**Exhibit
      13**





***C*** **B
      FINANCIAL CORPORATION**


**AND
      SUBSIDIARY**





**2005
      Annual Report**














***C*** **B
      FINANCIAL CORPORATION AND SUBSIDIARY**














**TABLE
      OF CONTENTS**





Page
                No.Letter
                to Stockholders
            1Selected
                Financial Information and Other Data
            4Management’s
                Discussion and Analysis
            5Report
                of Independent Registered Public Accounting Firm
            17Consolidated
                Financial Statements:Balance
                Sheets
            18Statements
                of Operations
            19Statements
                of Comprehensive Income
            20Statements
                of Changes in Stockholders’ Equity
            21Statements
                of Cash Flows
            22Notes
                to Consolidated financial statements
            23Management
                and Bank Personnel
            45General
                Corporate Information
            46








Cornerstone
      Bank Web Address: www.thecornerstonebank.com





***For
      stock transfers and change of address on shares owned please contact our Stock
      Transfer Agent***





First-Citizens
      Bank & Trust Company


Corporate
      Trust Dept.


100
      East
      Tryon Road


Raleigh,
      NC 27603


1-877-685-0576













**CB
      Financial Corporation**


**Letter
      to Stockholders**











Dear
      Stockholders,








1




**CB
        Financial Corporation**
 **Letter
        to Stockholders**














2







**CB
        Financial Corporation**
 **Letter
        to Stockholders**





3


**CB
        Financial Corporation**
 **Selected
        Financial Information and Other
        Data**





*The
      selected financial information and other data presented below have been derived,
      in part, from the audited consolidated financial statements of the Company.
      The
      selected financial information and other data should be read in conjunction
      with
      the consolidated financial statements and notes thereto presented elsewhere
      herein.*





At
                or for the Periods Ended December 312005
            
            2004
            
            2003
            
            2002
            
            2001(Dollars
                in thousands, except per share data)**Operating
                Data:**Total
                interest income
            
            $
            7,618
            
            $
            5,102
            
            $
            4,285
            
            $
            3,640
            
            $
            2,792Total
                interest expense
            
            
            3,055
            
            
            1,920
            
            
            1,845
            
            
            1,534
            
            
            1,557Net
                interest income
            
            
            4,563
            
            
            3,182
            
            
            2,440
            
            
            2,106
            
            
            1,235Provision
                for loan losses
            
            
            625
            
            
            614
            
            
            374
            
            
            391
            
            
            367Net
                interest income afterprovision
                for loan losses
            
            
            3,938
            
            
            2,568
            
            
            2,066
            
            
            1,715
            
            
            868Total
                non-interest income
            
            
            874
            
            
            724
            
            
            1,014
            
            
            782
            
            
            305Total
                non-interest expense
            
            
            3,068
            
            
            2,345
            
            
            2,239
            
            
            1,969
            
            
            1,542Income
                tax expense
            
            
            609
            
            
            265
            
            
            -
            
            
            -
            
            
            -Net
                income (loss)
            
            $
            1,135
            
            $
            682
            
            $
            841
            
            $
            528
            
            $
            (369
            )**Per
                Common Share Data:*****(1)***Net
                income (loss) per share - basic
            
            $
            1.13
            
            $
            0.68
            
            $
            0.84
            
            $
            0.64
            
            $
            (0.50
            )Net
                income (loss) per share - diluted
            
            
            1.10
            
            
            0.67
            
            
            0.84
            
            
            0.64
            
            
            (0.50
            )Book
                value
            
            
            10.30
            
            
            9.32
            
            
            8.64
            
            
            7.85
            
            
            6.64**Selected
                Year-End Balance Sheet Data:**Loans
            
            $
            114,468
            
            $
            89,330
            
            $
            73,187
            
            $
            58,649
            
            $
            38,292Allowance
                for loan losses
            
            
            1,775
            
            
            1,216
            
            
            1,033
            
            
            845
            
            
            523Other
                earning assets
            
            
            30,112
            
            
            25,237
            
            
            17,011
            
            
            13,229
            
            
            11,761Total
                assets
            
            
            152,771
            
            
            119,972
            
            
            98,674
            
            
            74,974
            
            
            54,173Deposits
            
            
            129,069
            
            
            108,624
            
            
            87,371
            
            
            65,519
            
            
            48,885Borrowings
            
            
            12,543
            
            
            1,667
            
            
            2,343
            
            
            1,250
            
            
            -Stockholders’
                equity
            
            
            10,442
            
            
            9,396
            
            
            8,716
            
            
            7,909
            
            
            5,078**Selected
                Average Balances:**Total
                assets
            
            $
            132,455
            
            $
            105,981
            
            $
            89,666
            
            $
            65,526
            
            $
            41,068Loans
            
            
            97,732
            
            
            81,235
            
            
            65,907
            
            
            48,896
            
            
            28,668Total
                interest-earning assets
            
            
            125,718
            
            
            100,922
            
            
            85,220
            
            
            62,098
            
            
            38,256Deposits
            
            
            116,184
            
            
            93,852
            
            
            78,742
            
            
            58,210
            
            
            35,397Total
                interest-bearing liabilities
            
            
            103,257
            
            
            89,687
            
            
            75,907
            
            
            54,503
            
            
            32,998Stockholders’
                equity
            
            
            10,017
            
            
            8,703
            
            
            8,336
            
            
            6,014
            
            
            5,485**Selected
                Performance Ratios:**Return
                on average assets
            
            
            0.86
            %
            
            0.64
            %
            
            0.94
            %
            
            0.81
            %
            
            (0.90
            %)Return
                on average equity
            
            
            11.33
            %
            
            7.84
            %
            
            10.09
            %
            
            8.78
            %
            
            (6.73
            %)Net
                interest margin
            
            
            3.63
            %
            
            3.15
            %
            
            2.86
            %
            
            3.39
            %
            
            3.23
            %Non-interest
                expense to average assets
            
            
            2.32
            %
            
            2.21
            %
            
            2.50
            %
            
            3.00
            %
            
            3.77
            %**Asset
                Quality Ratios:**Allowance
                for loan losses toperiod-end
                loans
            
            
            1.55
            %
            
            1.36
            %
            
            1.41
            %
            
            1.44
            %
            
            1.37
            %Net
                loan charge-offs to average loans
            
            
            0.07
            %
            
            0.53
            %
            
            0.28
            %
            
            0.14
            %
            
            0.31
            %**Capital
                Ratios:**Total
                risk-based capital
            
            
            15.54
            %
            
            12.13
            %
            
            13.44
            %
            
            14.63
            %
            
            13.62
            %Tier
                1 risk-based capital
            
            
            12.83
            %
            
            10.88
            %
            
            12.19
            %
            
            13.39
            %
            
            12.37
            %Leverage
                ratio
            
            
            9.60
            %
            
            8.08
            %
            
            9.13
            %
            
            10.63
            %
            
            10.00
            %Equity
                to assets
            
            
            6.82
            %
            
            7.83
            %
            
            8.83
            %
            
            10.55
            %
            
            9.37
            %Average
                equity to average assets
            
            
            7.56
            %
            
            8.21
            %
            
            9.30
            %
            
            9.18
            %
            
            13.36
            %





(1) Adjusted
      for the 10% stock dividend in 2002, the 5% stock dividend in 2003 and the 5%
      stock dividend in 2004 and the 5% stock dividend in 2005.








4




**CB
        Financial Corporation**
 **Management's
        Discussion and
        Analysis**





The
      following discussion and analysis is presented to assist readers in
      understanding CB Financial Corporation’s financial condition and results of
      operations for the years ended December 31, 2005 and 2004. You should read
      this
      discussion and the related financial data in conjunction with the audited
      consolidated financial statements and the related footnotes, which are included
      elsewhere in this Annual Report. All references in this Annual Report to net
      income per share, price per share, book value per share and weighted average
      common and common equivalent shares outstanding have been adjusted to reflect
      the effects of a 5% stock dividend in each of 2005 and 2004.




**DESCRIPTION
      OF BUSINESS**




Cornerstone
      Bank (“Cornerstone” or the “Bank”), a wholly owned single bank subsidiary of CB
      Financial Corporation (the “Company”), a North Carolina chartered banking
      corporation, opened for business on March 15, 2000. In June 2005, the
      shareholders of the Bank approved an Agreement and Plan of Reorganization
      pursuant to which the Bank became a wholly owned banking subsidiary of the
      Company. Cornerstone presently operates two full-service banking offices located
      at 3710 Nash Street North and 1435 Ward Blvd, Wilson, North Carolina. The Bank
      also operates a mortgage loan production office in Zebulon, NC at 308 North
      Arendell Ave. The Bank’s lending activities are oriented to the consumer/retail
      customer as well as to the small-to-medium sized businesses located in Wilson
      County and mortgage loans in Zebulon. The Bank offers the standard complement
      of
      commercial, consumer, and mortgage lending products, as well as the ability
      to
      structure products to fit specialized needs. The deposit services offered by
      the
      Bank include business and personal checking, savings account and certificates
      of
      deposit. The Bank focuses on customer relationships in building its deposit
      base
      and competes aggressively for transaction accounts.





**EXECUTIVE
      OVERVIEW**





**Significant
      accomplishments**





In
      the
      opinion of management, the Company’s most significant accomplishments during
      2005 were as follows:





·
            Net
                income before taxes increased 84% ;




·
            Formation
                of a single-bank holding company which issued trust preferred securities
                to augment capital and allow continued growth without shareholder
                dilution;




·
            Issued
                fourth consecutive stock dividend in the form of a 21 for 20 stock
                split,
                while still increasing book value
                $0.98;




·
            Captured
                additional deposit market share resulting in the Bank now holding
                more
                than 14.25% of all deposits in Wilson
                County;




·
            Total
                assets increased 27%;




·
            Total
                loans increased 28%;




·
            Total
                deposits increased 19%;




·
            Opened
                second full service branch at 1435 Ward Blvd., Wilson, NC at Parkwood
                Mall;




·
            Opened
                mortgage loan production office in
                Zebulon;




·
            Successfully
                launched the “2nd50
                Club” for all senior checking customers with information seminars and
                trips to the Biltmore House in Asheville and Southpoint Mall in Durham,
                NC.








5




**CB
          Financial Corporation**
 **Management's
          Discussion and
          Analysis**
 **Challenges**





Cornerstone
      has grown at a rapid pace since opening on the Ides of March in 2000. While
      the
      achievement of the Company’s and the Bank’s strategic initiatives and
      established long-term financial goals is subject to many uncertainties and
      challenges, management has identified below the challenges that are most
      relevant and most likely to have a near-term effect on operations:





·
            Managing
                declining asset quality after a sustained period of economic sluggishness,
                changes in bankruptcy laws and inevitable problems with a maturing
                loan
                portfolio;




·
            Maintaining
                our implicit pledge of fair customer pricing of deposit products
                and
                competing with sometimes overly aggressive pricing
                competition;




·
            Finding
                new and maintaining existing non-interest revenue sources in light
                of the
                soft mortgage refinancing market;




·
            Maintaining
                core deposit growth in a highly competitive market and sometimes
                overly
                aggressive pricing competition;




·
            Maintaining
                a growing net after-tax income while adding new facilities and dealing
                with problem assets;




·
            Added
                costs associated with the current heightened regulatory
                environment.







**FINANCIAL
      CONDITION**


**December
      31, 2005 and 2004**





During
      2005, the Company continued its strong growth, ending the year with total assets
      of $152.8 million, an increase of $32.8 million or 27.3% from the beginning
      of
      year total assets of $120 million. The growth in total assets was funded
      primarily by inflows of customer deposits, which increased by $20.4 million
      or
      18.8% to $129.1 million, up from $108.6 million at December 31, 2004.
      Approximately $10.1 million of this deposit (and asset) growth is attributable
      to the Bank serving as subscription escrow agent for a start-up bank. These
      funds will be disbursed to that bank in the first quarter of 2006. Other sources
      of funding for asset growth included net income of $1.2 million and the issuance
      of $5 million in trust preferred securities. Total loans grew by $25.1 million
      and closed the year at $114.5 million, an increase of 28.1% from total loans
      at
      December 31, 2004. Liquid investments, consisting of cash and due from banks,
      interest-earning deposits in other banks, federal funds sold, time deposits
      and
      investment securities available for sale, totaled $28.4 million, or 18.6% of
      total assets, at December 31, 2005, representing an increase of $2.5 million
      over the beginning of year total of $25.9 million. Total stockholders’ equity
      increased from $9.4 million at December 31, 2004 to $10.4 million at December
      31, 2005, as a result of retention of net income of $1.1 million. At December
      31, 2005, the Bank’s capital exceeds the levels that are deemed to be
“well-capitalized” under applicable regulatory capital
      requirements.








6




**CB
          Financial Corporation**
 **Management's
          Discussion and Analysis**


**RESULTS
      OF OPERATIONS**


**For
      the Years Ended December 31, 200** **5
      and 2004**





*Overview*. The
      Company earned net income of $1.1 million or $1.13 per basic share for the
      year
      ended December 31, 2005, as compared with net income of $682,000 or $0.68 per
      basic share for 2004. This increase of $453,000 or $0.45 per share in net
      operating results was principally attributable to an increase in net interest
      income of $1.4 million. Non-interest income for the same year increased by
      $150,000, from $724,000 to $874,000. Non-interest expenses increased $722,000
      from $2.3 million for 2004 to $3.1 million for the year ended December 31,
      2005.





*Net
      Interest Income*. Net interest income increased to $4.6 million for
      the year ended December 31, 2005, a $1.4 million or 43.4% increase from the
      $3.2
      million earned in 2004. Total interest income benefited from growth in the
      level
      of average earning assets and 14 consecutive increases in short-term rates
      by
      the Federal Reserve. Average total interest-earning assets increased by $25
      million or 24.6% during the year ended December 31, 2005, as compared to the
      year ended December 31, 2004, while the average interest rate earned increased
      by 100 basis points from 5.06% to 6.06%. Average total interest-bearing
      liabilities increased by $13.6 million, consistent with the increase in
      interest-earning assets, and yielded an 82 basis point increase in average
      cost,
      from 2.14% during 2004 to 2.96% in 2005. For the year ended December 31, 2005,
      the interest rate spread was 3.10%, a 18 basis point improvement from the year
      ended December 31, 2004 interest rate spread of 2.92%.





*Provision
      for Loan Losses*. The Company recorded a $625,000 provision for
      loan losses in 2005, after incurring $66,000 in net charge-offs. Provisions
      for
      loan losses are charged to income to bring the allowance for loan losses to
      a
      level deemed appropriate by management. In evaluating the allowance for loan
      losses, management considers factors that include growth, composition and
      industry diversification of the portfolio, historical loan loss experience,
      current delinquency levels, adverse situations that may affect a borrower’s
      ability to repay, estimated value of any underlying collateral, prevailing
      economic and business conditions and other relevant factors. In both 2005 and
      2004, the provision for loan losses was made principally in response to growth
      in loans, as total loans outstanding increased by $25.1 million in 2005 and
      by
      $16.1 million in 2004, and to net loan charge-offs, which were $66,000 in 2005
      and $431,000 in 2004. At December 31, the allowance for loan losses was $1.8
      million for 2005 and $1.2 million for 2004, representing 1.55% and 1.36%,
      respectively, of loans outstanding. At December 31, 2005, loans delinquent
      more
      than 90 days or on non-accrual amounted to $ 2.2 million. Interest income that
      would have been recorded on non-accrual loans was $100,272 for the year ended
      December 31, 2005. There were $293,000 of non-performing loans at December
      31,
      2004. The $66,000 in net charge-offs resulted primarily from write-downs of
      several commercial loan relationships. In October of 2005, federal bankruptcy
      laws were changed and many bankruptcies occurred in advance of the change.
      In
      Wilson County over one thousand cases were filed, 11 of which were Cornerstone
      customers. Most of these had not been on the past due report prior to the
      filing. With the legal system backed up with the onslaught of filings, we expect
      to be working through these cases over an extended period of time.








7




**CB
          Financial Corporation**
 **Management's
          Discussion and Analysis**




*Non-Interest
      Income.*  Non-interest
      income increased by $150,000, from $724,000 for 2004 to $874,000 for 2005.
      Service fees and charges, which represent a relatively stable and predictable
      source of non-interest income, totaled $445,000 for 2005, as compared with
      $365,000 of service fees and charges earned in 2004, an increase related
      principally to deposit growth. The other major source of non-interest income,
      mortgage loan fees, increased slightly in 2005. Through associations with
      certain mortgage lending companies, the Bank originates a full range of
      competitively priced residential and commercial long-term mortgages, at both
      fixed and variable rates, earning fees for loans originated. Because the Bank
      originates these mortgages, the Bank’s customers receive personal face-to-face
      service from the Bank’s employees, rather than dealing with third parties.
      Mortgage loan originations, which had declined in 2004 because of the increase
      in mortgage interest rates, improved slightly in 2005 as a result of adding
      a
      mortgage loan production office in Zebulon, NC. The Company’s management will
      continue efforts to develop sources of additional non-interest income.





*Non-Interest
      Expenses.* Non-interest expenses totaled $3.1 million for the year ended December 31,
      2005,
      an increase of $722,000 from the total of $2.3 million for the year ended
      December 31, 2004, as salaries and benefits increased to support the growth
      in
      bank assets and the addition of two new banking facilities. The aggregate
      increase in the other categories of non-interest expenses is primarily
      attributable to the Bank’s growth from period to period. The Bank’s plan for
      2006 calls for continued asset growth, and management expects that growth in
      revenues will continue but expect the added cost of the new branches will impact
      the growth in net earnings.





*Income
      Taxes.* The
      Company’s 2005 income tax expense was $609,000, representing 35% of income
      before income taxes, a substantial increase over the prior year. The Company’s
      2004 income tax expense of $265,000, representing an effective rate of 27%,
      reflected the utilization of $62,000 of deferred tax assets generated in prior
      years.








8




**CB
          Financial Corporation**
 **Management's
          Discussion and Analysis**




**NET
      INTEREST INCOME**




Like
      most
      financial institutions, the primary component of earnings for the Bank is net
      interest income. Net interest income is the difference between interest income,
      principally from loan and investment securities portfolios, and interest
      expense, principally on customer deposits and borrowings. Changes in net
      interest income result from changes in volume, spread and margin. For this
      purpose, volume refers to the average dollar level of interest-earning assets
      and interest-bearing liabilities, spread refers to the difference between the
      average yield on interest-earning assets and the average cost of
      interest-bearing liabilities, and margin refers to net interest income divided
      by average interest-earning assets and is influenced by the level and relative
      mix of interest-earning assets and interest-bearing liabilities, as well as
      levels of non -interest-bearing
      liabilities. The
      rates earned on a significant portion of the Bank’s loans adjust immediately
      when index rates such as the prime rate change. Conversely, most
      interest-bearing liabilities, including certificates of deposit and borrowings,
      have rates fixed until maturity. As a result, interest rate increases will
      generally result in an immediate rise in the Bank’s interest income on loans,
      with a more delayed impact on interest expense because increases in interest
      costs will only occur upon renewals of certificates of deposit or borrowings. The
      following table sets forth, for the periods indicated, information with regard
      to average balances of assets and liabilities, as well as the total dollar
      amounts of interest income from interest-earning assets and interest expense
      on
      interest-bearing liabilities, resultant yields or costs, net interest income,
      net interest spread, net interest margin and ratio of average interest-earning
      assets to average interest-bearing liabilities. Non-accrual loans have been
      included in determining average loans.




Year
                  Ended December 31, 2005
              
              
              Year
                  Ended December 31, 2004Average
                balance
              
              
              InterestIncome/
                Expense
              
              Yield/
                Cost
              
              
              Average
                balance
              
              
              Interest
                Income/
                Expense
              
              
              Yield/Cost(Dollars
                  in thousands)Interest-earning
                assets:Loans
              
              $
              97,732
              
              
              $
              6,617
              
              
              6.77
              %
              
              $
              81,235
              
              
              $
              4,529
              
              
              5.58
              %Investment
                  securities(1)
              
              
              19,354
              
              
              
              731
              
              
              3.78
              %
              
              
              14,239
              
              
              
              485
              
              
              3.41
              %Other
                  interest-earning assets(2)
              
              
              8,632
              
              
              
              270
              
              
              3.13
              %
              
              
              5,448
              
              
              
              88
              
              
              1.62
              %Total
                  interest-earning assets
              
              
              125,718
              
              
              
              7,618
              
              
              6.06
              %
              
              
              100,922
              
              
              
              5,102
              
              
              5.06
              %Other
                  assets
              
              
              6,737
              
              
              
              
              
              
              
              
              
              
              5,059Total
                  assets
              
              $
              132,455
              
              
              
              
              
              
              
              
              
              $
              105,981Interest-bearing
                  liabilities:Deposits:Savings,
                  NOW and money market
              
              $
              42,608
              
              
              
              867
              
              
              2.03
              %
              
              $
              46,754
              
              
              
              756
              
              
              1.62
              %Time
                  deposits over $100,000
              
              
              16,916
              
              
              
              669
              
              
              3.95
              %
              
              
              12,786
              
              
              
              348
              
              
              2.72
              %Other
                  time deposits
              
              
              38,011
              
              
              
              1,258
              
              
              3.31
              %
              
              
              27,265
              
              
              
              738
              
              
              2.71
              %Short
                  term borrowings
              
              
              171
              
              
              
              7
              
              
              4.09
              %
              
              
              276
              
              
              
              5
              
              
              1.81
              %Long
                  term borrowings
              
              
              5,551
              
              
              
              254
              
              
              4.58
              %
              
              
              2,606
              
              
              
              73
              
              
              2.80
              %Total
                  interest-bearing liabilities
              
              
              103,257
              
              
              
              3,055
              
              
              2.96
              %
              
              
              89,687
              
              
              
              1,920
              
              
              2.14
              %Non-interest-bearing
                  deposits
              
              
              18,649
              
              
              
              
              
              
              
              
              
              
              7,047Other
                  liabilities
              
              
              532
              
              
              
              
              
              
              
              
              
              
              544Stockholders'
                  equity
              
              
              10,017
              
              
              
              
              
              
              
              
              
              
              8,703Total
                  liabilities and stockholders'equity
              
              $
              132,455
              
              
              
              
              
              
              
              
              
              $
              105,981Net
                  interest income/interest rate spread
              
              
              
              
              
              $
              4,563
              
              
              3.10
              %
              
              
              
              
              
              $
              3,182
              
              
              2.92
              %Net
                  interest margin
              
              
              
              
              
              
              
              
              
              3.63
              %
              
              
              
              
              
              
              
              
              
              3.15
              %Ratio
                  of interest-earning assets tointerest-bearing
                  liabilities
              
              
              121.75
              %
              
              
              
              
              
              
              
              
              
              112.53
              %





(1) Includes
      time deposits, investment securities available for sale and held to maturity
      and
      stock in FHLB.


(2) Includes
      interest-earning deposits in banks and federal funds sold.





9




**CB
          Financial Corporation**
 **Management's
          Discussion and Analysis**


**RATE/VOLUME
      ANALYSIS**





The
      following table analyzes the dollar amount of changes in interest income and
      interest expense for major components of interest-earning assets and
      interest-bearing liabilities. The table distinguishes between (i) changes
      attributable to volume (changes in volume multiplied by the prior period’s
      rate), (ii) changes attributable to rate (changes in rate multiplied by the
      prior period’s volume), and (iii) net change (the sum of the previous columns).
      The change attributable to both rate and volume (changes in rate multiplied
      by
      changes in volume) has been allocated equally to both the changes attributable
      to volume and the changes attributable to rate.





Years
                Ended December 31, 2005 vs. 2004Increase
                (Decrease) Due toVolume
            
            Rate
            
            Total(Dollars
                in thousands)Interest
                income:Loans
            
            $
            1,018
            
            $
            1,070
            
            $
            2,088Investment
                securities
            
            
            184
            
            
            62
            
            
            246Other
                interest-earning assets
            
            
            76
            
            
            106
            
            
            182Total
                interest income
            
            
            1,278
            
            
            1,238
            
            
            2,516Interest
                expense:Deposits:Savings,
                NOW and money market
            
            
            (76
            )
            
            187
            
            
            111Time
                deposits over $100,000
            
            
            138
            
            
            183
            
            
            321Other
                time deposits
            
            
            323
            
            
            197
            
            
            520Short
                term borrowings
            
            
            (3
            )
            
            5
            
            
            2Long
                term borrowings
            
            
            109
            
            
            72
            
            
            181Total
                interest expense
            
            
            491
            
            
            644
            
            
            1,135Net
                interest income increase
            
            $
            787
            
            $
            594
            
            $
            1,381





**LOAN
      PORTFOLIO**





The Bank’s
      primary source of revenue is interest and fee income from its lending
      activities. These lending activities consist principally of originating
      commercial operating and working capital loans, residential mortgage loans,
      home
      equity lines of credit, other consumer loans and loans secured by commercial
      real estate. The Bank’s current lending strategy is to fully serve its deposit
      customers, including all market segments, and to establish greater market share
      throughout Wilson County. Additionally, we expect to purchase participations
      in
      selected markets with correspondent banks to diversify our loan
      portfolio.





Total
      loans, net of the allowance for loan losses and net deferred loan origination
      fees, at December 31, 2005, were $112.7 million compared to $88.1
      million at December 31, 2004, an increase of 27.9%. The Bank has a
      diversified loan portfolio with no significant concentrations to any one
      borrower or industry. The amounts of loans outstanding at
      December 31, 2005, by category, are shown in Note D to the
      consolidated financial statements included elsewhere herein.








10





**CB
        Financial Corporation**
 **Management's
        Discussion and Analysis**





**LIQUIDITY**





“Liquidity”
      refers to the ability of the Bank to fund loans, withdrawals and maturities
      of
      deposits, and other cash outflows in a cost effective manner. The Bank’s
      principal sources of liquidity are deposits, scheduled payments and prepayments
      of loan principal, maturities of investment securities, access to liquid
      deposits, and funds provided by operations. While scheduled loan payments and
      maturing investments are relatively predictable sources of funds, deposit flows
      and loan prepayments are greatly influenced by general interest rates, economic
      conditions and competition.





Liquid
      assets (consisting of cash and due from banks, interest-earning deposits with
      other banks, federal funds sold, time deposits and investment securities
      classified as available for sale) comprised 19% and 22% of the Company’s total
      assets at December 31, 2005 and 2004, respectively.





Through
      most of its existence, the Bank
      has
      been a net seller of federal funds, as its liquidity has exceeded its need
      to
      fund new loan demand. Should the need arise, the Bank would have the capability
      to sell securities classified as available for sale or to borrow funds as
      necessary. The Bank has established credit lines with other financial
      institutions to purchase up to $15.3 million in federal funds. As a member
      of
      the Federal Home Loan Bank of Atlanta, Cornerstone may obtain longer-term
      advances up to 10% of its assets. As of December 31, 2005, there was $6.3
      million outstanding in FHLB advances.





Total
      deposits were $129.1 million and $108.6 million at December 31, 2005 and 2004,
      respectively. Time deposits, which are the only deposit accounts that have
      stated maturity dates, are generally considered to be rate sensitive. Time
      deposits represented 62.9% and 43.4%, respectively, of total deposits at
      December 31, 2005 and 2004. Time deposits of $100,000 or more represented 25.6%
      and 19.4% of the Bank’s total deposits at December 31, 2005 and 2004,
      respectively. At December 31, 2005, the Bank had $2.2 million in brokered time
      deposits. Management believes most other time deposits are
      relationship-oriented. While the Bank will need to pay competitive rates to
      retain these deposits at their maturities, there are other subjective factors
      that will determine their continued retention. Based upon prior experience,
      the
      Bank anticipates that a substantial portion of outstanding certificates of
      deposit will renew upon maturity.





At
      December 31, 2005 (and at all times during the years presented in this report),
      the Company’s management believes that its liquidity sources, including unused
      lines of credit, were at an acceptable level and remained adequate to meet
      its
      operating needs.





**CAPITAL**





A
      significant measure of the strength of a financial institution is its capital
      base. Federal regulators have classified and defined capital into the following
      components: (1) Tier I capital, which includes common stockholders’ equity and
      qualifying preferred equity, and (2) Tier II capital, which includes a portion
      of the allowance for loan losses, certain qualifying long-term debt and
      preferred stock which does not qualify as Tier I capital. Minimum capital levels
      are regulated by risk-based capital adequacy guidelines which require a
      financial institution to maintain capital as a percent of its assets and certain
      off-balance sheet items adjusted for predefined credit risk factors
      (risk-adjusted assets). A financial institution is required to maintain, at
      a
      minimum, Tier I capital as a percentage of risk-adjusted assets of 4.0% and
      combined Tier I and Tier II capital as a percentage of risk-adjusted assets
      of
      8.0%. In addition to the risk-based guidelines, federal regulations require
      that
      we maintain a minimum leverage ratio (Tier I capital as a percentage of tangible
      assets) of 4.0%. The Company had an equity-to-assets ratio of 6.82 % at December
      31, 2005. As the following table indicates, at December 31, 2005, both the
      Company and the Bank exceeded regulatory capital requirements.





11




**CB
        Financial Corporation**
 **Management's
        Discussion and Analysis**





At
                December 31, 2005Company’s
            
            Bank’s
            
            Minimum
            
            Well-CapitalizedRatio
            
            Ratio
            
            Requirement
            
            RequirementTotal
                capital - Tier II capital
            
            
            15.5
            %
            
            15.4
            %
            
            8.0
            %
            
            10.0
            %Tier
                1 capital.
            
            
            12.8
            %
            
            14.1
            %
            
            4.0
            %
            
            6.0
            %Leverage-Tier
                I capital
            
            
            9.6
            %
            
            10.5
            %
            
            4.0
            %
            
            5.0
            %





Management
      expects that the Bank will remain “well-capitalized” for regulatory purposes,
      although there can be no assurance that additional capital will not be required
      in the near future due to greater-than-expected growth, or
      otherwise.





**CRITICAL
      ACCOUNTING POLICIES**





The
      Company’ discussion and analysis of its financial condition and results of
      operations are based upon its consolidated financial statements, which have
      been
      prepared in accordance with accounting principles generally accepted in the
      United States of America. The preparation of these consolidated financial
      statements requires the Company to make estimates and judgments regarding
      uncertainties that affect the reported amount of assets, liabilities, revenues
      and expenses. On an ongoing basis, the Company evaluates its estimates that
      are
      based upon historical experience and other assumptions believed to be reasonable
      under the circumstances. Actual results may differ from these estimates under
      different assumptions or conditions.





The
      Company’s most significant accounting policy is the determination of its
      allowance for loan losses. Cornerstone records provisions for loan losses based
      upon known problem loans and estimated deficiencies in the existing loan
      portfolio. The Company’s methodology for determining the level of its allowance
      for loan losses consists of two key components, which are a specific allowance
      for identified problem or impaired loans and a formula allowance for the
      remainder of the portfolio.





Identified
      problem and impaired loans are measured for impairment based on the present
      value of expected future cash flows discounted at the loan’s effective interest
      rate, the loan’s observable market price or the fair value of the collateral, if
      the loan is collateral dependent. This evaluation is inherently subjective
      as it
      requires material estimates that may be susceptible to significant change.
      The
      adequacy of the allowance is also reviewed by management based upon its
      evaluation of then-existing economic and business conditions affecting the
      key
      lending areas of the Bank and other conditions, such as new loan products,
      collateral values, loan concentrations, changes in the mix and volume of the
      loan portfolio; trends in portfolio credit quality, including delinquency and
      charge-off rates; and current economic conditions that may affect a borrower’s
      ability to repay. Although management believes it has established and maintained
      the allowance for loan losses at appropriate levels, future adjustments may
      be
      necessary if economic and other conditions differ substantially from the current
      operating environment.





A
      summary
      of the Company’s significant accounting policies is set forth in Note B to the
      accompanying consolidated financial statements.








12





**CB
        Financial Corporation**
 **Management's
        Discussion and Analysis**





**RECENT
      ACCOUNTING PRONOUNCEMENTS**





See
      Note
      B to the accompanying consolidated financial statements for a full description
      of recent accounting pronouncements including the respective expected dates
      of
      adoption and effects on results of operations and financial
      condition.




**OFF-BALANCE
      SHEET ARRANGEMENTS**





Information
      about the Company’s
      off-balance sheet risk exposure is presented in Note K to the accompanying
      consolidated financial statements. As part of our ongoing business, we do not
      participate in transactions that generate relationships with unconsolidated
      entities or financial partnerships, such as entities often referred to as
      special purpose entities (SPEs), which generally are established for the purpose
      of facilitating off-balance sheet arrangements or other contractually narrow
      or
      limited purposes. As of December 31, 2005, we are not involved in any
      unconsolidated SPE transactions.





**ASSET/LIABILITY
      MANAGEMENT**





The
      Company’s results of operations depend substantially on its net interest income.
      Like most financial institutions, the Bank’s interest income and cost of funds
      are affected by general economic conditions and by competition in the market
      place.





The
      purpose of asset/liability management is to provide stable net interest income
      growth by protecting the Company’s earnings from undue interest rate risk, which
      arises from volatile interest rates and changes in the balance sheet mix, and
      by
      managing the risk/return relationships between liquidity, interest rate risk,
      market risk, and capital adequacy. The Company maintains, and has complied
      with,
      an asset/liability management policy, approved by the Board of Directors, that
      provides guidelines for controlling exposure to interest rate risk by utilizing
      the following ratios and trend analysis: liquidity, equity, volatile liability
      dependence, portfolio maturities, maturing assets and maturing liabilities.
      The
      Bank’s policy is to control the exposure of its earnings to changing interest
      rates by generally endeavoring to maintain a position within a narrow range
      around an “earnings neutral position,” which is defined as the mix of assets and
      liabilities that generate a net interest margin that is least affected by
      interest rate changes.





When
      suitable lending opportunities are not sufficient to utilize available funds,
      the Bank has generally invested such funds in ,securities issued by governmental
      agencies, mortgage-backed securities and municipal securities. The securities
      portfolio contributes to the Company’s profits and plays an important part in
      the overall interest rate management. However, management of the securities
      portfolio alone cannot balance overall interest rate risk. The securities
      portfolio must be used in combination with other asset/liability techniques
      to
      actively manage the balance sheet. The primary objectives in the overall
      management of the securities portfolio are liquidity, safety, yield,
      asset/liability management (interest rate risk), and investing in securities
      that can be pledged for public deposits.





In
      reviewing the needs of the Bank with regard to proper management of its
      asset/liability program, the Bank’s management estimates its future needs,
      taking into consideration historical periods of high loan demand and low deposit
      balances, estimated loan and deposit increases (due to increased demand through
      marketing), and forecasted interest rate changes.








13




**CB
        Financial Corporation**
 **Management's
        Discussion and Analysis**





The
      analysis of an institution’s interest rate gap (the difference between the
      repricing of interest-earning assets and interest-bearing liabilities during
      a
      given period of time) is a standard tool for the measurement of exposure to
      interest rate risk. The following table sets forth the amounts of
      interest-earning assets and interest-bearing liabilities outstanding at December
      31, 2005, which are projected to reprice or mature in each of the future time
      periods shown. Except as stated below, the amounts of assets and liabilities
      shown that reprice or mature within a particular period were determined in
      accordance with the contractual terms of the assets or liabilities. Loans with
      adjustable rates are shown as being due at the end of the next upcoming
      adjustment period. Money market deposit accounts and negotiable order of
      withdrawal or other transaction accounts are assumed to be subject to immediate
      repricing and depositor availability and have been placed in the shortest
      period. In making the gap computations, none of the assumptions sometimes made
      regarding prepayment rates and demand deposit retention rates have been used
      for
      any interest-earning assets or interest-bearing liabilities. In addition, the
      table does not reflect scheduled principal payments that will be received
      throughout the lives of the loans. The interest rate sensitivity of the Bank’s
      assets and liabilities illustrated in the following table would vary
      substantially if different assumptions were used or if actual experience differs
      from that indicated by such assumptions.







Terms
                to Repricing at December 31, 2005More
                Than
            
            More
                Than1
                Year
            
            1
                Year to
            
            3
                Years to
            
            More
                Thanor
                Less
            
            3
                Years
            
            5
                Years
            
            5
                Years
            
            Total(Dollars
                in thousands)Interest-earning
                assets:Loans:Variable
                rate
            
            $
            100,246
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            100,246Fixed
                rate
            
            
            3,538
            
            
            3,722
            
            
            5,638
            
            
            1,324
            
            
            14,222Securities
                available for sale
            
            
            1,481
            
            
            2,461
            
            
            493
            
            
            9,006
            
            
            13,441Securities
                held to maturity
            
            
            197
            
            
            —
            
            
            630
            
            
            5,256
            
            
            6,083Other
                interest-earning assets
            
            
            9,794
            
            
            794
            
            
            —
            
            
            —
            
            
            10,588Total
                interest-earning assets
            
            $
            115,256
            
            $
            6,977
            
            $
            6,761
            
            $
            15,586
            
            $
            144,580Interest-bearing
                liabilities:Deposits:Savings,
                NOW and money market
            
            $
            36,236
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            36,236Time
                over $100,000
            
            
            25,685
            
            
            6,218
            
            
            1,132
            
            
            —
            
            
            33,035Other
                time
            
            
            32,651
            
            
            12,178
            
            
            3,330
            
            
            —
            
            
            48,159Borrowings
            
            
            1,138
            
            
            —
            
            
            —
            
            
            11,405
            
            
            12,543Total
                interest-bearing liabilities
            
            $
            95,710
            
            $
            18,396
            
            $
            4,462
            
            $
            11,405
            
            $
            129,973Interest
                sensitivity gap per period
            
            $
            19,546
            
            $
            (11,419
            )
            $
            2,299
            
            $
            4,181
            
            $
            14,607Cumulative
                interest sensitivity gap
            
            $
            19,546
            
            $
            8,127
            
            $
            10,426
            
            $
            14,607
            
            $
            14,607Cumulative
                gap as a percentage oftotal
                interest-earning assets
            
            
            13.52
            %
            
            5.62
            %
            
            7.21
            %
            
            10.10
            %
            
            10.10
            %Cumulative
                interest-earningassets
                as a percentage ofinterest-bearing
                liabilities
            
            
            120.42
            %
            
            107.12
            %
            
            108.79
            %
            
            111.24
            %
            
            111.24
            %








14





**CB
        Financial Corporation**
 **Management's
        Discussion and Analysis**





The
      following table sets forth the maturity distribution of our loans as of December
      31, 2005. A significant majority of our loans maturing after one year reprice
      at
      two and three year intervals. In addition, approximately 89.5% of our loan
      portfolio is comprised of variable rate loans.





Due
                in 1
            
            Due
                after 1 yearYear
                or
            
            through
                5 years
            
            Due
                after 5 yearsless
            
            Floating
            
            Fixed
            
            Floating
            
            Fixed
            
            Total(Dollars
                in thousands)Real
                estate - construction
            
            $
            3,115
            
            $
            30
            
            $
            97
            
            $
            -
            
            $
            491
            
            $
            3,733Commercial
                and industrial loans
            
            
            49,635
            
            
            31,562
            
            
            5,748
            
            
            5,109
            
            
            553
            
            
            92,607All
                other loans
            
            
            7,951
            
            
            5,341
            
            
            3,299
            
            
            1,295
            
            
            279
            
            
            18,165Total
            
            $
            60,701
            
            $
            36,933
            
            $
            9,144
            
            $
            6,404
            
            $
            1,323
            
            $
            114,505





**ASSET
      QUALITY AND THE ALLOWANCE FOR LOAN LOSSES**





The
      consolidated financial statements of the Bank are prepared on the accrual basis
      of accounting, including the recognition of interest income on the Bank’s loan
      portfolio, unless a loan is placed on a non-accrual basis. Loans are placed
      on a
      non-accrual basis when there are serious doubts about the collectibility of
      principal or interest. Amounts received on non-accrual loans generally are
      applied first to principal and then to interest only after all principal has
      been collected. Restructured loans are those for which concessions, including
      the reduction of interest rates below a rate otherwise available to that
      borrower or the deferral of interest or principal, have been granted due to
      the
      borrower’s weakened financial condition. Interest on restructured loans is
      accrued at the restructured rates when it is anticipated that no loss of
      original principal will occur. The Bank’s impaired loans consisted of $2.2
      million in non-accrual loans at December 31, 2005. There were no impaired loans
      at December 31, 2004. There was one restructured loan for approximately $11,000
      at December 31, 2005 and no restructured loans at December 31,
      2004.





The
      allowance for loan losses is maintained at a level considered adequate by
      management to provide for anticipated loan losses based on management’s
      assessment of various factors affecting the loan portfolio, including a review
      of problem loans, business conditions and loss experience and an overall
      evaluation of the quality of the underlying collateral. The allowance is
      increased by provisions charged to operations and reduced by loans charged
      off,
      net of recoveries. While management believes that it uses the best information
      available to determine the allowance for loan losses, unforeseen market
      conditions could result in adjustments to the allowance for loan losses, and
      net
      income could be significantly affected, if circumstances differ substantially
      from the assumptions used in making the final determination. Additional
      information regarding the Bank’s allowance for loan losses and loan loss
      experience are presented in Note D to the accompanying consolidated financial
      statements.








15




**CB
        Financial Corporation**
 **Management's
        Discussion and Analysis**





***FORWARD-LOOKING
      INFORMATION***





This
      report contains certain forward-looking statements with respect to the financial
      condition, results of operations and business of the Company and the Bank.
      These
      forward-looking statements involve risks and uncertainties and are based on
      the
      beliefs and assumptions of management the Bank and on the information available
      to management at the time that these disclosures were prepared. These statements
      can be identified by the use of words like “expect,” “anticipate,” “estimate”
and “believe,” variations of these words and other similar expressions. Readers
      should not place undue reliance on forward-looking statements as a number of
      important factors could cause actual results to differ materially from those
      in
      the forward-looking statements. Factors that could cause actual results to
      differ materially include, but are not limited to, (1) competition in the Bank’s
      markets, (2) changes in the interest rate environment, (3) general national,
      regional or local economic conditions may be less favorable than expected,
      resulting in, among other things, a deterioration in credit quality and the
      possible impairment of collectibility of loans, (4) legislative or regulatory
      changes, including changes in accounting standards, (5) significant changes
      in
      the federal and state legal and regulatory environment and tax laws, (6) the
      impact of changes in monetary and fiscal policies, laws, rules and regulations
      and (7) other risks and factors identified in the Company’s other filings with
      the Securities and Exchange Commission. The Company undertakes no obligation
      to
      update any forward-looking statements.







16
















***REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM***














To
      the
      Stockholders and the Board of Directors


CB
      Financial Corporation


Wilson,
      North Carolina








We
      have
      audited the accompanying consolidated balance sheets of CB Financial Corporation
      and subsidiary (the “Company”) as of December 31, 2005 and 2004, and the related
      consolidated statements of operations, comprehensive income, changes in
      stockholders’ equity and cash flows for the years then ended. These consolidated
      financial statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. We were not engaged to perform
      an
      audit of the Company’s internal control over financial reporting. Our audit
      included consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the
      Company’s internal control over financial reporting. Accordingly, we express no
      such opinion. An audit also includes examining, on a test basis, evidence
      supporting the amounts and disclosures in the financial statements, assessing
      the accounting principles used and significant estimates made by management,
      as
      well as evaluating the overall financial statement presentation. We believe
      that
      our audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated
      financial statements referred to above present fairly, in all material respects,
      the financial position of CB Financial Corporation and subsidiary at December
      31, 2005 and 2004 and the results of its operations and its cash flows for
      the
      years then ended in conformity with accounting principles generally accepted
      in
      the United States of America.











*Raleigh,
      North Carolina*


*March
      29, 2006*










17





**CB****FINANCIAL CORPORATION AND SUBSIDIARY**


***CONSOLIDATED
      BALANCE SHEETS***


***Years
      Ended December 31, 2005 and 2004***







2005
            
            2004**ASSETS**Cash
                and due from banks
            
            $
            4,903,580
            
            $
            2,552,526Interest-earning
                deposits in banks
            
            
            4,606,921
            
            
            3,396,432Federal
                funds sold
            
            
            —
            
            
            4,680,000Time
                deposits
            
            
            5,453,000
            
            
            4,316,439Investment
                securities available for sale, at fair value (Note C)
            
            
            13,440,629
            
            
            10,908,287Investment
                securities held to maturity, at amortized cost (Note C)
            
            
            6,082,888
            
            
            1,663,116Loans
                (Note D)
            
            
            114,467,614
            
            
            89,330,086Allowance
                for loan losses
            
            
            (1,775,000
            )
            
            (1,215,979
            )NET
                LOANS
            
            
            112,692,614
            
            
            88,114,107Accrued
                interest receivable
            
            
            628,058
            
            
            442,982Stock
                in Federal Home Loan Bank of Atlanta, at cost
            
            
            528,600
            
            
            272,400Premises
                and equipment (Note E)
            
            
            1,757,272
            
            
            1,539,750Bank-owned
                life insurance
            
            
            1,337,839
            
            
            1,285,591Real
                estate owned
            
            
            117,414
            
            
            38,965Other
                assets
            
            
            1,222,467
            
            
            761,609TOTAL
                ASSETS
            
            $
            152,771,282
            
            $
            119,972,204**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Deposits:Demand
            
            $
            11,638,277
            
            $
            16,203,444Savings
            
            
            1,128,594
            
            
            1,092,772Money
                market and NOW
            
            
            35,107,497
            
            
            44,183,864Time
                (Note F)
            
            
            81,195,030
            
            
            47,143,971TOTAL
                DEPOSITS
            
            
            129,069,398
            
            
            108,624,051Short
                term borrowings
            
            
            1,055,000
            
            
            —Long
                term borrowings
            
            
            11,488,333
            
            
            1,666,667Accrued
                interest payable
            
            
            237,943
            
            
            107,362Accrued
                expenses and other liabilities
            
            
            478,816
            
            
            178,603TOTAL
                LIABILITIES
            
            
            142,329,490
            
            
            110,576,683Commitments
                (Notes K and M)Stockholders’
                equity (Notes J and M):Preferred
                stock, 20,000,000 shares authorized, none issued
            
            
            —
            
            
            -Common
                stock, no par value, 80,000,000 shares authorized;1,014,228
                shares issued and outstanding
            
            
            9,640,494
            
            
            -Common
                stock, $5 par value, 20,000,000 shares authorized;959,728
                shares issued and outstanding
            
            
            —
            
            
            4,798,640Additional
                paid-in capital
            
            
            —
            
            
            4,112,068Retained
                earnings
            
            
            959,825
            
            
            459,322Accumulated
                other comprehensive income (loss)
            
            
            (158,527
            )
            
            25,491TOTAL
                STOCKHOLDERS’ EQUITY
            
            
            10,441,792
            
            
            9,395,521TOTAL
                LIABILITIES ANDSTOCKHOLDERS’
                EQUITY
            
            $
            152,771,282
            
            $
            119,972,204











18


**CB****FINANCIAL CORPORATION AND SUBSIDIARY**
 ***CONSOLIDATED
        STATEMENTS OF OPETATIONS***
 **Years
          Ended December 31, 2005 and 2004**





2005
            
            2004INTERESTINCOMELoans
            
            $
            6,617,468
            
            $
            4,529,112Investment
                securities
            
            
            614,114
            
            
            419,875Federal
                funds sold
            
            
            139,834
            
            
            11,490Interest-earning
                deposits in banks
            
            
            130,276
            
            
            76,668Other
                interest and dividends
            
            
            116,868
            
            
            65,091TOTALINTERESTINCOME
            
            
            7,618,560
            
            
            5,102,236INTEREST
                EXPENSEMoney
                market, NOW and savings deposits
            
            
            867,374
            
            
            755,746Time
                deposits
            
            
            1,926,954
            
            
            1,086,784Short
                term borrowings
            
            
            6,694
            
            
            5,068Long
                term borrowings
            
            
            254,148
            
            
            72,492TOTAL
                INTEREST EXPENSE
            
            
            3,055,170
            
            
            1,920,090NET
                INTEREST INCOME
            
            
            4,563,390
            
            
            3,182,146PROVISION
                FOR LOAN LOSSES (Note D)
            
            
            625,327
            
            
            613,856NET
                INTEREST INCOME AFTERPROVISION
                FOR LOAN LOSSES
            
            
            3,938,063
            
            
            2,568,290NON-INTEREST
                INCOMEService
                charges on deposit accounts
            
            
            445,435
            
            
            365,133Mortgage
                operations
            
            
            217,623
            
            
            208,234Loss
                on sale of investment securities
            
            
            -
            
            
            (12,156
            )Other
                income
            
            
            211,182
            
            
            163,088TOTAL
                NON-INTEREST INCOME
            
            
            874,240
            
            
            724,299NON-INTEREST
                EXPENSESalaries
                and employee benefits
            
            
            1,710,675
            
            
            1,301,394Occupancy
                and equipment
            
            
            203,903
            
            
            151,821Data
                processing expenses
            
            
            384,298
            
            
            294,337Other
                (Note I)
            
            
            769,150
            
            
            598,104TOTAL
                NON-INTEREST EXPENSE
            
            
            3,068,026
            
            
            2,345,656INCOME
                BEFORE INCOME TAXES
            
            
            1,744,277
            
            
            946,933INCOME
                TAXES (Note H)
            
            
            609,000
            
            
            264,996NET
                INCOME
            
            $
            1,135,277
            
            $
            681,937NET
                INCOME PER SHAREBasic
            
            $
            1.13
            
            $
            0.68Diluted
            
            
            1.10
            
            
            0.67WEIGHTED
                AVERAGE SHARES OUTSTANDINGBasic
            
            
            1,007,650
            
            
            1,007,348Diluted
            
            
            1,034,749
            
            
            1,022,349





See
      accompanying notes.








19


**CB****FINANCIAL CORPORATION AND SUBSIDIARY**
 ***CONSOLIDATED
        STATEMENTS OF COMPREHENSIVE INCOME***
 ***Years
        Ended December 31, 2005 and 2004***




2005
            
            2004NET
                INCOME
            
            $
            1,135,277
            
            $
            681,937OTHER
                COMPREHENSIVE LOSS:Securities
                available for sale:Unrealized
                holding losses on available-for-sale
                    securities
            
            
            (299,458
            )
            
            (15,502
            )Tax
                effect
            
            
            115,440
            
            
            5,977Reclassification
                of losses recognizedin
                net income
            
            
            —
            
            
            12,156Tax
                effect
            
            
            —
            
            
            (4,687
            )TOTAL
                OTHER COMPREHENSIVELOSS
            
            
            (184,018
            )
            
            (2,056
            )COMPREHENSIVE
                INCOME
            
            $
            951,259
            
            $
            679,881




*See
      accompanying notes.*


20





**CB****FINANCIAL CORPORATION AND SUBSIDIARY**
 ***CONSOLIDATED
        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY***
 **Years
          Ended December 31, 2005 and 2004**




AccumulatedotherAdditional
            
            
            
            comprehensive
            
            TotalCommon
                stock
            
            paid-in
            
            Retained
            
            income
            
            stockholders’Shares
            
            Amount
            
            capital
            
            earnings
            
            (loss)
            
            equityBalance
                at December 31, 2003
            
            
            914,732
            
            $
            4,573,660
            
            $
            3,839,817
            
            $
            274,616
            
            $
            27,547
            
            $
            8,715,640Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            681,937
            
            
            —
            
            
            681,937Other
                comprehensive loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (2,056
            )
            
            (2,056
            )5%
                stock dividend, net offractional
                shares
            
            
            44,996
            
            
            224,980
            
            
            272,251
            
            
            (497,231
            )
            
            —
            
            
            —Balance
                at December 31, 2004
            
            
            959,728
            
            
            4,798,640
            
            
            4,112,068
            
            
            459,322
            
            
            25,491
            
            
            9,395,521Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            1,135,277
            
            
            —
            
            
            1,135,277Other
                comprehensive loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (184,018
            )
            
            (184,018
            )5%
                stock dividend, net offractional
                shares
            
            
            47,620
            
            
            238,100
            
            
            396,674
            
            
            (634,774
            )
            
            —
            
            
            —Issuance
                of common stock
            
            
            6,880
            
            
            34,400
            
            
            40,800
            
            
            75,200Stock
                option expense
            
            
            19,812
            
            
            19,812Effect
                of holding companyreorganization
            
            
            —
            
            
            4,569,354
            
            
            (4,569,354
            )
            
            —
            
            
            —
            
            
            —Balance
                at December 31, 2005
            
            
            1,014,228
            
            $
            9,640,494
            
            $
            —
            
            $
            959,825
            
            $
            (158,527
            )
            $
            10,441,792





See
      accompanying notes.





21


**CB
      FINANCIAL CORPORATION AND SUBSIDIARY**


***CONSOLIDATED
      STATEMENTS OF CASH FLOWS***


***Years
      Ended December 31, 2005 and 2004***








2005
            
            2004CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                income
            
            $
            1,135,277
            
            $
            681,937Adjustments
                to reconcile net income tonet
                cash provided by operating activities:Depreciation
                and amortization
            
            
            170,774
            
            
            186,090Compensation
                expense as result of vesting acceleration of stock options
            
            
            19,812Realized
                loss on available-for-sale securities
            
            
            —
            
            
            12,156Gain
                on sale of bank equipment
            
            
            (250
            )
            
            —Gain
                on sale of real estate owned
            
            
            (29,574
            )
            
            —Provision
                for loan losses
            
            
            625,327
            
            
            613,856Earnings
                on bank-owned life insurance
            
            
            (52,248
            )
            
            (56,143
            )Deferred
                income tax benefit
            
            
            (188,000
            )
            
            (33,000
            )Change
                in assets and liabilities:Increase
                in accrued interest receivable
            
            
            (185,076
            )
            
            (125,623
            )(Increase)
                decrease in other assets
            
            
            172,582
            
            
            (114,730
            )Increase
                in accrued interest payable
            
            
            130,581
            
            
            20,010Increase
                (decrease) in accrued expenses and other liabilities
            
            
            300,213
            
            
            22,234NET
                CASH PROVIDED BY OPERATING ACTIVITIES
            
            
            2,099,418
            
            
            1,206,787CASH
                FLOWS FROM INVESTING ACTIVITIESNet
                purchases of time deposits
            
            
            (1,136,561
            )
            
            (2,739,439
            )Purchase
                of available-for-sale investments
            
            
            (6,050,152
            )
            
            (5,344,908
            )Sales
                of available for sale investments
            
            
            —
            
            
            2,299,525Proceeds
                from sale of bank equipment
            
            
            250
            
            
            —Proceeds
                from sale of real estate owned
            
            
            68,538
            
            
            —Proceeds
                from maturities and calls of available for sale
                investments
            
            
            3,164,405
            
            
            3,332,634Purchases
                of held to maturity investments
            
            
            (4,426,953
            )
            
            (1,662,486
            )Net
                increase in loans
            
            
            (25,321,247
            )
            
            (16,613,098
            )Purchase
                of Federal Home Loan Bank stock
            
            
            (256,200
            )
            
            (11,600
            )Purchase
                of investments accounted for under the cost method
            
            
            (175,000
            )
            
            (305,486
            )Investment
                in unconsolidated trust
            
            
            (155,000
            )
            
            —Purchases
                of bank premises and equipment
            
            
            (327,168
            )
            
            (48,916
            )NET
                CASH USED BY INVESTING ACTIVITIES
            
            
            (34,615,088
            )
            
            (21,093,774
            )CASH
                FLOWS FROM FINANCING ACTIVITIESIncrease
                in deposits
            
            
            20,445,347
            
            
            21,252,564Issuance
                of common stock
            
            
            75,200
            
            
            —Net
                increase (decrease) in short term borrowings
            
            
            1,055,000
            
            
            (343,000
            )Net
                increase (decrease) in long term borrowings
            
            
            9,821,666
            
            
            (333,333
            )NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            31,397,213
            
            
            20,576,231NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            (1,118,457
            )
            
            689,244CASH
                AND CASH EQUIVALENTS, BEGINNING
            
            
            10,628,958
            
            
            9,939,714CASH
                AND CASH EQUIVALENTS, ENDING
            
            $
            9,510,501
            
            $
            10,628,958CASH
                AND CASH EQUIVALENTSCash
                and due from banks
            
            $
            4,903,580
            
            $
            2,552,526Interest-earning
                deposits in banks
            
            
            4,606,921
            
            
            3,396,432Federal
                funds sold
            
            
            —
            
            
            4,680,000$
            9,510,501
            
            $
            10,628,958SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATIONInterest
                paid
            
            $
            2,924,589
            
            $
            1,900,080Income
                taxes paid
            
            
            397,692
            
            
            219,790Unrealized
                loss on investment securities available for sale, net
            
            
            184,018
            
            
            2,056Transfer
                from loans to real estate owned
            
            
            117,413
            
            
            38,965




See
      accompanying notes.





22




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


**NOTE
      A - ORGANIZATION AND OPERATIONS**





Cornerstone
      Bank (the “Bank”) was incorporated on March 14, 2000 and began banking
      operations on March 15, 2000. The Bank is engaged in general commercial and
      retail banking in eastern North Carolina, principally in Wilson County, and
      operates under the banking laws of North Carolina and the rules and regulations
      of the Federal Deposit Insurance Corporation and the North Carolina Commissioner
      of Banks. The Bank undergoes periodic examinations by those regulatory
      authorities.





In
      June
      2005, the shareholders of Cornerstone Bank (the “Bank”) approved an Agreement
      and Plan of Reorganization pursuant to which the Bank became a wholly owned
      banking subsidiary of CB Financial Corporation (the “Company”), a North Carolina
      corporation formed as a holding company for the Bank. At the closing of the
      holding company reorganization (the “Reorganization”), one share of the
      Company’s no par value common stock was exchanged for each of the outstanding
      shares of the Bank's $5.00 par value common stock. The Company currently has
      no
      operations and conducts no business on its own other than its ownership of
      the
      Bank and the common shares of Financial Capital Trust I, a Connecticut statutory
      trust to facilitate the issuance of $5 million of trust preferred securities.
      See Note G. All intercompany transactions and balances have been eliminated
      in
      consolidation.





**NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




***Principles
      of Consolidation***




The
      consolidated financial statements include the accounts of CB Financial
      Corporation and Cornerstone Bank. All significant intercompany accounts and
      transactions have been eliminated in consolidation.





**Use
      of Estimates**





The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect (i) the reported
      amounts of assets and liabilities and the disclosure of contingent assets and
      liabilities at the date of the consolidated financial statements and (ii) the
      reported amounts of revenues and expenses during the reporting period. Actual
      results could differ from those estimates. Material estimates that are
      particularly susceptible to significant change relate to management’s
      determination of the allowance for loan losses.





**Cash
      and Cash Equivalents**





For
      the
      purpose of presentation in the statement of cash flows, cash and cash
      equivalents are defined as those amounts included in the balance sheet captions
      “Cash and due from banks,” “Interest-earning deposits in banks” and “Federal
      funds sold.”





***Investment
      Securities Available for Sale***





Investment
      securities available for sale are reported at fair value and consist of debt
      instruments that are not classified as either trading securities or as held
      to
      maturity securities. Unrealized holding gains and losses, net of deferred income
      tax, on available for sale securities are reported as a net amount in
      accumulated other comprehensive income. Gains and losses on the sale of
      investment securities available for sale are determined using the
      specific-identification method. Declines in the fair value of individual
      investment securities available for sale below their cost that are other than
      temporary would result in write-downs of the individual securities to their
      fair
      value. Such write-downs would be included in earnings as realized losses.
      Premiums and discounts are recognized in interest income using the interest
      method over the period to maturity.





23




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


**NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**





***Investment
      Securities Held to Maturity***





Investment
      securities that management has the positive intent and ability to hold to
      maturity are reported at cost, adjusted for premiums and discounts that are
      recognized in interest income using the interest method over the period to
      maturity. Declines in the fair value of individual investment securities
      available for sale below their cost that are other than temporary would result
      in write-downs of the individual securities to their fair value. Such
      write-downs would be included in earnings as realized losses.





**Loans**





Loans
      that management has the intent and ability to hold for the foreseeable future
      or
      until maturity are reported at their outstanding principal adjusted for any
      charge-offs, the allowance for loan losses, and any deferred fees or costs
      on
      originated loans and unamortized premiums or discounts on purchased loans.
      Loan
      origination fees and certain direct origination costs are capitalized and
      recognized as an adjustment of the yield of the related loan. The accrual of
      interest on impaired loans is discontinued when, in management’s opinion, the
      borrower may be unable to meet payments as they become due. When interest
      accrual is discontinued, all unpaid accrued interest is reversed. Interest
      income is subsequently recognized only to the extent cash payments are received.





***Allowance
      for Loan Losses***





The
      provision for loan losses is based upon management’s estimate of the amount
      needed to maintain the allowance for loan losses at an adequate level. In making
      the evaluation of the adequacy of the allowance for loan losses, management
      gives consideration to current business and economic conditions, statutory
      examinations of the loan portfolio by regulatory agencies, delinquency
      information and management’s internal review of the loan portfolio. Loans are
      considered impaired when it is probable that all amounts due under the
      contractual terms of the loan will not be collected. The measurement of impaired
      loans is generally based on the present value of expected future cash flows
      discounted at the historical effective interest rate, or upon the fair value
      of
      the collateral if the loan is collateral dependent. If the recorded investment
      in the loan exceeds the measure of fair value, a valuation allowance is
      established as a component of the allowance for loan losses. While management
      uses the best information available to make evaluations, future adjustments
      to
      the allowance may be necessary if conditions differ substantially from the
      assumptions used in making the evaluations. In addition, regulatory examiners
      may require the Bank to recognize adjustments to the allowance for loan losses
      based on their judgments about information available to them at the time of
      their examination.





**Mortgage
      Operations**





The
      Bank
      originates single family, residential first mortgage loans on a presold basis.
      The Bank recognizes certain origination and service release fees upon the sale,
      which are included in non-interest income on the statements of operations under
      the caption “Mortgage operations.”








24





***CB
      FINANCIAL CORPORATION AND SUBSIDIARY*** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***




***NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)***





**Premises
      and Equipment**





Company’s
      premises and equipment are stated at cost less accumulated depreciation.
      Depreciation is calculated on the straight-line method over the estimated useful
      lives of the assets. Estimated useful lives are 35 years for buildings, 3 to
      15
      years for furniture, fixtures and equipment and 2 to 5 years for computers
      and
      related equipment. Repairs and maintenance costs are charged to operations
      as
      incurred and additions and improvements to premises and equipment are
      capitalized. Upon sale or retirement, the cost and related accumulated
      depreciation are removed from the accounts and any gains or losses are reflected
      in current operations.





**Stock
      in Federal Home Loan Bank of Atlanta and Investments accounted for under the
      Cost Method**





As
      a
      requirement for membership, the Company invests in stock of the Federal Home
      Loan Bank of Atlanta (“FHLB”), which is carried at cost. Because of the
      redemption provisions of the FHLB, the Company estimated that fair value equals
      cost and that this investment was not impaired at December 31,
      2005.





Periodically,
      the Company invests in nonmarketable equity securities which are accounted
      for
      under the cost method. These investments, which are carried at cost, were not
      considered impaired at December 31, 2005 and management has not identified
      any
      events or changes in circumstances that may have had a significant adverse
      effect on their fair values. These investments are included in other assets
      in
      the accompanying consolidated balance sheets.





**Real
      Estate Owned**





*Real
      estate acquired through, or in lieu of, loan foreclosure is initially recorded
      at fair value at the date of foreclosure establishing a new cost basis. After
      foreclosure, valuations of the property are periodically performed by management
      and the real estate is carried at the lower of cost or fair value minus
      estimated cost to sell. Revenue and expenses from operations and changes in
      the
      valuation allowance are included in other non-interest
      expense.*





**Income
      Taxes**





*Deferred
      tax assets and liabilities are recognized for the estimated future tax
      consequences attributable to differences between the tax bases of assets and
      liabilities and their carrying amounts for financial reporting purposes.
      Deferred tax assets are also recognized for operating loss
      carry* *-forwards.
      Deferred tax assets and liabilities are measured using enacted tax rates in
      effect for the year in which the temporary differences are expected to be
      recovered or settled. Deferred tax assets are reduced by a valuation allowance
      if it is more likely than not that the tax benefits will not be
      realized.*





***Comprehensive
      Income***





The
      Company reports as comprehensive income all changes in stockholders' equity
      during the year from sources other than shareholders. Other comprehensive income
      refers to all components (revenues, expenses, gains, and losses) of
      comprehensive income that are excluded from net income. The Company's only
      component of other comprehensive income is unrealized gains and losses on
      investment securities available for sale.








25




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


***NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)***





***Stock
      Compensation Plans***





Statement
      of Financial Accounting Standards (“SFAS”) No. 123, *Accounting
      for Stock-Based Compensation* ,
      encourages all entities to adopt a fair value based method of accounting for
      employee stock compensation plans, whereby compensation cost is measured at
      the
      grant date based on the value of the award and is recognized over the service
      period, which is usually the vesting period. However, it also allows an entity
      to measure compensation cost for those plans using the intrinsic value based
      method of accounting prescribed by Accounting Principles Board (“APB”) Opinion
      No. 25, *Accounting
      for Stock Issued to Employees,* whereby
      compensation cost is the excess, if any, of the quoted market price of the
      stock
      at the grant date (or other measurement date) over the amount an employee must
      pay to acquire the stock. Stock options to be issued under the Company’s stock
      option plans are expected to have no intrinsic value at the grant date and,
      under APB Opinion No. 25, no compensation cost will be recognized for them.
      Upon
      the grant of options, the Company expects to apply the accounting methodology
      in
      APB Opinion No. 25 and, as a result, will provide pro forma disclosures of
      net
      income and earnings per share and other disclosures as if the fair value based
      method of accounting were being applied.





2005
            
            2004(Amounts
                in thousands,except
                per share data)Net
                income:As
                reported
            
            $
            1,135
            
            $
            682Deduct:  Total
                stock-based employee compensationexpense
                determined under fair value methodfor
                all awards, net of related tax effects
            
            
            (188
            )
            
            (52
            )Pro
                forma
            
            $
            947
            
            $
            630Basic
                net income per share:As
                reported
            
            $
            1.13
            
            $
            .68Pro
                forma
            
            
            .94
            
            
            .63Diluted
                net income per share:As
                reported
            
            $
            1.10
            
            $
            .67Pro
                forma
            
            
            .92
            
            
            .62





During
      2005, the Company elected to accelerate the vesting of options whereby all
      outstanding options were fully vested immediately. The acceleration of vesting
      resulted in compensation expense of $19,812 for 2005 (see Note M).





***Per
      Share Results***





*Basic
      earnings per share represents income available to common stockholders divided
      by
      the weighted-average number of common shares outstanding during the period.
      Diluted earnings per share reflect additional common shares that would have
      been
      outstanding if dilutive potential common shares had been issued, as well as
      any
      adjustment to income that would result from the assumed issuance. Potential
      common shares that may be issued by the* *Company
      relate to outstanding stock option, and are determined using the treasury stock
      method.*





26





***CB
      FINANCIAL CORPORATION AND SUBSIDIARY*** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***




***NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)***





***Per
      Share Results (Continued)***





The
      basic
      and diluted weighted average shares outstanding are as follows:





2005
            
            2004Weighted
                average outstanding shares used for basic EPS
            
            
            1,007,650
            
            
            1,007,348Plus
                incremental shares from assumed exercise ofstock
                options
            
            
            27,099
            
            
            15,001Weighted
                average outstanding shares used for diluted EPS
            
            
            1,034,749
            
            
            1,022,349





There
      were no adjustments required to be made to net income in the computation of
      diluted earnings per share. For the years ended December 31, 2005 and 2004,
      there were no options that were anti-dilutive as a result of the exercise price
      exceeding the average market price of the Company’s common stock for the year.





On
      June
      28, 2005, the Company’s Board of Directors declared a 5% stock dividend, which
      was distributed August 20, 2005, to shareholders of record on June 28, 2005.
      On
      May 12, 2004, the Company’s Board of Directors declared a 5% stock dividend,
      which was distributed May 31, 2004, to shareholders of record on April 30,
      2004.
      All references to per share results and weighted average common and common
      equivalent shares outstanding have been adjusted to reflect the effects of
      these
      stock dividends.





***Recent
      Accounting Pronouncements***





In
      January 2003, the Financial Accounting Standards Board (FASB) issued FASB
      Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest
      Entities—an Interpretation of Accounting Research Bulletin 51—Consolidated
      Financial Statements.” This interpretation provides guidance related to
      identifying variable interest entities and determining whether such entities
      should be consolidated. FIN 46 requires an enterprise to consolidate a variable
      interest entity when the enterprise (a) absorbs a majority of the variable
      interest entity’s expected losses, (b) receives a majority of the entity’s
      expected residual returns, or (c) both, as a result of ownership, contractual
      or
      other financial interests in the entity. Prior to the effective date of FIN
      46,
      entities were generally consolidated by an enterprise that had control through
      ownership of a majority voting interest in the entity. FIN 46 originally applied
      immediately to variable interest entities created or obtained after
      January 31, 2003. During 2003, the Bank did not participate in the creation
      of, or obtain a new variable interest in, any variable interest entity. In
      December 2003, the FASB issued FIN 46R, a revision to FIN 46, which modified
      certain requirements of FIN 46 and allowed for the optional deferral of the
      effective date of FIN 46R for annual or interim periods ending after
      March 15, 2004. The Company has assessed their statutory business trust and
      determined that it should not be consolidated. Accordingly, the statutory
      business trust and the debt issued to the trust were recorded in accordance
      with
      FIN 46 and remain unconsolidated. The remaining provisions of FIN 46R did not
      have a material impact on the consolidated results of operations or consolidated
      financial condition of the Company.








27





***CB
      FINANCIAL CORPORATION AND SUBSIDIARY*** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***




***NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)***





***Recent
      Accounting Pronouncements (Continued)***





On
      December 12, 2003, the American Institute of Certified Public Accountants
      (AICPA) released Statement of Position (SOP) 03-03, “Accounting for Certain
      Loans or Debt Securities Acquired in a Transfer.” This statement of position
      addresses accounting for differences between contractual cash flows and cash
      flows expected to be collected from investor’s initial investment in loans or
      debt securities (loans) acquired in a transfer if those differences are
      attributable, at least in part, to credit quality. This SOP is effective for
      loans acquired in fiscal years beginning after December 15, 2004. The
      adoption of SOP 03-3 on January 1, 2005 did not have a material impact on
      the consolidated financial statements.





In
      November 2003, the Emerging Issues Task Force (EITF) issued EITF Issue
      No. 03-1, “The Meaning of Other-Than-Temporary Impairment and its
      Application to Certain Investments” (EITF 03-1). EITF 03-1 provided guidance for
      evaluating whether an investment is other-than-temporarily impaired and requires
      certain disclosures with respect to these investments. In September 2004, FASB
      issued a FASB Staff Position (FSP EITF 03-1-b) to delay the requirement to
      record impairment losses EITF 03-1. The guidance also included accounting
      considerations subsequent to the recognition of an other-than-temporary
      impairment and requirements for disclosures about unrealized losses that have
      not been recognized as other-than-temporary impairments. In November 2005,
      the
      FASB issued FSP FAS 115-1 and FAS 124-1, which addresses the determination
      as to
      when an investment is considered impaired. This FSP nullifies certain
      requirements of EITF 03-1 and supersedes EITF Topic No. D-44, “Recognition of
      Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost
      Exceeds Fair Value.” This FSP is to be applied to reporting periods beginning
      after December 15, 2005. The Company has considered the impact of this FSP
      and does not expect it to be material.





On
      March 9, 2004, the SEC Staff issued Staff Accounting Bulletin No. 105,
“Application of Accounting Principles to Loan Commitments” (SAB 105). SAB 105
      clarifies existing accounting practices relating to the valuation of issued
      loan
      commitments, including interest rate lock commitments (IRLC), subject to SFAS
      No. 149 and Derivative Implementation Group Issue C13, “Scope Exceptions:
      When a Loan Commitment is included in the Scope of Statement 133.” Furthermore,
      SAB 105 disallows the inclusion of the values of a servicing component and
      other
      internally developed intangible assets in the initial and subsequent IRLC
      valuation. The provisions of SAB 105 were effective for loan commitments entered
      into after March 31, 2004. The Company adopted the provisions of SAB 105
      effective April 1, 2004. Since the provisions of SAB 105 affect only the
      timing of the recognition of mortgage banking income, the adoption of SAB 105
      did not have a material adverse effect on either the Company’s consolidated
      financial position or consolidated results of operations.





In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      No. 123(R) (SFAS No. 123(R)), “Share-Based Payment,” which is a
      revision of FASB Statement No. 123 “Accounting for Stock-Based
      Compensation” and supersedes APB Opinion No. 25 “Accounting for Stock
      Issued to Employees.” SFAS No. 123(R) requires companies to recognize in
      the income statement the grant-date fair value of stock options and other
      equity-based compensation issued to employees over the period during which
      an
      employee is required to provide service in exchange for the award, which will
      often be the shorter of the vesting period or the period the employee will
      be
      retirement eligible. SFAS No. 123(R) sets accounting requirements for
“share-based” compensation to employees, including employee-stock purchase plans
      (ESPPs). Awards to most nonemployee directors will be accounted for as employee
      awards. This Statement was to be effective for public companies that do not
      file
      as small business issuers as of the beginning of interim or annual reporting
      periods beginning after June 15, 2005. In April 2005, the Securities and
      Exchange Commission (SEC) issued Release No. 2005-57, which defers the
      effective date of SFAS No. 123(R) for many registrants. Registrants that do
      not file as small business users must adopt SFAS No. 123(R) as of the
      beginning of their first annual period beginning after June 15, 2005.
      Accordingly, the adoption of SFAS No. 123(R) on January 1, 2006 is
      expected to have a material effect the consolidated financial statements.





28




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***




***NOTE
      B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)***





***Recent
      Accounting Pronouncements (Continued)***





During
      2005, the Company elected to accelerate the vesting of options whereby all
      outstanding options were fully vested immediately. The acceleration of vesting
      resulted in compensation expense of $19,812 for 2005 (see Note M).





In
      March
      2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107), which
      contains guidance on applying the requirements in SFAS No. 123(R). SAB 107
      provides guidance on valuation techniques, development of assumptions used
      in
      valuing employee share options and related MD&A disclosures. SAB 107 is
      effective for the period in which SFAS No. 123(R) is adopted. The Company
      adopted SAB 107 on January 1, 2006, and expects the effect on its
      consolidated financial statements to be material.





In
      May
      2005, the FASB issued Statement of Financial Accounting Standards No. 154
      (SFAS No. 154), “Accounting Changes nd Error Corrections”, which replaces
      APB Opinion No. 20 “Accounting Changes” and FASB Statement No. 3
“Reporting Accounting Changes in Interim Financial Statements”. SFAS
      No. 154 changes the requirements for the accounting for and reporting of a
      change in an accounting principle. SFAS No. 154 requires retrospective
      application for voluntary changes in an accounting principle unless it is
      impracticable to do so. SFAS No. 154 is effective for accounting changes
      made in fiscal years beginning after December 15, 2005. The Company adopted
      SFAS No. 154 on January 1, 2006 with no expected material effect on
      its consolidated financial statements.





From
      time
      to time, the FASB issues exposure drafts for proposed statements of financial
      accounting standards. Such exposure drafts are subject to comment from the
      public, to revisions by the FASB and to final issuance by the FASB as statements
      of financial accounting standards. Management considers the effect of the
      proposed statements on the consolidated financial statements of the Company
      and
      monitors the status of changes to and proposed effective dates of exposure
      drafts.





**Reclassifications**





Certain
      amounts in the 200 4
      financial statements have been reclassified to conform to the 2005 presentation.
      The reclassifications had no effect on net income or stockholders’ equity as
      previously reported.





**NOTE
      C - INVESTMENT SECURITIES**





The
      amortized cost and fair value of investment securities, with gross unrealized
      gains and losses, are as follows:





December
                31, 2005Amortized
              cost
            
            Gross
              unrealized
              gains
            
            Gross
              unrealized
              losses
            
            Fair
              valueSecurities
                available for sale:
              U.S.
                government securities
              and
                obligations of U.S.
              government
                agencies
            
            $
            5,866,219
            
            $
            -
            
            $
            (85,998
            )
            $
            5,780,221Mortgage-backed
                securities
            
            
            7,832,386
            
            
            2,817
            
            
            (174,795
            )
            
            7,660,408$
            13,698,605
            
            $
            2,817
            
            $
            (260,793
            )
            $
            13,440,629Securities
                held to maturity:
              Municipal
                securities
            
            $
            6,082,888
            
            $
            2,462
            
            $
            (143,125
            )
            $
            5,942,225





29




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***




**NOTE
      C - INVESTMENT SECURITIES (Continued)**





December
                31, 2004Amortized
              cost
            
            Gross
              unrealized
              gains
            
            Gross
              unrealized
              losses
            
            Fair
              valueSecurities
                available for sale:
              U.S.
                government securities
              and
                obligations of U.S.
              government
                agencies
            
            $
            5,020,122
            
            $
            6,669
            
            $
            (18,197
            )
            $
            5,008,594Mortgage-backed
                securities
            
            
            5,846,683
            
            
            61,682
            
            
            (8,672
            )
            
            5,899,693$
            10,866,805
            
            $
            68,351
            
            $
            (26,869
            )
            $
            10,908,287Securities
                held to maturity:
              Municipal
                securities
            
            $
            1,663,116
            
            $
            22,145
            
            $
            -
            
            $
            1,685,261





The
      following tables show gross unrealized losses and fair values of investment
      securities, aggregated by investment category and length of time that the
      individual securities have been in a continuous unrealized loss position, at
      December 31, 2005 and 2004.  At December 31, 2005, the unrealized losses
      relate to ten U.S. government and U.S. government agency securities and eleven
      mortgage-backed securities and nineteen municipal securities. The unrealized
      losses relate to debt securities that have incurred fair value reductions due
      to
      higher market interest rates since the securities were purchased.  The
      unrealized losses are not likely to reverse unless and until market interest
      rates decline to the levels that existed when the securities were purchased.
      Because none of the unrealized losses relate to the marketability of the
      securities or the issuer’s ability to honor redemption obligations, none of the
      securities are deemed to be other than temporarily impaired.





December
                31, 2005Less
                Than 12 Months
            
            12
                Months or More
            
            TotalFair
              value
            
            Unrealized
              losses
            
            Fair
              value
            
            Unrealized
              losses
            
            Fair
              value
            
            Unrealized
              lossesSecurities
                available for sale:
              U.S.
                government securities
              and
                obligations of U.S.
              government
                agencies
            
            $
            2,969,844
            
            $
            32,846
            
            $
            1,967,031
            
            $
            31,725
            
            $
            4,936,875
            
            $
            64,571Mortgage-backed
                securities
            
            
            5,750,504
            
            
            114,817
            
            
            2,547,132
            
            
            81,405
            
            
            8,297,636
            
            
            196,222Total
                temporarily impaired
              available
                for sale securities
            
            $
            8,720,348
            
            $
            147,663
            
            $
            4,514,163
            
            $
            113,130
            
            $
            13,234,511
            
            $
            260,793Securities
                held to maturity:
              Municipal
                securities
            
            $
            5,194,763
            
            $
            143,125
            
            $
            -
            
            $
            -
            
            $
            5,194,763
            
            $
            143,125








30




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


**NOTE
      C - INVESTMENT SECURITIES (Continued)**





December
                31, 2004Less
                Than 12 Months
            
            12
                Months or More
            
            TotalFair
              value
            
            Unrealized
              losses
            
            Fair
              value
            
            Unrealized
              losses
            
            Fair
              value
            
            Unrealized
              lossesSecurities
                available for sale:
              U.S.
                government securities
              and
                obligations of U.S.
              government
                agencies
            
            $
            2,481,094
            
            $
            (18,197
            )
            $
            -
            
            $
            -
            
            $
            2,481,094
            
            $
            (18,197
            )Mortgage-backed
                securities
            
            
            2,638,061
            
            
            (5,103
            )
            
            645,689
            
            
            (3,569
            )
            
            3,283,750
            
            
            (8,672
            )Total
                temporarily impaired
              available
                for sale securities
            
            $
            5,119,155
            
            $
            (23,300
            )
            $
            645,689
            
            $
            (3,569
            )
            $
            5,764,844
            
            $
            (26,869
            )





Securities
      with a carrying value of $5 .7
      million and $1.0 million December 31, 2005 and 2004, respectively, were pledged
      to secure borrowings.





For
      the
      years ended December 31, 2005 and 2004, proceeds from sales of securities
      available for sale amounted to $0 and $2,299,525, respectively. From the sales,
      gross realized losses amounted to $0 and $12,156 and gross realized gains
      amounted to $0 and $0 for the years ended December 31, 2005 and 2004,
      respectively.





The
      amortized cost, fair value and weighted average yield, based on amortized cost,
      of the Company's investment securities
      available for sale at December 31, 2005, by contractual maturity, are shown
      below. Expected maturities will differ from contractual maturities because
      borrowers may have the right to call or prepay obligations with or without
      call
      or prepayment penalties.





Amortized
              Cost
            
            Fair
              Value
            
            Weighted
              Average/
              Yield(Dollars
                in thousands)Securities
                available for sale:
              U.S.
                government agency securities
              Due
                within one year
            
            $
            1,499
            
            $
            1,481
            
            
            2.34
            %Due
                after one but within five years
            
            
            3,001
            
            
            2,954
            
            
            3.87
            %Due
                after five but within ten years
            
            
            1,366
            
            
            1,345
            
            
            5.46
            %5,866
            
            
            5,780
            
            
            3.85
            %Mortgage-backed
                securities
              Due
                after five but within ten years
            
            
            829
            
            
            802
            
            
            4.60
            %Due
                after ten years
            
            
            7,003
            
            
            6,858
            
            
            5.14
            %7,832
            
            
            7,660
            
            
            5.09
            %Total
                securities available for sale
              Due
                within one year
            
            
            1,499
            
            
            1,481
            
            
            2.34
            %Due
                after one but within five years
            
            
            3,001
            
            
            2,954
            
            
            3.87
            %Due
                after five but within ten years
            
            
            2,195
            
            
            2,147
            
            
            5.13
            %Due
                after ten years
            
            
            7,003
            
            
            6,858
            
            
            5.14
            %$
            13,698
            
            $
            13,440
            
            
            4.56
            %





31




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


**NOTE
      C - INVESTMENT SECURITIES (Continued)**





For
      purposes of the maturity table, mortgage-backed securities, which are not due
      at
      a single maturity date, have been allocated over maturity groupings based on
      the
      weighted-average contractual maturities of underlying collateral. The
      mortgage-backed securities may mature earlier than their weighted-average
      contractual maturities because of principal prepayments.





The
      amortized cost, fair value and weighted average yield of the Company's
      investment securities
      held to maturity at December 31, 2005, by contractual maturity, are shown below.
      Expected maturities may differ from contractual maturities because borrowers
      may
      have the right to call or prepay obligations with or without call or prepayment
      penalties.





Amortized
              Cost
            
            Fair
              Value
            
            Weighted
              Average/
              Yield(Dollars
                in thousands)Securities
                held to maturity:
              Municipal
                securities:Due
                after one but within five years
            
            $
            844
            
            $
            827
            
            
            3.57
            %Due
                after five but within ten years
            
            
            795
            
            
            784
            
            
            3.60
            %Due
                after ten years
            
            
            4,444
            
            
            4,331
            
            
            4.26
            %Total
                securities held to maturity
            
            $
            6,083
            
            
            5,942
            
            
            3.53
            %





**NOTE** **D - LOANS**





Following
      is a summary of loans at December 31, 2005 and 2004:





2005
            
            2004Amount
            
            Percent
              of
                total
            
            Amount
            
            Percent
              of
                total(Dollars
                in thousands)Real
                estate - mortgage
            
            $
            4,753
            
            
            4.15
            %
            $
            3,724
            
            
            4.17
            %Real
                estate - construction
            
            
            3,733
            
            
            3.26
            %
            
            4,068
            
            
            4.55
            %Home
                equity lines of credit
            
            
            6,916
            
            
            6.04
            %
            
            5,574
            
            
            6.24
            %Commercial
                and industrial loans
            
            
            92,607
            
            
            80.88
            %
            
            71,376
            
            
            79.87
            %Loans
                to individuals
            
            
            6,496
            
            
            5.67
            %
            
            4,618
            
            
            5.17
            %Total
                loans
            
            
            114,505
            
            
            100.00
            %
            
            89,360
            
            
            100.00
            %Less:Allowance
                for loan losses
            
            
            (1,775)
            )
            
            
            
            
            (1,216
            )Deferred
                loan fees and costs, net
            
            
            (37
            
            
            
            
            
            (30
            )Net
                loans receivable
            
            $
            112,693
            
            
            
            
            $
            88,114





Loans
      are
      primarily made in Wilson County, North Carolina. Real estate loans can be
      affected by the condition of the local real estate market. Commercial and
      installment loans can be affected by local economic conditions.





As
      of
      December 31, 2005 there were approximately $2.2 million in non-accrual loans.
      The average recorded investment in impaired loans during the year ended December
      31, 2005 was approximately $634,000. Interest income that would have been
      recorded on impaired loans totaled approximately $100,000 for the year ended
      December 31, 2005.





32




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


***NOTE
      D - LOANS (Continued)***





As
      of
      December 31, 2004 there were no impaired or nonaccrual loans, and loans greater
      than 90 days past due that continued to accrue interest totaled $293,000.
      Interest income that would have been recorded on nonaccrual loans for the year
      ended December 31, 2004 was not material.





There
      was
      one restructured loan for approximately $11,000 at December 31, 2005 and no
      restructured loans at December 31, 2004.





Following
      is a summary of activity in the allowance for loan losses for the years
      indicated:





At
                or for the Years
              Ended
                December 312005
            
            2004(Dollars
                in thousands)Allowance
                for loan losses at beginning of year
            
            $
            1,216
            
            $
            1,033Provision
                for loan losses
            
            
            625
            
            
            6141,841
            
            
            1,647Loans
                charged-off:Real
                estate - mortgage
            
            
            -
            
            
            (25
            )Commercial
                and industrial
            
            
            (89
            )
            
            (396
            )Loans
                to individuals
            
            
            (10
            )
            
            (16
            )Total
                charge-offs
            
            
            (99
            )
            
            (437
            )Recoveries
                of loans previously charged off:Commercial
                and industrial
            
            
            27
            
            
            1Home
                equity
            
            
            -
            
            
            5Loans
                to individuals
            
            
            6
            
            
            -Total
                recoveries
            
            
            33
            
            
            6Net
                charge-offs
            
            
            (66
            )
            
            (431
            )Allowance
                for loan losses at end of year
            
            $
            1,775
            
            $
            1,216Net
                charge-offs as a percent of average loans outstanding during the
                year
            
            
            .07
            %
            
            0.53
            %Allowance
                for loan losses as a percent of loans at period end
            
            
            1.55
            %
            
            1.36
            %





Following
      is a summary of allocation of the allowance for loan losses to the indicated
      categories of loans and the percentage that all loans in each category bears
      to
      total loans outstanding:





At
                December 31,2005
            
            2004Amount
            
            %
                of Total
              Loans
            
            Amount
            
            %
                of Total
              Loans(Dollars
                in thousands)Real
                estate - mortgage
            
            $
            74
            
            
            4.15
            %
            $
            51
            
            
            4.17
            %Real
                estate - construction
            
            
            58
            
            
            3.26
            %
            
            55
            
            
            4.55
            %Home
                equity lines of credit
            
            
            107
            
            
            6.04
            %
            
            76
            
            
            6.24
            %Commercial
                and industrial loans
            
            
            1,436
            
            
            80.88
            %
            
            971
            
            
            79.87
            %Loans
                to individuals
            
            
            100
            
            
            5.67
            %
            
            63
            
            
            5.17
            %Total
            
            $
            1,775
            
            
            100.00
            %
            $
            1,216
            
            
            100.00
            %








33




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


***NOTE
      D - LOANS (Continued)***





At
      December 31, 2005, the Company had loan commitments outstanding of $355,000,
      pre-approved but unused lines of credit totaling $29.6 million and commercial
      and standby letters of credit of $70,700. In management’s opinion, these
      commitments represent no more than normal lending risk to the Company and will
      be funded from normal sources of liquidity.





The
      Company has had loan transactions with its directors and executive officers.
      Such loans were made in the ordinary course of business and on substantially
      the
      same terms and collateral as those for comparable transactions prevailing at
      the
      time. Such loans did not involve more than the normal risk of collectibility
      or
      present other unfavorable features. A summary of related party loan transactions
      is as follows:





2005Balance
                at beginning of year
            
            $
            1,785Borrowings
            
            
            4,138Repayments
            
            
            2,061Balance
                at end of year
            
            $
            3,862





***NOTE
      E - PREMISES AND EQUIPMENT***





Following
      is a summary of the Company’s premises and equipment at December 31, 2005 and
      2004:





2005
            
            2004Land
            
            $
            251,037
            
            $
            251,037Buildings
            
            
            1,240,208
            
            
            1,237,990Leasehold
                improvements
            
            
            37,091
            
            
            -Furniture
                and equipment
            
            
            816,945
            
            
            532,6582,345,281
            
            
            2,021,685Less
                accumulated depreciation
            
            
            (588,009
            )
            
            (481,935
            )Total
            
            $
            1,757,272
            
            $
            1,539,750




Depreciation
      and amortization amounting to $109,646 and $93,797 for the years ended




December
      31, 2005 and 2004, respectively, is included in occupancy and equipment expense
      and data processing expense.




The
      Company leases a branch facility, a loan production office, and certain
      equipment under separate agreements that expire at various dates through October
      31, 2012. Future rentals under these leases are as follows:







2006
            
            $
            56,8392007
            
            
            47,8392008
            
            
            38,8392009
            
            
            38,8392010
            
            
            38,839Thereafter
            
            $
            292,400





34




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***





***NOTE
      E - PREMISES AND EQUIPMENT (Continued)***





Rental
      expense amounting to approximately $5,000 and $0 during the years ended December
      31, 2005 and 2004, respectively, is included in occupancy and equipment expense
      on the accompanying consolidated statements of operations *.*








**NOTE
      F - DEPOSITS**





At
      December 31, 2005, the scheduled maturities of time deposit (dollars in
      thousands) are as follows:





2006
            
            $
            58,3372007
            
            
            7,4092008
            
            
            10,9872009
            
            
            1,0522010
            
            
            3,410Total
            
            $
            81,195





The
      above
      table includes time deposits of $100,000 and over, which at
      December 31, 2005, totaled $33.0 million. Of that total, $14.6 million
      had scheduled maturities within three months; $3.5 million after three but
      within six months; $7.5 million after six but within twelve months; and $7.4
      million after twelve months. Time deposits of $100,000 and over totaled $21.0
      million at December 31, 2004.





The
      weighted average cost of time deposits was 4.01% and 2.93% at December 31,
      2005
      and 2004, respectively.








**NOTE
      G - BORROWINGS**





The Company
      may purchase federal funds through unsecured federal funds lines of credit
      totaling $15.3 million. These lines are intended for short-term borrowings
      and
      are subject to restrictions limiting the frequency and term of advances. These
      lines of credit are payable on demand and bear interest based upon the daily
      federal funds rate (4.60% at December 31, 2005). Advances totaling $1,055,000
      were outstanding under these lines at December 31, 2005. There were no advances
      outstanding under these lines of credit at December 31, 2004. The maximum
      amounts outstanding under these lines of credit at any month end during 2005
      and
      2004 were $3,300,000 and $3,000,000, respectively. The average amounts
      outstanding under these lines of credit were $171,463 for 2005 and $276,390
      for
      2004.





The
      Company has an available line of credit with the FHLB equal to 10% of total
      assets. Advances
      under this line are secured by eligible securities and qualifying first mortgage
      loans.  The balance of qualifying pledged first mortgage loans as of
      December 31, 2005 was approximately $8.1 million.





Advances
      from the FHLB of Atlanta consisted of the following at December 31, 2005
      and 2004:





Maturity
            
            Interest
              Rate
            
            
            2005
            
            2004March
                14, 2006
            
            
            1.88
            %
            
            $
            83,333
            
            $
            416,667September
                8, 2015
            
            
            3.93
            %
            
            
            5,000,000
            
            
            -July
                16, 2012
            
            
            3.90
            %
            
            
            1,250,000
            
            
            1,250,000$
            6,333,333
            
            $
            1,666,667





35




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


**NOTE
      G - BORROWINGS (Continued)**




On
      July
      8, 2005, the Company formed CB Financial Capital Trust I, a Connecticut
      statutory trust (the “Trust”). On July 12, 2005, the Trust issued and sold
      $5,000,000 of the Trust’s Floating rate preferred securities (the “Trust
      Preferred Securities”) to an institutional investor in a private placement and
      issued $155,000 in common securities (the “Common Securities”) to the Company.
      The Trust Preferred Securities are fully and unconditionally guaranteed on
      a
      subordinated basis by the Company with respect to distributions and amounts
      payable upon liquidation, redemption or repayment. The proceeds from the Trust’s
      sale of the Trust Preferred Securities and its sale of the Common Securities
      were used by the Trust to purchase $5,155,000 of the Company’s Floating junior
      subordinated notes (the “Notes”). The net proceeds to the Company from its sale
      of the Notes to the Trust were invested in the Bank as additional capital to
      support growth and for other general corporate purposes. The Notes and the
      Trust
      Preferred Securities bear an interest rate of 185 basis points over the
      three-month LIBOR (London Inter-Bank Offered Rate). The Trust Preferred
      Securities generally rank equal to the Common Securities in priority of payment,
      but will rank prior to Common Securities if, and so long as, the Company fails
      to make principal or interest payment on the Notes. The Notes and Trust
      Preferred Securities each have 30-year lives and will each be callable by the
      Company or the Trust, at their option, on or after September 15, 2010. The
      Company has the option to defer interest for up to five years on the debentures.
      The Notes qualify as Tier I capital under Federal Reserve Board guidelines.
      Consistent with the provisions of FASB Interpretation (“FIN”) No. 46,
“Consolidation of Variable Interest Entities,” the Company has not included the
      Trust in the consolidated entity.








***NOTE
      H - INCOME TAXES***





The
      significant components of the provision for income taxes for 2005 and 2004
      are
      as follows:





2005
            
            2004Current
                tax provision:
            
            $
            653,000
            
            $
            255,996Federal
            
            
            144,000
            
            
            42,000State
            
            
            797,000
            
            
            297,996Deferred
                tax provision:
            
            
            (156,000
            )
            
            25,000Federal
            
            
            (32,000
            )
            
            4,000State
            
            
            (188,000
            )
            
            29,000Provision
                for income
              before
                adjustment to deferred tax asset tax expense
              valuation
                allowance
            
            
            609,000
            
            
            326,996Decrease
                in valuation allowance
            
            
            -
            
            
            (62,000
            )Net
                provision for income taxes
            
            $
            609,000
            
            $
            264,996








36




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


***NOTE
      H - INCOME TAXES (Continued)***





The
      difference between the provision for income taxes and the amounts computed
      by
      applying the statutory federal income tax rate of 34% to income before income
      taxes is summarized below:





2005
            
            2004Tax
                expense computed at the statutory federal rate
            
            $
            593,000
            
            $
            322,000Increase
                (decrease) resulting from:
              Sate
                income taxes, net of federal tax effect
            
            
            74,000
            
            
            30,000Nontaxable
                income
            
            
            (56,000
            )
            
            (27,000
            )Adjustment
                to deferred tax asset valuation allowance
            
            
            -
            
            
            (62,000
            )Other,
                net
            
            
            (2,000
            )
            
            1,996Provision
                for income taxes
            
            $
            609,000
            
            $
            264,996





Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes. Significant components of deferred
      taxes at December 31, 2005 and 2004 are as follows:





2005
            
            2004Deferred
                tax assets relating to:Allowance
                for loan losses
            
            $
            560,000
            
            $
            340,000Pre-opening
                costs and expenses
            
            
            -
            
            
            6,000Investment
                securities available for sale
            
            
            99,450
            
            
            -Total
                deferred tax assets
            
            
            659,450
            
            
            346,000Deferred
                tax liabilities relating to:Premises
                and equipment differences
            
            
            (107,000
            )
            
            (71,000
            )Prepaid
                expenses
            
            
            (6,000
            )
            
            (16,000
            )Investment
                securities available for sale
            
            
            -
            
            
            (15,991
            )Total
                deferred tax liabilities
            
            
            (113,000
            )
            
            (102,991
            )Net
                recorded deferred tax asset
            
            $
            546,450
            
            $
            243,009





***NOTE
      I - OTHER NON-INTEREST EXPENSE***





The
      major
      components of other non-interest expense for the years ended December 31, 2005
      and 2004 are as follows:





2005
            
            2004Postage,
                printing and office supplies
            
            $
            104,276
            
            $
            74,176Advertising
                and promotion
            
            
            99,071
            
            
            88,446Professional
                services
            
            
            189,769
            
            
            148,998Other
            
            
            376,034
            
            
            286,484Total
            
            $
            769,150
            
            $
            598,104





37




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


***NOTE
      J - REGULATORY MATTERS***







The
      Company is subject to various regulatory capital requirements administered
      by
      federal and state banking agencies. Failure to meet minimum capital requirements
      can initiate certain mandatory, and possibly additional discretionary, actions
      by regulators that, if undertaken, could have a direct material effect on the
      Company's consolidated financial statements. Quantitative measures established
      by regulation to ensure capital adequacy require the Company to maintain minimum
      amounts and ratios, as set forth in the table below. Management believes, as
      of
      December 31, 2005, that the Company meets all capital adequacy requirements
      to
      which it is subject. At December 31, 2005, the Company’s total risk-based
      capital, Tier I risk-based capital, and leverage ratios were 15.5%, 12.8% and
      9.6%, respectively.




As
      of
      December 31, 2005, the most recent notification from the FDIC categorized the
      Bank as well capitalized under the regulatory framework for prompt corrective
      action. To be categorized as well capitalized the Bank must maintain minimum
      amounts and ratios, as set forth in the table below. There are no conditions
      or
      events since that notification that management believes have changed the Bank's
      category. The Bank's actual capital amounts (in thousands) and ratios are also
      presented in the table below:





For
                the Bank
            
            Minimum
                RequirementsCapital
              Amount
            
            Capital
              Ratio
            
            For
                Capital
              Adequacy
            
            To
                Be Well
              CapitalizedAs
                of December 31, 2005Tier
                I capital (to risk-weighted assets)
            
            $
            15,538
            
            
            14.1
            %
            
            4.0
            %
            
            6.0
            %Total
                capital - Tier II capital
              (to
                risk-weighted assets)
            
            
            16,920
            
            
            15.4
            %
            
            8.0
            
            
            10.0Leverage
                - Tier I capital (to average assets)
            
            
            15,538
            
            
            10.5
            %
            
            4.0
            
            
            5.0As
                of December 31, 2004Tier
                I capital (to risk-weighted assets)
            
            $
            9,370
            
            
            10.9
            %
            
            4.0
            %
            
            6.0
            %Total
                capital - Tier II capital
              (to
                risk-weighted assets)
            
            
            0,449
            
            
            12.1
            
            
            8.0
            
            
            10.0Leverage
                - Tier I capital (to average assets)
            
            
            ,370
            
            
            8.1
            
            
            4.0
            
            
            5.0





The
      Bank
      may not declare or pay a cash dividend, or repurchase any of its capital stock,
      if the effect would cause the regulatory net worth of the Bank to fall to an
      amount which is less than the minimum required by the FDIC and the North
      Carolina Office of the Commissioner of Banks.





***NOTE
      K - OFF-BALANCE SHEET RISK***





The
      Company is a party to financial instruments with off-balance sheet risk in
      the
      normal course of business to meet the financing needs of its customers. These
      financial instruments include commitments to extend credit, undisbursed lines
      of
      credit, and standby letters of credit. Those instruments involve, to varying
      degrees, elements of credit and interest rate risk in excess of the amount
      recognized in the balance sheets. The contract or notional amounts of those
      instruments reflect the extent of involvement the Company has in particular
      classes of financial instruments. The Company uses the same credit policies
      in
      making commitments and conditional obligations as it does for on-balance-sheet
      instruments.








38




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


***NOTE
      K - OFF-BALANCE SHEET RISK (Continued)***





Commitments
      to extend credit are agreements to lend to a customer as long as there is no
      violation of conditions established in the contract. Commitments generally
      have
      fixed expiration dates or other termination clauses and may require payment
      of a
      fee. Since some of the commitments are expected to expire without being drawn
      upon, the total commitment amounts do not necessarily represent future cash
      requirements. The Company evaluates each customer’s creditworthiness on a
      case-by-case basis. The amount of collateral obtained, if deemed necessary
      by
      the Bank, upon extension of credit is based on management’s credit evaluation of
      the borrower. Collateral obtained varies but may include real estate, stocks,
      bonds, and certificates of deposit.





A
      summary
      of the contract amount of the Company’s exposure to off-balance sheet credit
      risk as of December 31, 2005 is as follows:





Financial
                instruments whose contract amounts represent credit risk:Commitments
                to extend credit
            
            $
            55,000Undisbursed
                lines of credit
            
            
            29,577,759Commercial
                and standby letters of credit
            
            
            70,700





***NOTE
      L - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL
      INSTRUMENTS***





Financial
      instruments include cash and due from banks, interest-bearing deposits in banks,
      federal funds sold, time deposits, investments, loans, stock in the FHLB of
      Atlanta, bank-owned life insurance, deposit accounts and borrowings. Fair value
      estimates are made at a specific moment in time, based on relevant market
      information and information about the financial instrument. These estimates
      do
      not reflect any premium or discount that could result from offering for sale
      at
      one time the Company’s entire holdings of a particular financial instrument.
      Because no active market readily exists for a portion of the Company’s financial
      instruments, fair value estimates are based on judgments regarding future
      expected loss experience, current economic conditions, risk characteristics
      of
      various financial instruments, and other factors. These estimates are subjective
      in nature and involve uncertainties and matters of significant judgment and,
      therefore, cannot be determined with precision. Changes in assumptions could
      significantly affect the estimates.





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





***Cash
      and Due from Banks, Interest-Earning Deposits In Banks and Federal Funds
      Sold***





The
      carrying amounts for cash and due from banks, interest-earning deposits in
      banks
      and federal funds sold approximate fair value because of the short maturities
      of
      those instruments.





***Time
      Deposits***





The
      fair
      value of time deposits is estimated using rates currently offered for
      instruments of similar maturity.





39




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


***NOTE
      L - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
      (Continued)***





***Investment
      Securities***





Fair
      value for investment securities equals quoted market price if such information
      is available. If a quoted market price is not available, fair value is estimated
      using quoted market prices for similar securities.





***Loans***





For
      certain homogenous categories of loans, such as residential mortgages, fair
      value is estimated using the quoted market prices for securities backed by
      similar loans, adjusted for differences in loan characteristics. The fair value
      of other types of loans is estimated by discounting the future cash flows using
      the current rates at which similar loans would be made to borrowers with similar
      credit ratings and for the same remaining maturities.





***Accrued
      Interest***





The
      carrying amounts of accrued interest approximate fair value.




Stock
      in
      Federal Home Loan Bank of Atlanta




The
      fair
      value for FHLB stock approximates carrying value, based on the redemption
      provisions of the FHLB.




**Investment
      in Bank-Owned Life Insurance**




The
      carrying value of life insurance approximates fair value because this investment
      is carried at cash surrender value, as determined by the insurer.





***Deposits
      and Borrowings***





The
      fair
      value of demand, savings, money market and NOW deposits is the amount payable
      on
      demand at the reporting date. The fair value of time deposits and borrowings
      is
      estimated based on discounting cash flows using the rates currently offered
      for
      instruments of similar remaining maturities.





***Financial
      Instruments with Off-Balance Sheet Risk***





With
      regard to financial instruments with off-balance sheet risk discussed in Note
      K,
      it is not practicable to estimate the fair value of future financing
      commitments.








40




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


***NOTE
      L - DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
      (Continued)***





***Financial
      Instruments with Off-Balance Sheet Risk (Continued)***





The
      carrying amounts and estimated fair values of the Company’s financial
      instruments, none of which are held for trading purposes, are as follows at
      December 31, 2005 and 2004:





2005
            
            2004Carrying
              amount
            
            Estimated
              fair
                value
            
            Carrying
              amount
            
            Estimated
              fair
                value(In
                thousands)Financial
                assets:Cash
                and due from banks
            
            $
            4,904
            
            $
            4,904
            
            $
            2,717
            
            $
            2,717Interest-earning
                deposits in banks
            
            
            4,607
            
            
            4,607
            
            
            3,396
            
            
            3,396Federal
                funds sold
            
            
            -
            
            
            -
            
            
            4,680
            
            
            4,680Time
                deposits
            
            
            5,453
            
            
            5,453
            
            
            4,316
            
            
            4,316Investment
                securities available for sale
            
            
            13,441
            
            
            13,441
            
            
            10,908
            
            
            10,908Investment
                securities held to maturity
            
            
            6,083
            
            
            5,942
            
            
            1,663
            
            
            1,685Accrued
                interest receivable
            
            
            628
            
            
            628
            
            
            443
            
            
            443Federal
                Home Loan Bank stock
            
            
            529
            
            
            529
            
            
            272
            
            
            272Investment
                in bank-owned life insurance
            
            
            1,338
            
            
            1,338
            
            
            1,285
            
            
            1,285Loans
            
            
            112,693
            
            
            112,642
            
            
            88,114
            
            
            88,446Financial
                liabilities:Deposits
            
            
            129,069
            
            
            129,128
            
            
            108,624
            
            
            109,012Borrowings
            
            
            12,543
            
            
            12,465
            
            
            1,667
            
            
            1,670Accrued
                interest payable
            
            
            238
            
            
            238
            
            
            107
            
            
            107





***NOTE
      M - EMPLOYEE AND DIRECTOR BENEFIT PLANS***





***401(k)
      Plan***





The
      Company has a 401(k) Plan (the “Plan”) in which substantially all employees
      participate. The Company makes matching contributions equal to 100 percent
      of
      the first 6 percent of an employee’s compensation contributed to the Plan.
      Matching contributions vest to the employee equally over a four-year period.
      For
      the years ended December 31, 2005 and 2004, expense attributable to the Plan
      amounted to $62,836 and $48,836, respectively.





***Stock
      Option Plans***





During
      2002 the Company adopted, with shareholder approval, an Employee Stock Option
      Plan (the “Employee Plan”) and a Director Stock Option Plan (the “Director
      Plan”). Each plan makes available options to purchase 76,461 shares of the
      Company’s common stock for an aggregate number of common shares reserved for
      options equal to 152,922. No options were granted prior to 2003. On August
      31,
      2003 options to purchase 125,682 shares of common stock were granted. All
      options granted originally were scheduled to vest over five years, with 20%
      vesting on the first anniversary of the grant date, and 20% vesting annually
      thereafter. During 2005, an amendment was made to the plan providing for
      accelerated vesting of all options, resulting in all options being immediately
      vested. The acceleration of vesting resulted in compensation expense of $19,812
      for 2005. All unexercised options expire ten years after the date of grant.
      A
      summary of the Company’s option plans as of and for the years ended December 31,
      2005 and 2004, giving effect to 5% stock dividends in both 2005 and 2004, is
      as
      follows:





41





**CB
      FINANCIAL CORPORATION AND
      SUBSIDIARY**


***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***




***NOTE
      M - EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)***





***Stock
      Option Plans (Continued)***





Outstanding
                Options
            
            Exercisable
                OptionsShares
              in
                Plans
            
            Shares
              Available
              for
                Future
              Grants
            
            Number
              Outstanding
            
            Weighted
              Average
              Exercise
              Price
            
            Number
              Outstanding
            
            Weighted
              Average
              Exercise
              PriceAt
                December 31, 2003
            
            
            152,922
            
            
            27,240
            
            
            125,682
            
            $
            10.43
            
            
            -
            
            $
            -Options
                granted/vested
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            24,586
            
            
            10.43Options
                forfeited
            
            
            -
            
            
            2,756
            
            
            (2,756
            )
            
            10.43
            
            
            -
            
            
            -At
                December 31, 2004
            
            
            152,922
            
            
            29,996
            
            
            122,926
            
            
            10.43
            
            
            24,586
            
            
            10.43Options
                granted/vested
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            97,789
            
            
            10.43Options
                forfeited
            
            
            -
            
            
            551
            
            
            (551
            )
            
            10.43
            
            
            -
            
            
            -At
                December 31, 2005
            
            
            152,922
            
            
            30,547
            
            
            122,375
            
            $
            10.43
            
            
            122,375
            
            $
            10.43





The
      weighted average remaining life of all options outstanding as of December 31,
      2005, all of which have an exercise price of $10.43, is 7.7 years. The fair
      value of each option granted in 2003 was $2.12, and was determined as of the
      date of grant using the Black-Scholes option pricing model, assuming a risk-free
      interest rate of 3.25%, a dividend yield of 0%, volatility of 0%, and an
      expected life of seven years.





***Employment
      Agreements***





The
      Company has entered into an employment agreement with its chief executive
      officer to ensure a stable and competent management base. This agreement
      provides for benefits as spelled out in the contract and cannot be terminated
      by
      the Board of Directors, except for cause, without prejudicing the officer’s
      right to receive certain vested rights, including compensation. In the event
      of
      a change in control of the Company, as outlined in the agreement, the acquirer
      will be bound to the terms of this contract.





The
      Company also has entered into agreements with three executive officers which
      provide for severance pay benefits in the event of a change in control of the
      Company resulting in the termination of such executive officers or diminished
      compensation, duties or benefits.





***Employee
      Stock Purchase Plan***





The
      Employee Stock Purchase Plan (the "Purchase Plan") is a voluntary plan that
      enables full-time employees of the Company and its subsidiary to purchase shares
      of our common stock. The Purchase Plan is administered by a committee of the
      Board of Directors, which has broad discretionary authority to administer the
      Purchase Plan. The Company's Board of Directors may amend or terminate the
      Purchase Plan at any time. The Purchase Plan is not intended to be qualified
      as
      an employee stock purchase plan under Section 423 of the Internal Revenue Code
      of 1986, as amended.





Once
      a
      year, participants in the Purchase Plan purchase the Company's common stock
      at
      the lesser of: (a) eighty-five percent (85%) of the fair market value of the
      common stock on the date of grant, or (b) eighty-five percent (85%) of the
      fair
      market value of the common stock on the purchase date. Participants are
      permitted to purchase shares under the Purchase Plan up to a maximum purchase
      amount not to exceed $25,000 in fair market value.





42




**CB
      FINANCIAL CORPORATION AND SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***


***NOTE
      M - EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)***





***Employee
      stock purchase (Continued)***





As
      of
      December 31, 2005, 40,000 shares of our common stock had been reserved for
      issuance under the Purchase Plan, and 6,880 shares had been purchased, all
      of
      which occurred during 2005.








***NOTE
      N - PARENT COMPANY FINANCIAL DATA***




CB
      Financial Corporation became the holding company for Cornerstone Bank on June
      8,
      2005. Following are condensed financial statements of CB Financial Corporation
      as of and for the period ended December 31, 2005 presented in thousands.




***Condensed
      Balance Sheet***


***December
      31, 2005***





2005Assets:Cash
                on deposit in subsidiary
            
            $
            75Investment
                in subsidiaries
            
            
            15,535Total
                assets
            
            $
            15,610Liabilities:Junior
                subordinated debentures
            
            $
            5,155Other
                liabilities
            
            
            14Total
                liabilities
            
            
            5,169Stockholders’
                equity:Common
                stock
            
            
            9,640Retained
                earnings
            
            
            960Accumulated
                other comprehensive loss
            
            
            (159
            )Total
                stockholders’ equity
            
            
            10,441Total
                liabilities and stockholders’ equity
            
            $
            15,610





***Condensed
      Statement of Operations***


***Period
      Ended December 31, 2005***





2005Equity
                in undistributed net income of subsidiaries
            
            $
            742Interest
                income
            
            
            3Interest
                expense
            
            
            (138
            )Other
                expense
            
            
            (20
            )$
            587






43




**CB FINANCIAL CORPORATION AND
      SUBSIDIARY** ***NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
        31, 2005 and 2004***
 
  *NOTE P - PARENT COMPANY FINANCIAL
      DATA (Continued)*




2005Operating
                activities:Net
                income
            
            $
            587Equity
                in income of subsidiary
            
            
            (742
            )Compensation
                expense as result of
              vesting
                acceleration of stock options
            
            
            20Increase
                in other liabilities
            
            
            14(121
            )Investing
                activities:Investment
                in subsidiary
            
            
            (5,155
            )Dividends
                received from the Bank
            
            
            121(5,034
            )Financing
                activities:Proceeds
                from junior subordinated
              debentures
            
            
            5,155Issuance
                of common stock
            
            
            755,230Net
                increase in cash
            
            
            75Cash,
                beginning of period
            
            
            -Cash,
                end of period
            
            $
            75











44





**CB
      FINANCIAL CORPORATION AND SUBSIDIARY**


**Management
      and Bank Personnel**





***DIRECTORS***




John
      C.
      Anthony


*Partner:
      Anthony, Moore and Tabb CPA's*




Thomas
      E.
      Brown III


*Chairman
      of the Board*


*Chairman
        and CEO*




Robert
      E.
      Kirkland III


*Owner/Manager
      of Barnes Motor & Parts Co., Inc.*




Judy
      A.
      Muirhead


*Owner/
      Manager of JAM Properties, JAM Rentals*


*and
      JAM Investments*




W.
      Coalter Paxton III


*President
      of Paxton Mini Storages, Inc. and PBS*


*Storage,
      Inc. and Manager of Paxton Bonded Warehouse, Inc.*




Norman
      B.
      Osborn


*President
      and CEO*


*Cornerstone
      Bank*




Gregory
      A. Turnage


*Owner
      and President of PLT Construction Inc., PLT Concrete Services, Inc., PLT
      Utilities, Inc. and*


*President
      of T. & H. Electric, Inc.*




S.
      Christopher Williford


*President
      and Owner of Southern Piping Company, Inc.*




David
      W.
      Woodard


*Secretary
      for Cornerstone Bank*


*Law
      Partner, Connor, Bunn, Rogerson & Woodard*




***EXECUTIVE
      OFFICERS***




Norman
      B.
      Osborn


*President
      and CEO*




G.
      Brooks
      Batchelor


*Executive
      Vice President, Sr. Business Development Officer*




Robert
      K.
      Ladd III


*Executive
      Vice President, Chief Lending Officer*




Robert
      W.
      Kernodle


*Executive
      Vice President, Chief Information Officer*





45





**CB
      FINANCIAL CORPORATION AND SUBSIDIARY**


**General
      Corporate Information**




***Office
      Location***




3710
      Nash
      Street North


Wilson,
      NC 27896


www.thecornerstonebank.com





***Regulatory
                and Securities Counsel***
            
            ***Stock
                Transfer Agent***Brooks,
                Pierce, McLendon
            
            First-Citizens
                Bank & Trust CompanyHumphrey
                & Leonard, L.L.P.
            
            Corporate
                Trust Dept.P.
                O. Box 26000
            
            100
                East Tryon RoadGreensboro,
                NC 27420
            
            Raleigh,
                NC 27603




***Independent
      Auditors***




Dixon
      Hughes PLLC


2501
      Blue
      Ridge Road, Suite 200


Raleigh,
      NC 27607






***Common
      Stock***




The
      Company had 1,014,228 shares of common stock outstanding which were held by
      approximately 1,346 holders of record (excluding shares held in street name)
      as
      of December 31, 2005. The North Carolina Commissioner of Bank’s prior approval
      is required for the payment of any cash dividend by the Company. To date, the
      Company has not paid any cash dividend.




***Market
      for the Common Stock***




There
      is
      no public trading market for the Company’s common stock. Certain sales have been
      facilitated by the Company in 2005 and 2004, all of which were, to the knowledge
      of management, at prices ranging from $12.38 to $15.00 per share. The price
      paid
      for the Company’s common stock in the last trade known to management to have
      occurred during 2005 was $15.00, which trade occurred on December 23,
      2005.




***Annual
      Shareholders Meeting***




The
      2006
      Annual Meeting of shareholders of CB Financial Corporation will be held at
      10:00
      a.m. on May 25, 2006 at Something Different, 3342 Airport Boulevard, Wilson,
      North Carolina 27896.




***Annual
      Report on Form 10-KSB***




A
      copy of
      CB Financial Corporation’s 2005 Annual Report on Form 10-KSB, as filed with the
      Federal Deposit Insurance Corporation, is available without charge to
      shareholders upon written request to Norman B. Osborn, President and CEO,
      Cornerstone Bank, 3710 Nash Street North, Wilson, North Carolina
      27896.




This
      Annual Report serves as the annual financial disclosure statement furnished
      pursuant to the Federal Deposit Insurance Corporation’s rules and regulations.
      This statement has not been reviewed or confirmed for accuracy or relevance
      by
      the Federal Deposit Insurance Corporation.





46