shares of the issuer’s common stock outstanding.

 

 

CNB CORPORATION
Index

PART I — FINANCIAL INFORMATION
Item 1 — Financial Statements (Condensed):
Consolidated Balance Sheets — March 31, 2010 and December 31, 2009			3
Consolidated Statements of Income — Three Months Ended March 31, 2010 and 2009			4
Consolidated Statements of Cash Flows — Three Months Ended March 31, 2010 and 2009			5
Notes to Consolidated Financial Statements			6 — 9
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			10 — 15
Item 3 — Quantitative and Qualitative Disclosures About Market Risk			15
Item 4T — Controls and Procedures			15
PART II — OTHER INFORMATION
Item 1 — Legal Proceedings			16
Item 1A — Risk Factors			17
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds			17
Item 3 — Defaults Upon Senior Securities			17
Item 4 — (Removed and Reserved)			17
Item 5 — Other Information			17
Item 6 — Exhibits and Reports on Form 8-K			17
Signatures			18
Exhibit Index			19
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I — FINANCIAL INFORMATION

ITEM 1-FINANCIAL STATEMENTS (CONDENSED)

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

		March 31,				December 31,
		2010				2009
		(Unaudited)
ASSETS
Cash and due from banks		$	3,134			$	4,055
Interest-bearing deposits with other financial institutions			12,703				13,192
Total cash and cash equivalents			15,837				17,247
Time Deposits with other financial institutions			8,532				8,669
Securities available for sale			49,597				45,473
Securities held to maturity (market value of $10,496 in 2010 and $10,837 in 2009)			9,943				10,302
Other securities			1,008				1,008
Loans, held for sale			1,099				—
Loans, net of allowance for loan losses of $3,038 in 2010 and $2,863 in 2009			145,016				148,171
Premises and equipment, net			5,806				5,921
Other assets			12,915				12,711
Total assets		$	249,753			$	249,502
LIABILITIES
Deposits
Noninterest-bearing		$	37,920			$	40,016
Interest-bearing			186,915				184,542
Total deposits			224,835				224,558
Other liabilities			4,421				4,624
Total liabilities			229,256				229,182
SHAREHOLDERS’ EQUITY
Common stock — $2.50 par value; 2,000,000 shares authorized; and 1,213,598 shares issued and outstanding in 2010 and 2009			3,034				3,034
Additional paid-in capital			19,509				19,509
Accumulated deficit			(1,231	)			(1,456	)
Accumulated other comprehensive loss, net of tax			(815	)			(767	)
Total shareholders’ equity			20,497				20,320
Total liabilities and shareholders’ equity		$	249,753			$	249,502

See accompanying notes to consolidated financial statements.

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

		Three months ended
		March 31,
		2010				2009
		(Unaudited)
INTEREST INCOME
Loans, including fees		$	2,234			$	2,597
Securities
Taxable			215				419
Tax exempt			145				129
Other interest income			59				62
Total interest income			2,653				3,207
INTEREST EXPENSE ON DEPOSITS			587				989
NET INTEREST INCOME			2,066				2,218
Provision for loan losses			225				275
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES			1,841				1,943
NONINTEREST INCOME
Service charges and fees			246				265
Net realized gains from sales of loans			30				88
Loan servicing fees, net of amortization			20				(48	)
Other income			82				76
Total noninterest income			378				381
NONINTEREST EXPENSES
Salaries and employee benefits			984				1,045
Deferred compensation			61				78
Occupancy			256				290
Legal and professional			175				99
FDIC Premiums			128				100
ORE losses and carrying costs			114				42
Securities write-down, net			—				37
Other expenses			250				259
Total noninterest expense			1,968				1,950
INCOME BEFORE INCOME TAXES			251				374
Income tax expense			26				52
NET INCOME		$	225			$	322
TOTAL COMPREHENSIVE INCOME		$	177			$	188
Return on average assets (annualized)			0.36	%			0.50	%
Return on average equity (annualized)			4.34	%			7.28	%
Basic earnings per share		$	0.19			$	0.27
Diluted earnings per share		$	0.19			$	0.27
Dividends declared per share		$	—			$	—

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands).

		Three months ended March 31,
		2010				2009
		(Unaudited)
Cash flows from operating activities
Net Income		$	225			$	322
Adjustments to reconcile net income to net cash from operating activities
Depreciation, amortization and accretion, net			171				161
Provision for loan losses			225				275
Loans originated for sale			(2,735	)			(7,162	)
Proceeds from sales of loans originated for sale			1,654				7,012
Gain on sales of loans			(30	)			(88	)
Other real estate owned writedowns/losses			38				18
Net losses on impairment of investment securities			—				37
(Increase) decrease in deferred tax benefit			(229	)			165
(Increase) decrease in other assets			(10	)			(305	)
Increase (decrease) in other liabilities			(203	)			(335	)
Total adjustments			(1,119	)			(222	)
Net cash (used in) provided by operating activities			(894	)			100
Cash flows from investing activities
Proceeds from sales of securities available for sale			420				—
Proceeds from maturities of securities available for sale			10,026				6,253
Purchase of securities available for sale			(14,683	)			(9,707	)
Proceeds from maturities of securities held to maturity			359				497
Proceeds from maturities of time deposits			574				20
Purchase of time deposits			(437	)			—
Net change in portfolio loans			2,963				(6,505	)
Premises and equipment expenditures			(15	)			(211	)
Net cash used in investing activities			(793	)			(9,653	)
Cash flows from financing activities
Net increase in deposits			277				9,474
Net cash provided by financing activities			277				9,474
Net change in cash and cash equivalents			(1,410	)			(79	)
Cash and cash equivalents at beginning of year			17,247				23,286
Cash and cash equivalents at end of period		$	15,837			$	23,207
Cash paid during the period for:
Interest		$	586			$	982
Non-cash transactions:
Transfer from loans to other real estate owned			115				156

See accompanying notes to consolidated financial statements.

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 the three months ended March 31, 2010 include the accounts of CNB Corporation (“Company”) and its wholly owned subsidiary, Citizens National Bank of Cheboygan (“Bank”) and the Bank’s then wholly owned subsidiary CNB Mortgage Corporation. All significant intercompany accounts and transactions are eliminated in the consolidation process. In November 2009, Citizens National Bank of Cheboygan and CNB Mortgage Corporation merged leaving Citizens National Bank of Cheboygan as the survivor. The consolidated financial statements for March 31, 2010 and December 31, 2009 include CNB Corporation and its wholly-owned subsidiary, Citizens National Bank of Cheboygan. 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, 2009.

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.

Fair Value

The following tables present information about the Company’s assets measured at fair value on a recurring basis at March 31, 2010 and December 31, 2009, 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:

Assets and Liabilities Measured at Fair Value on a Recurring Basis
(dollars in thousands)

		Quoted Prices				Significant
		in Active				Other				Significant
		Markets for				Observable				Unobservable
		Identical Assets				Inputs				Inputs
		(Level 1)				(Level 2)				(Level 3)				Balance
Assets
March 31, 2010
Investment securities-available-for-sale		$	41,479			$	—			$	8,118			$	49,597
December 31, 2009
Investment securities-available-for-sale		$	36,637			$	—			$	8,836			$	45,473

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
(dollars in thousands)

		Investment
		securities-
		available-for-
		sale
Balance at December 31, 2009		$	8,836
Total realized and unrealized gains (losses) included in income			—
Total unrealized gains (losses) included in other comprehensive income			(5	)
Net purchases, sales, calls and maturities			(713	)
Net transfers in/out of Level 3			—
Balance at March 31, 2010		$	8,118

Available-for-sale investment securities categorized as Level 3 assets primarily consist of bonds issued by local municipalities. 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 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)

						Prices in
						Active
						Markets				Significant
						for				Other
						Identical				Observable				Significant
						Assets				Inputs				Unobservable				Total Losses
		Balance				(Level 1)				(Level 2)				Inputs (Level 3)				for the Period
Assets
March 31, 2010
Impaired loans		$	270											$	270			$	21
Other real estate owned			1,309												1,309				—
December 31, 2009
Impaired loans		$	248											$	248			$	211
Other real estate owned			1,336												1,336				343

Impaired 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 the present value of expected future cash flows using management’s best estimate of key assumptions. These assumptions include future payment ability, timing of payment streams, and estimated realizable values of available collateral (typically based on outside appraisals). The other real estate owned losses for the period ending March 31, 2010 and December 31, 2009 represents charge-offs of loan balances written down through the allowance for loan losses.

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 March 31, 2010 and 2009.

Due to the plan end date, there are no options available for grant as of March 31, 2010 and 2009.

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, 2010			4,462			$	48.57
Options exercised			—				—
Options expired			—				—
Options forfeited			—				—
Balance at March 31, 2010			4,462			$	48.57			3.7 years				$	—
Exercisable at March 31, 2010			4,462			$	48.57

There were no options exercised during the three months ended March 31, 2010 and 2009 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, 2009.

Note 2-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 month period ending March 31, 2010 and 2009 the weighted average shares outstanding in calculating basic and diluted earnings per share was 1,213,598. As of March 31, 2010 all of the 4,462 outstanding share options were not considered in the earnings per share calculation 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”) and the Bank’s wholly owned subsidiary CNB Mortgage Corporation for the three month period ending March 31, 2009. In November 2009, Citizens National Bank of Cheboygan and CNB Mortgage Corporation merged leaving Citizens National Bank of Cheboygan as the survivor. The consolidated financial statements for March 31, 2010 and December 31, 2009 include CNB Corporation and its wholly-owned subsidiary, Citizens National Bank of Cheboygan.

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 2009 Annual Report.

Financial Condition

As of March 31, 2010 total assets of the company were $249.8 million which represents very minimal change from December 31, 2009 assets of $249.5 million. The Company recognized a decrease in the loan portfolio of $3.2 million or 2.1% while deposits also remained flat increasing $277,000.

Securities

The securities portfolio increased $3.8 million since December 31, 2009. The available for sale portfolio increased to 81.9% of the investment portfolio at March 31, 2010 compared to 80.1% December 31, 2009.

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
March 31, 2010
U.S. Government and agency		$	27,215			$	125			$	(3	)
Mortgage-backed			13,184				130				(18	)
State and municipal			7,118				272				(14	)
Corporate Obligations			1,020				22				—
Auction rate securities			1,000				—				—
Preferred Shares			60				38				—
		$	49,597			$	587			$	(35	)
December 31, 2009
U.S. Government and agency		$	26,312			$	179			$	—
Mortgage-backed			9,259				136				—
State and municipal			7,836				285				(21	)
Corporate Obligations			1,020				22				—
Auction rate securities			1,000				—				—
Preferred Shares			46				24				—
		$	45,473			$	646			$	(21	)

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

						Gross				Gross
		Carrying				Unrecognized				Unrecognized				Fair
		Amount				Gains				Losses				Value
Held to Maturity
March 31, 2010
State and municipal		$	9,943			$	553			$	—			$	10,496
December 31, 2009
State and municipal		$	10,302			$	556			$	(21	)		$	10,837

The carrying amount and fair value of securities by contractual maturity at March 31, 2010 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		$	12,028			$	3,180			$	3,197
Due from one to five years			20,697				3,992				4,342
Due from five to ten years			1,910				2,051				2,148
Due after ten years			718				720				809
			35,353				9,943				10,496
Subtotal
Mortgage-backed securities			13,184				—				—
Auction Rate Securities			1,000				—				—
Preferred Shares			60				—				—
		$	49,597			$	9,943			$	10,496

Loans

Net loans at March 31, 2010 decreased $3.2 million from December 31, 2009. The table below shows total loans outstanding by type, in thousands of dollars, at March 31, 2010 and December 31, 2009 and their percentages of the total loan portfolio. All loans are domestic. A quarterly review of loan concentrations at March 31, 2010 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 13.0% of total loans.

		March 31, 2010								December 31, 2009
						% of								% of
		Balance				total				Balance				total
Portfolio loans:
Residential real estate		$	75,221				50.74	%		$	77,152				51.02	%
Consumer			6,598				4.45	%			7,002				4.63	%
Commercial real estate			59,734				40.30	%			60,150				39.78	%
Commercial			6,684				4.51	%			6,903				4.57	%
Gross Loans			148,237				100.00	%			151,207				100.00	%
Deferred loan origination fees, net			(183	)							(173	)
Allowance for loan losses			(3,038	)							(2,863	)
Loans, net		$	145,016							$	148,171

Since December 31, 2009 commercial real estate mortgages have decreased $416,000 while consumer mortgages have decreased $1.9 million. This decrease in residential real estate loans is primarily due to in house mortgages being refinanced and subsequently sold in the secondary market. Loan demand continues to be low and overall total loan growth is not expected in 2010.

Allowance and Provision for Loan Losses

An analysis of the allowance for loan losses, in thousands of dollars, for the three months ended March 31, follows:

		2010				2009
Beginning balance		$	2,863			$	1,996
Provision for loan losses			225				275
Charge-offs			(62	)			(121	)
Recoveries			12				22
Ending balance		$	3,038			$	2,172

Management continually monitors its allowance for loan losses and as a result of this monitoring process recorded a loan loss provision of $225,000 for the first three months of 2010 compared to the prior year amount of $275,000 in the first three months of 2009. The amount of provisions for loan losses recognized by the Company is based on management’s evaluation as to the amounts required to maintain an allowance adequate to provide for potential losses inherent in the loan portfolio.

Credit Quality

The lending staff continues to be well-trained and experienced. During 2009 the Company experienced a continued decrease in the quality of its loan portfolio as a result of persisting deterioration of the Michigan economy and the results of recognizing and working out of problem commercial real estate credits. 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 loans 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); and (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). The aggregate amount of nonperforming loans is shown in the table below.

		March 31,				December 31,
		2010				2009
Nonaccrual		$	8,158			$	8,095
Loans past due 90 days or more			15				83
Troubled debt restructurings			—				260
Total nonperforming loans		$	8,173			$	8,438
Percent of gross loans			5.51	%			5.59	%

At March 31, 2010, total nonperforming assets decreased by $265,000 from December 31, 2009. The Bank is closely monitoring and managing nonperforming loans. Nonaccrual loans increased slightly to $8.2 million since December 31, 2009. Loans past due 90 days and still accruing are loans that management considers to be collectable including accrued interest. The level of non-performing loans remained stable from December 31, 2009. Uncertainty in the local economic conditions continues to contribute to the weakness in credit quality.

The Company had 27 problem loans that were reviewed for impairment totaling $8.5 million as of March 31, 2010. Of the 27 impaired loans 9 of the loans have a valuation allowance against loss potential. The balance of these 9 loans at March 31, 2010 totaled $6.0 million and the valuation allowance was $1.9 million.

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 loans to remain at current levels throughout the remainder of 2010. The Bank believes it is adequately reserved on these loans.

Deposits

As of March 31, 2010 a marginal increase of $277,000 was recognized in deposits since December 31, 2009. Although there was little change in total deposits, there was a shift in the deposit mix. Interest-bearing deposits increased $2.4 million or 1.3% for the three months ended March 31, 2010, while noninterest-bearing deposits decreased $2.1 million or 5.2%.

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 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 decreased $1.4 million or 8.2%. During the three month period ending March 31, 2010, $894,000 in cash was used in operating activities. Investing activities utilized $793,000 during the three months ended March 31, 2010 and financing activities provided $277,000.

As of March 31, 2010, the Company had no federal funds sold, $12.7 million in interest-bearing deposits with other financial institutions, $49.6 million in securities available for sale and $3.2 million in 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 29.1% of total deposits as of March 31, 2010.

Total equity of the Company at March 31, 2010 was $20.5 million compared to $20.3 million at December 31, 2009. The increase in equity for the three months ended March 31, 2010 includes a decrease in the accumulated deficit and was offset by a marginal decrease in net changes related to accumulated other comprehensive loss.

RESULTS OF OPERATIONS

CNB Corporation’s 2010 net income for the first three months was $225,000, a decrease of $97,000 compared to 2009 results. This decrease in net income can be attributed for the most part to a decreased level of net interest income. Net interest income decreased compared to the same three month period last year due in part to the elevated level of nonaccrual loans. This decrease in net interest income can also be attributed to the current rate environment. While deposit rates have reached near minimum levels, loans and investments continue to reprice at lower levels. Basic and diluted earnings per share were $0.19 for 2010 compared to $0.27 for 2009. The return on assets was .36% for the first three months of the year versus .50% for the same period in 2009. The return on equity was 4.34% compared to 7.28% for the same period last year.

For the first three months of 2010, net interest income was $2.1 million representing a decrease of 6.8% from the same period in 2009. The fully taxable equivalent net interest margin decreased to 3.86% for the three month period ending March 31, 2009 compared to 4.37% for the same period ending March 31, 2008. This change can be attributable to the same reasons noted above. The decreasing interest rate environment continues to cause a decrease in interest income on earning assets.

Management continually reviews changes in the loan portfolio composition and asset quality. In response to the stabilizing asset quality, management recorded a provision expense of $225,000 in the first three months in 2010 and $275,000 in the first three months in 2009.

Noninterest income for the three months ending March 31, 2010 was $378,000, a decrease of $3,000 or 0.79% from the same period last year. This change between the two periods is attributed, in part, to the Bank’s loan promotion offered in February 2009 during which the Bank grew its mortgages held for investment with the loan special which caused some of the mortgages previously sold to the secondary market to refinance into portfolio loans. The decrease in the loans sold to the secondary market also causes a decrease in the intangible mortgage servicing asset through a net decrease of the amortization of the loan servicing fees. Although the net amortization of the loan servicing fees was a $48,000 decrease in 2009, it was a $20,000 net increase in 2010. This is a $68,000 change year over year. This increase in income was offset by decreases in the gains on the sales of loans and decreases in service charges and fees in the three month comparison.

Noninterest expense for the first three months of 2010 and 2009 was $2.0 million. Although noninterest expenses did not change significantly, the mix of expenses has changed. Salaries and employee benefits have decreased due to reductions in staff while legal and professional expenses increased due to legal fees from an ongoing litigation against the Bank’s former investment advisor and additional legal fees from the increased level of foreclosures. The increased level of foreclosures has also increased the expenses related to ORE losses and carrying costs. FDIC insurance premiums have increased again in 2010 due to the large number of bank failures and the need for the insurance fund to be replenished.

The provision for federal income tax was 10.4% of pretax income for the three months ended March 31, 2010 as compared to 13.9% for the same period in 2009. 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, the longer 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, 2009 Management Discussion and Analysis appearing in the December 31, 2009 10K.

ITEM 4T-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.

Management’s Annual Report on Internal Controls Over Financial Reporting

The management of CNB Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. CNB Corporation’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of its financial statements.

Management of CNB Corporation assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on our assessment we believe that, as of December 31, 2009, the Company’s internal control over financial reporting is effective based on those criteria.

The December 31, 2009 annual 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 temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in the annual report.

The Board of Directors, acting through its Audit Committee, is responsible for the oversight of the Company’s accounting policies, financial reporting and internal control. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of management. It meets quarterly with management and the internal auditor and periodically with the independent auditors to ensure that they are carrying out their responsibilities. The independent auditors and the internal auditor have full and unlimited access to the Audit Committee, with or without management, to discuss the adequacy of internal control over financial reporting, and any other matter which they believe should be brought to the attention of the Audit Committee.

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 December 31, 2009 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

CNB vs. Heber Fuger Wendin, Inc. and Mark Williams

The Bank filed a complaint in the Circuit Court for the County of Cheboygan on May 19, 2009 and served the defendants in this matter, Heber Fuger Wendin, Inc. (HFW) and Mark Williams, President of HFW, on May 26, 2009. The complaint is the consequence of losses incurred by the Bank as a result of its purchase of money market preferred (MMP) securities beginning in 2006 and ending in 2007 on the advice of Mr. Williams. Upon subsequent review and investigation it was determined MMPs were not a suitable investment for the Bank and as an investment advisor HFW did not perform sufficient due diligence to adequately advise the Bank of the associated potential risk. The six counts charged in the complaint are: (i) breach of fiduciary duty; (ii) negligence; (iii) breach of contract; (iv) common law fraud; (v) negligent misrepresentation; and (vi) violation of Michigan Uniform Securities Act. The case is in discovery.

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		Certification 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

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.

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