**EXHIBIT
      13**





**2006
      Annual Report**








**[The
      2006 Annual Report to stockholders, excluding Letter to
      Stockholders.]**




***CB
          FINANCIAL CORPORATION***
 **AND
          SUBSIDIARY**
 
 ***2006
          Annual Report***
  
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
  **TABLE
          OF CONTENTS**
 Page
                      No.Letter
                      to Stockholders
                  
                  1Selected
                      Financial Information and Other Data
                  
                  3Management’s
                      Discussion and Analysis
                  
                  4Report
                      of Independent Registered Public Accounting Firm
                  
                  16Consolidated
                      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
                  
                  24Management
                      and Bank Personnel
                  
                  48General
                      Corporate Information
                  
                  49
 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***
 ***Selected
          Financial Information and Other Data***
 
  *The
          selected financial information and other data presented below has been
          derived,
          in part, from the audited consolidated financial statements of the Company
          (periods prior to 2005 reflect Bank operations only). 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 31,****2006**
                  
                  **2005**
                  
                  **2004**
                  
                  **2003**
                  
                  **2002****(Dollars
                      in thousands, except per share data)****Operating
                      Data:**Total
                      interest income
                  
                  $
                  11,320
                  
                  $
                  7,618
                  
                  $
                  5,102
                  
                  $
                  4,285
                  
                  $
                  3,640Total
                      interest expense
                  
                  
                  5,551
                  
                  
                  3,048
                  
                  
                  1,920
                  
                  
                  1,845
                  
                  
                  1,534Provision
                      for loan losses
                  
                  
                  942
                  
                  
                  625
                  
                  
                  614
                  
                  
                  374
                  
                  
                  391Net
                      interest income afterprovision
                      for loan losses
                  
                  
                  4,827
                  
                  
                  3,945
                  
                  
                  2,568
                  
                  
                  2,066
                  
                  
                  1,715Total
                      non-interest income
                  
                  
                  1,030
                  
                  
                  867
                  
                  
                  724
                  
                  
                  1,014
                  
                  
                  782Total
                      non-interest expense
                  
                  
                  4,218
                  
                  
                  3,068
                  
                  
                  2,345
                  
                  
                  2,239
                  
                  
                  1,969Income
                      tax expense
                  
                  
                  524
                  
                  
                  609
                  
                  
                  265
                  
                  
                  -
                  
                  
                  -Net
                      income
                  
                  $
                  1,115
                  
                  $
                  1,135
                  
                  $
                  682
                  
                  $
                  841
                  
                  $
                  528**Per
                      Common Share Data:(1)**Net
                      income per share - basic
                  
                  $
                  1.05
                  
                  $
                  1.07
                  
                  $
                  0.65
                  
                  $
                  0.80
                  
                  $
                  0.61Net
                      income per share - diluted
                  
                  
                  1.01
                  
                  
                  1.04
                  
                  
                  0.64
                  
                  
                  0.80
                  
                  
                  0.61Book
                      value
                  
                  
                  10.97
                  
                  
                  9.81
                  
                  
                  8.88
                  
                  
                  8.23
                  
                  
                  7.48**Selected
                      Year-End Balance Sheet Data:**Loans
                  
                  $
                  120,619
                  
                  $
                  114,468
                  
                  $
                  89,330
                  
                  $
                  73,187
                  
                  $
                  58,649Allowance
                      for loan losses
                  
                  
                  1,687
                  
                  
                  1,775
                  
                  
                  1,216
                  
                  
                  1,033
                  
                  
                  845Other
                      earning assets
                  
                  
                  40,886
                  
                  
                  30,112
                  
                  
                  25,237
                  
                  
                  17,011
                  
                  
                  13,229Total
                      assets
                  
                  
                  171,158
                  
                  
                  152,771
                  
                  
                  119,972
                  
                  
                  98,674
                  
                  
                  74,974Deposits
                  
                  
                  147,411
                  
                  
                  129,069
                  
                  
                  108,624
                  
                  
                  87,371
                  
                  
                  65,519Borrowings
                  
                  
                  11,405
                  
                  
                  12,543
                  
                  
                  1,667
                  
                  
                  2,343
                  
                  
                  1,250Stockholders’
                      equity
                  
                  
                  11,744
                  
                  
                  10,442
                  
                  
                  9,396
                  
                  
                  8,716
                  
                  
                  7,909**Selected
                      Average Balances:**Total
                      assets
                  
                  $
                  161,043
                  
                  $
                  132,455
                  
                  $
                  105,981
                  
                  $
                  89,666
                  
                  $
                  65,526Loans
                  
                  
                  116,020
                  
                  
                  97,732
                  
                  
                  81,235
                  
                  
                  65,907
                  
                  
                  48,896Total
                      interest-earning assets
                  
                  
                  153,161
                  
                  
                  125,718
                  
                  
                  100,922
                  
                  
                  85,220
                  
                  
                  62,098Deposits
                  
                  
                  137,884
                  
                  
                  116,184
                  
                  
                  93,852
                  
                  
                  78,742
                  
                  
                  58,210Total
                      interest-bearing liabilities
                  
                  
                  137,222
                  
                  
                  103,257
                  
                  
                  89,687
                  
                  
                  75,907
                  
                  
                  54,503Stockholders’
                      equity
                  
                  
                  10,894
                  
                  
                  10,017
                  
                  
                  8,703
                  
                  
                  8,336
                  
                  
                  6,014**Selected
                      Performance Ratios:**Return
                      on average assets
                  
                  
                  .69
                  %
                  
                  0.86
                  %
                  
                  0.64
                  %
                  
                  0.94
                  %
                  
                  0.81
                  %Return
                      on average equity
                  
                  
                  10.23
                  %
                  
                  11.33
                  %
                  
                  7.84
                  %
                  
                  10.09
                  %
                  
                  8.78
                  %Net
                      interest margin
                  
                  
                  3.77
                  %
                  
                  3.63
                  %
                  
                  3.15
                  %
                  
                  2.86
                  %
                  
                  3.39
                  %Non-interest
                      expense to average assets
                  
                  
                  2.62
                  %
                  
                  2.32
                  %
                  
                  2.21
                  %
                  
                  2.50
                  %
                  
                  3.00
                  %**Asset
                      Quality Ratios:**Allowance
                      for loan losses toperiod-end
                      loans
                  
                  
                  1.40
                  %
                  
                  1.55
                  %
                  
                  1.36
                  %
                  
                  1.41
                  %
                  
                  1.44
                  %Net
                      loan charge-offs to average loans
                  
                  
                  .89
                  %
                  
                  0.07
                  %
                  
                  0.53
                  %
                  
                  0.28
                  %
                  
                  0.14
                  %**Capital
                      Ratios:**Total
                      risk-based capital
                  
                  
                  14.43
                  %
                  
                  15.54
                  %
                  
                  12.13
                  %
                  
                  13.44
                  %
                  
                  14.63
                  %Tier
                      1 risk-based capital
                  
                  
                  12.66
                  %
                  
                  12.83
                  %
                  
                  10.88
                  %
                  
                  12.19
                  %
                  
                  13.39
                  %Leverage
                      ratio
                  
                  
                  9.35
                  %
                  
                  9.60
                  %
                  
                  8.08
                  %
                  
                  9.13
                  %
                  
                  10.63
                  %Equity
                      to assets
                  
                  
                  6.86
                  %
                  
                  6.82
                  %
                  
                  7.83
                  %
                  
                  8.83
                  %
                  
                  10.55
                  %Average
                      equity to average assets
                  
                  
                  6.76
                  %
                  
                  7.56
                  %
                  
                  8.21
                  %
                  
                  9.30
                  %
                  
                  9.18
                  %
 (1)
                  Adjusted
                      for the 10% stock dividend in 2002, the 5% stock dividend in
                      2003, the 5%
                      stock dividend in 2004, the 5% stock dividend in 2005 and the
                      5% stock
                      dividend in 2006.
 3
 
 ***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, 2006 and 2005. 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 all stock dividends.
 
 **DESCRIPTION
          OF BUSINESS**
 
 Cornerstone
          Bank (“Cornerstone” or the “Bank”), a North Carolina chartered banking
          corporation, opened for business on March 15, 2000. The Bank is a wholly
          owned
          single bank subsidiary of CB Financial Corporation (the “Company”), a bank
          holding company established in 2005 and registered with the Federal Reserve
          under the Bank Holding Company Act of 1956. 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
          intends
          to focus on customer relationships in building its deposit base and to
          compete
          aggressively for transaction accounts.
 
 **EXECUTIVE
          OVERVIEW**
 
 ***Significant
          accomplishments***
 
 In
          the
          opinion of management, the Company’s most significant accomplishments during
          2006 were as follows:
 
 ·
                Maintaining
                    net income after significantly adding to loan loss reserves,
                    weathering
                    the result of changes in bankruptcy laws that negatively impacted
                    several
                    of our customers and incurring the start-up costs of adding second
                    branch;
  ·
                Acceptance
                    of our second branch at the Wilson Mall, where deposits exceeded
                    $50
                    million by year end. Some deposits shifted from the Main Office,
                    which
                    provided much needed relief with daily transactions and capacity.
                    Clearly,
                    this was a wise move.
  ·
                Issued
                    fifth consecutive stock dividend in the form of a 21 for 20 stock
                    split,
                    while still increasing book value;
  ·
                Captured
                    additional deposit market share resulting in the Bank now holding
                    more
                    than 14.4% of all deposits in Wilson
                    County;
  ·
                Total
                    assets increased 12%;
  ·
                Total
                    deposits increased 14%;
  ·
                Maintained
                    the success of the “2nd50
                    Club” for all senior checking customers with information seminars and
                    trips to Myrtle Beach, SC for the Carolina Opry Christmas show
                    and a
                    cruise out of Norfolk, VA.
  4
  ***CB
          Financial Corporation***
 ***Management’s
          Discussion and Analysis***
 
  **Challenges**
 
 Cornerstone
          weathered a challenging year of transition during 2006—a year that required many
          changes in our infrastructure, including additional facilities and additional
          human resources. While the achievement of the Company’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:
 
 ·
                Maintaining
                    our net interest margin in anticipation of a declining rate market
                    while
                    competing with sometimes overly aggressive pricing competition
                    and
                    maintaining our implicit pledge of fair customer pricing of deposit
                    products;
  ·
                Finding
                    new and maintaining existing non-interest revenue sources in
                    light of the
                    continued soft real estate and mortgage market;
  ·
                Maintaining
                    core deposit growth at a reasonable cost in a highly competitive
                    market;
  ·
                Maintaining
                    our improved level of asset quality and resolving existing problem
                    assets
                    to a positive outcome;
  ·
                Minimizing
                    the costs associated with the current heightened regulatory
                    environment.
  **FINANCIAL
          CONDITION**
 **December
          31, 2006 and 2005**
 
 Total
          assets grew $18.4 million, or 12.0%, during 2006, from $152.8 million at
          December 31, 2005, to $171.2 million at December 31, 2005. The growth in
          assets
          was primarily funded by inflows of customer deposits, which increased by
          $18.3
          million, or 14.2%, to $147.4 million at December 31, 2006. Retention of
          net
          income of $1.1 million provided additional funding, but was offset by a
          decline
          of $1.1 million in borrowings. Net loans grew by $6.2 million and closed
          the
          year at $118.9 million, an increase of 5.5% from net loans at December
          31, 2005.
          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 $45.2 million, or 26.4% of total
          assets,
          at December 31, 2006, representing an increase of $10.7 million over the
          beginning of year total of $34.5 million. Total stockholders’ equity increased
          from $10.4 million at December 31, 2005 to $11.7 million at December 31,
          2006,
          primarily as a result of retention of net income of $1.1 million. At December
          31, 2006, the Bank’s capital exceeds the levels that are deemed to be
“well-capitalized” under applicable regulatory capital
          requirements.
 
 5
  ***CB
          Financial Corporation***
 ***Management’s
          Discussion and Analysis***
 
  **RESULTS
          OF OPERATIONS**
 **For
          the Years Ended December** **31, 2006 and 2005**
 
 *Overview.* ** The
          Company earned net income of $1.12 million or $1.05 per basic share for
          the year
          ended December 31, 2006, as compared with net income of $1.14 million,
          or $1.07
          per basic share, for 2005. The slight decline in net income was attributable
          to
          an increase in the provision for loan losses. Return on average assets
          was 0.69%
          and 0.86%, respectively, for 2006 and 2005. Return on average equity was
          10.23%
          and 11.33%, respectively, for 2006 and 2005.
 
 *Net
          Interest Income.* ** Net
          interest income increased to $5.8 million for the year ended December 31,
          2006,
          a $1.2 million, or 26.2% increase from the $4.6 million earned in 2005.
          Total
          interest income benefited from growth in the level of average earning assets
          and
          four increases in short-term rates by the Federal Reserve during the first
          half
          of the year. Average total interest-earning assets increased by $27.4 million
          or
          21.8% during the year ended December 31, 2006, as compared to the year
          ended
          December 31, 2005, while the average yield on interest earning assets increased
          by 133 basis points from 6.06% to 7.39%. Average total interest-bearing
          liabilities increased by $34.0 million, and the average cost increased
          110 basis
          points, from 2.95% during 2005 to 4.05% in 2006. A $6.6 million decline
          in
          average non-interest bearing deposits. This resulted primarily from two
          customers that held large demand deposits during 2005 that were either
          transferred to interest-bearing deposits during 2006 or withdrawn. For
          the year
          ended December 31, 2006, the interest rate spread was 3.34%, a 23 basis
          point
          improvement from the year ended December 31, 2005 interest rate spread
          of
          3.11%.
 
 *Provision
          for Loan Losses.*  The
          Company recorded a $942,000 provision for loan losses in 2006, after incurring
          $1.0 million 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 2006 and 2005, the provision for loan losses
          was made
          principally in response to growth in loans, as total loans outstanding
          increased
          by $ 6.2 million in 2006 and by $25.1 million in 2005, and to net loan
          charge-offs, which were $1.0 million in 2006 and $66,000 in 2005. The allowance
          for loan losses was $1.7 million and $1.8 million at December 31, 2006
          and 2005,
          respectively, representing 1.40% and 1.55%, respectively, of loans outstanding.
          At December 31, 2006, loans delinquent more than 90 days or on non-accrual
          amounted to $1.4 million. Interest income that would have been recorded
          on
          non-accrual loans was $74,000 for the year ended December 31, 2006. There
          were
          $2.2 million of non-performing loans at December 31, 2005. The $1.0 million
          in
          net charge offs during 2006 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 1,000 cases were filed, with Cornerstone Bank receiving 11.
          It took
          most of 2006 to work through these bankruptcies due to the backlog of new
          cases.
          We expect the remaining cases to be resolved in early 2007. We believe
          the
          company has adequately reserved for the anticipated outcome of these
          non-performing loans.
  6
  ***CB
            Financial Corporation***
 ***Management’s
            Discussion and Analysis***
 *Non-Interest
          Income.*  Non-interest
          income increased by $163,000, or 18.8%, from $867,000 for 2005 to $1.03
          million
          for 2006. Service fees and charges, which represent a relatively stable
          and
          predictable source of non-interest income, totaled $506,000 for 2006, as
          compared with $438,000 for service fees and charges earned in 2005, an
          increase
          related principally to deposit growth. The other major source of non-interest
          income, mortgage loan fees, increased by 50.9%, from $218,000 in 2005 to
          $329,000 in 2006, primarily as a result of the opening of a loan production
          office in Zebulon, North Carolina. 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. The Company’s
          management will continue efforts to develop sources of additional non-interest
          income.
 
 *Non-Interest
          Expenses.* Non-interest expenses totaled $4.2 million for the year ended December
          31, 2006,
          an increase of $1.15 million, or 37.5%, from the total of $3.1 million
          for the
          year ended December 31, 2005. Salaries and employee benefits amounted to
          $586,000, or 51.0% of the increase, as a result of increased personnel
          to
          support the growth in bank assets and the fact that a branch office and
          a loan
          production office were added in the latter half of 2005. Occupancy and
          equipment
          increased by 84.8%, from $204,000 in 2005 to $377,000 in 2006, as a result
          of
          the addition of the branch and loan production offices in late 2005 as
          well as
          the lease of additional facilities related to the general growth of the
          bank.
          The aggregate increase in the other categories of non-interest expenses
          is
          primarily attributable to the Bank’s growth from period to period.
 
 *Income
          Taxes.* The
          Company’s 2006 income tax expense was $524,000, representing 32% of income
          before income taxes, a decrease from 35% for 2005. The effective tax rate
          declined in 2006 primarily as a result of the increased investment in municipal
          securities.
  7
 ***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 Company’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 Company’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, 2006**
                  
                  **Year
                      Ended December 31, 2005****Interest**
                  
                  
                  
                  
                  
                  **Interest****Average**
                  
                  **Income/**
                  
                  **Yield/**
                  
                  **Average**
                  
                  **Income/**
                  
                  **Yield/****balance**
                  
                  **Expense**
                  
                  **Cost**
                  
                  **balance**
                  
                  **Expense**
                  
                  **Cost****(Dollars
                      in thousands)**Interest-earning
                      assets:Loans
                  
                  $
                  116,020
                  
                  $
                  9,588
                  
                  
                  8.26
                  %
                  $
                  97,732
                  
                  $
                  6,617
                  
                  
                  6.77
                  %Investment
                      securities (1)
                  
                  
                  26,431
                  
                  
                  1,192
                  
                  
                  4.51
                  %
                  
                  19,354
                  
                  
                  731
                  
                  
                  3.78
                  %Other
                      interest-earning assets (2)
                  
                  
                  10,710
                  
                  
                  539
                  
                  
                  5.03
                  %
                  
                  8,632
                  
                  
                  270
                  
                  
                  3.13
                  %Total
                      interest-earning assets
                  
                  
                  153,161
                  
                  
                  11,319
                  
                  
                  7.39
                  %
                  
                  125,718
                  
                  
                  7,618
                  
                  
                  6.06
                  %Other
                      assets
                  
                  
                  7,882
                  
                  
                  
                  
                  
                  
                  
                  
                  6,737Total
                      assets
                  
                  $
                  161,043
                  
                  
                  
                  
                  
                  
                  
                  $
                  132,455Interest-bearing
                      liabilities:Deposits:Savings,
                      NOW and money market
                  
                  $
                  37,509
                  
                  
                  897
                  
                  
                  2.39
                  %
                  $
                  42,608
                  
                  
                  867
                  
                  
                  2.03
                  %Time
                      deposits over $100,000
                  
                  
                  20,404
                  
                  
                  968
                  
                  
                  4.74
                  %
                  
                  16,916
                  
                  
                  669
                  
                  
                  3.95
                  %Other
                      time deposits
                  
                  
                  67,880
                  
                  
                  3,085
                  
                  
                  4.54
                  %
                  
                  38,011
                  
                  
                  1,251
                  
                  
                  3.29
                  %Short
                      term borrowings
                  
                  
                  15
                  
                  
                  1
                  
                  
                  6.67
                  %
                  
                  171
                  
                  
                  7
                  
                  
                  4.09
                  %Long
                      term borrowings
                  
                  
                  11,414
                  
                  
                  600
                  
                  
                  5.26
                  %
                  
                  5,551
                  
                  
                  254
                  
                  
                  4.58
                  %Total
                      interest-bearing liabilities
                  
                  
                  137,222
                  
                  
                  5,551
                  
                  
                  4.05
                  %
                  
                  103,257
                  
                  
                  3,048
                  
                  
                  2.95
                  %Non-interest-bearing
                      deposits
                  
                  
                  12,091
                  
                  
                  
                  
                  
                  
                  
                  
                  18,649Other
                      liabilities
                  
                  
                  836
                  
                  
                  
                  
                  
                  
                  
                  
                  532Stockholders'
                      equity
                  
                  
                  10,894
                  
                  
                  
                  
                  
                  
                  
                  
                  10,017Total
                      liabilities and stockholders'equity
                  
                  $
                  161,043
                  
                  
                  
                  
                  
                  
                  
                  $
                  132,455Net
                      interest income/interest rate spread
                  
                  
                  
                  
                  $
                  5,768
                  
                  
                  3.34
                  %
                  
                  
                  
                  $
                  4,570
                  
                  
                  3.11
                  %Net
                      interest margin
                  
                  
                  
                  
                  
                  
                  
                  
                  3.77
                  %
                  
                  
                  
                  
                  
                  
                  
                  3.64
                  %Ratio
                      of interest-earning assets tointerest-bearing
                      liabilities
                  
                  
                  111.62
                  %
                  
                  
                  
                  
                  
                  
                  
                  121.75
                  %
 
 (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.
 
 8
  ***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, 2006 vs. 2005****Increase
                      (Decrease) Due to****Volume**
                  
                  **Rate**
                  
                  **Total****(Dollars
                      in thousands)**Interest
                      income:Loans
                  
                  $
                  1,375
                  
                  $
                  1,596
                  
                  $
                  2,971Investment
                      securities
                  
                  
                  293
                  
                  
                  168
                  
                  
                  461Other
                      interest-earning assets
                  
                  
                  85
                  
                  
                  184
                  
                  
                  269Total
                      interest income
                  
                  
                  1,753
                  
                  
                  1,948
                  
                  
                  3,701Interest
                      expense:Deposits:Savings,
                      NOW and money market
                  
                  
                  (113
                  )
                  
                  143
                  
                  
                  30Time
                      deposits over $100,000
                  
                  
                  152
                  
                  
                  147
                  
                  
                  299Other
                      time deposits
                  
                  
                  1,170
                  
                  
                  664
                  
                  
                  1,834Short
                      term borrowings
                  
                  
                  (8
                  )
                  
                  2
                  
                  
                  (6
                  )Long
                      term borrowings
                  
                  
                  288
                  
                  
                  58
                  
                  
                  346Total
                      interest expense
                  
                  
                  1,489
                  
                  
                  1,014
                  
                  
                  2,503Net
                      interest income increase
                  
                  $
                  264
                  
                  $
                  934
                  
                  $
                  1,198
 
 **LOAN
          PORTFOLIO**
 
 The
          Company’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, 2006, were $118.9 million compared to $112.7
          million at December 31, 2005, an increase of 5.5%. 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, 2006, by category, are shown in Note E to the
          consolidated financial statements included elsewhere herein.
  9
 ***CB
              Financial Corporation***
 ***Management’s
              Discussion and Analysis***
 **LIQUIDITY**
 
 “Liquidity”
          refers to the ability of the Company to fund loans, withdrawals and maturities
          of deposits, and other cash outflows in a cost effective manner. The Company’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 26% and 19% of the Company’s total
          assets at December 31, 2006 and 2005, respectively. The increase is primarily
          attributable to the reclassification of approximately $6.3 million in book
          value
          of municipal securities from held-to-maturity to available for sale during
          2006
          (see Note D to the
          consolidated financial statements included elsewhere herein ).
 
 Through
          most of its existence, the Company 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 Company 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 $15.2
          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, 2006, there was $6.3 million outstanding in FHLB
          advances.
 
 Total
          deposits were $147.4 million and $129.1 million at December 31, 2006 and
          2005,
          respectively. Time deposits, which are the only deposit accounts that have
          stated maturity dates, are generally considered to be rate sensitive. Time
          deposits represented 66.9% and 62.9%, respectively, of total deposits at
          December 31, 2006 and 2005. Time deposits of $100,000 or more represented
          25.6%
          of the Company’s total deposits at both December 31, 2006 and 2005. At December
          31, 2006, the Company had $1.0 million in brokered time deposits. Management
          believes most other time deposits are relationship-oriented. While the
          Company
          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 Company anticipates that a
          substantial portion of outstanding certificates of deposit will renew upon
          maturity.
 
 At
          December 31, 2006 (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 1 capital, which includes common stockholders’ equity and
          qualifying preferred equity, and (2) Tier 2 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 1 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 1 capital as a percentage of risk-adjusted assets of 4.0%
          and
          combined Tier 1 and Tier 2 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 1 capital as a percentage of
          tangible
          assets) of 4.0%. The Company had an equity-to-assets ratio of 6.86 % at
          December
          31, 2006. As the following table indicates, at December 31, 2006, both
          the
          Company and the Bank exceeded regulatory capital requirements.
 
 10
 ***CB
            Financial Corporation***
 ***Management’s
            Discussion and Analysis***
  **At
                    December 31, 2006****Well-****Company’s**
                
                **Bank’s**
                
                **Minimum**
                
                **Capitalized****Ratio**
                
                **Ratio**
                
                **Requirement**
                
                **Requirement**Total
                    capital - Tier 2 capital
                
                
                14.43
                %
                
                14.40
                %
                
                8.0
                %
                
                10.0
                %Tier
                    1 capital.
                
                
                12.66
                %
                
                13.15
                %
                
                4.0
                %
                
                6.0
                %Leverage-Tier
                    1 capital
                
                
                9.35
                %
                
                9.94
                %
                
                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’s 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.
 
 11
  ***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 L 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, 2006, 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,
          a Board approved asset/liability management policy that provides guidelines
          for
          controlling exposure to interest rate risk by utilizing guidelines regarding
          pro
          forma earnings at risk and economic value of equity at risk. The Bank’s policy
          is to control the exposure of its earnings and market value of interest
          rate
          sensitive assets and liabilities to changing interest rates by generally
          endeavoring to maintain a position within a relatively 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. In addition, other ratios and trend analyses are
          utilized, including liquidity, volatile liability dependence, and net interest
          spread, to assist in managing liquidity and interest rate risk.
 
 When
          suitable lending opportunities are not sufficient to utilize available
          funds,
          the Bank has generally invested such funds in securities issued by government
          sponsored enterprises, 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 or other purposes.
 
 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.
 
 12
 ***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, 2006, 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, 2006****More
                      Than**
                  
                  **More
                      Than****1
                      Year**
                  
                  **1
                      Year to**
                  
                  **3
                      Years to**
                  
                  **More
                      Than****or
                      Less**
                  
                  **3
                      Years**
                  
                  **5
                      Years**
                  
                  **5
                      Years**
                  
                  **Total****(Dollars
                      in thousands)**Interest-earning
                      assets:Loans:Variable
                      rate
                  
                  $
                  89,319
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  89,319Fixed
                      rate
                  
                  
                  11,076
                  
                  
                  5,871
                  
                  
                  12,628
                  
                  
                  1,725
                  
                  
                  31,300Securities
                      available for sale
                  
                  
                  1,487
                  
                  
                  3,123
                  
                  
                  2,920
                  
                  
                  22,154
                  
                  
                  29,684Securities
                      held to maturity
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Other
                      interest-earning assets
                  
                  
                  10,952
                  
                  
                  250
                  
                  
                  -
                  
                  
                  -
                  
                  
                  11,202Total
                      interest-earning assets
                  
                  $
                  112,834
                  
                  $
                  9,244
                  
                  $
                  15,548
                  
                  $
                  23,879
                  
                  $
                  161,505Interest-bearing
                      liabilities:Deposits:Savings,
                      NOW and money market
                  
                  $
                  36,969
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  36,969Time
                      over $100,000
                  
                  
                  32,883
                  
                  
                  4,414
                  
                  
                  473
                  
                  
                  -
                  
                  
                  37,770Other
                      time
                  
                  
                  48,693
                  
                  
                  10,140
                  
                  
                  1,943
                  
                  
                  -
                  
                  
                  60,776Borrowings
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  11,405
                  
                  
                  11,405Total
                      interest-bearing liabilities
                  
                  $
                  118,545
                  
                  $
                  14,554
                  
                  $
                  2,416
                  
                  $
                  11,405
                  
                  $
                  146,920Interest
                      sensitivity gap per period
                  
                  $
                  (5,711
                  )
                  $
                  (5,310
                  )
                  $
                  13,132
                  
                  $
                  12,474
                  
                  $
                  14,585Cumulative
                      interest sensitivity gap
                  
                  $
                  (5,711
                  )
                  $
                  (11,021
                  )
                  $
                  2,111
                  
                  $
                  14,585
                  
                  $
                  14,585Cumulative
                      gap as a percentage oftotal
                      interest-earning assets
                  
                  
                  -3.54
                  %
                  
                  -6.82
                  %
                  
                  1.31
                  %
                  
                  9.03
                  %
                  
                  9.03
                  %Cumulative
                      interest-earningassets
                      as a percentage ofinterest-bearing
                      liabilities
                  
                  
                  95.18
                  %
                  
                  91.72
                  %
                  
                  101.56
                  %
                  
                  109.93
                  %
                  
                  109.93
                  %
  13
 ***CB
            Financial Corporation***
 ***Management’s
            Discussion and Analysis***
  The
          following table sets forth the maturity distribution of our loans as of
          December
          31, 2006. A significant majority of our loans maturing after one year reprice
          at
          two and three year intervals. In addition, approximately 74% of our loan
          portfolio is comprised of variable rate loans. This table does not include
          the
          effect of deferred loan fees.
 **Due
                      in 1**
                  
                  **Due
                      after 1 year****Year
                      or**
                  
                  **through
                      5 years**
                  
                  **Due
                      after 5 years****less**
                  
                  **Floating**
                  
                  **Fixed**
                  
                  **Floating**
                  
                  **Fixed**
                  
                  **Total****(Dollars
                      in thousands)**Real
                      estate - construction
                  
                  $
                  2,597
                  
                  $
                  -
                  
                  $
                  564
                  
                  $
                  80
                  
                  $
                  -
                  
                  $
                  3,241Commercial
                      and industrial loans
                  
                  
                  48,722
                  
                  
                  27,406
                  
                  
                  13,404
                  
                  
                  3,521
                  
                  
                  3,558
                  
                  
                  96,611All
                      other loans
                  
                  
                  6,896
                  
                  
                  2,514
                  
                  
                  5,045
                  
                  
                  623
                  
                  
                  5,721
                  
                  
                  20,799Total
                  
                  $
                  58,215
                  
                  $
                  29,920
                  
                  $
                  19,013
                  
                  $
                  4,224
                  
                  $
                  9,279
                  
                  $
                  120,651
 
 **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 $1.4
          million in non-accrual loans at December 31, 2006 and $2.2 million at December
          31, 2005. There was one restructured loan for approximately $8,000 at December
          31, 2006 and one restructured loan for approximately $11,000 at December
          31,
          2005.
 
 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 E to the accompanying consolidated financial
          statements.
 
 14
 ***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 its banking
          subsidiary, Cornerstone Bank (“Bank”). These forward-looking statements involve
          risks and uncertainties and are based on the beliefs and assumptions of
          management of the Company and 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.
  15
 
 
 ***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 sheet of CB Financial Corporation
          and subsidiary (the “Company”) as of December 31, 2006, and the related
          consolidated statements of operations, comprehensive income, changes in
          stockholders’ equity and cash flows for the year 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 audit. The consolidated financial statements of
          CB
          Financial Corporation and subsidiary for the year ended December 31, 2005
          were
          audited by other auditors whose report dated March 29, 2006, except as
          to the
          stock dividend discussed in Note B to the consolidated financial statements
          as
          to which the date is July 17, 2006, expressed an unqualified opinion of
          those
          statements.
 
 We
          conducted our audit 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 audit provides 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, 2006 and the results of its operations and its
          cash
          flows for the year then ended in conformity with accounting principles
          generally
          accepted in the United States of America.
 
 
 
 *Galax,
          Virginia*
 *March
          26, 2007*
    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 sheet of CB Financial Corporation
          and subsidiary (the “Company”)
          as of December 31, 2005, and the related consolidated statements of operations,
          comprehensive income,
          changes in stockholders’ equity and cash flows for the year 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 audit.
  We
          conducted our audit 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 consolidated 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 audit provides 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 the
          results of its operations and
          its
          cash flows for the year then ended in conformity with accounting principles
          generally accepted in the United States
          of
          America.
  As
          discussed in Note B to the consolidated financial statements, the Company
          declared, on July 17, 2006, a 5% stock
          dividend which was distributed on August 31, 2006.
   
  *Greenville,
          North Carolina*
 *March
          29, 2006, except as to the effects of the stock dividend discussed in Note
          B*
 *to
          the consolidated financial statements, which is as of July 17,
          2006*
     17
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***CONSOLIDATED
          BALANCE SHEETS***
 ***December
          31, 2006 and 2005***
 
 
 **2006**
                
                **2005****ASSETS**Cash
                    and due from banks
                
                $
                4,320,996
                
                $
                4,903,580Interest-earning
                    deposits in banks
                
                
                4,182,885
                
                
                4,606,921Federal
                    funds sold
                
                
                5,879,000
                
                
                -Time
                    deposits
                
                
                1,140,000
                
                
                5,453,000Investment
                    securities available for sale,at
                    fair value (Note D)
                
                
                29,684,578
                
                
                13,440,629Investment
                    securities held to maturity,at
                    amortized cost (Note D)
                
                
                -
                
                
                6,082,888Loans
                    (Note E)
                
                
                120,618,693
                
                
                114,467,614Allowance
                    for loan losses
                
                
                (1,686,500
                )
                
                (1,775,000
                )NET
                    LOANS
                
                
                118,932,193
                
                
                112,692,614Accrued
                    interest receivable
                
                
                886,846
                
                
                628,058Stock
                    in Federal Home Loan Bank of Atlanta, at cost
                
                
                593,600
                
                
                528,600Premises
                    and equipment (Note F)
                
                
                2,311,728
                
                
                1,757,272Bank-owned
                    life insurance
                
                
                1,389,617
                
                
                1,337,839Real
                    estate owned
                
                
                451,955
                
                
                117,414Other
                    assets
                
                
                1,384,470
                
                
                1,222,467TOTAL
                    ASSETS
                
                $
                171,157,868
                
                $
                152,771,282**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY**Deposits:Demand
                
                $
                11,895,688
                
                $
                11,638,277Savings
                
                
                1,144,329
                
                
                1,128,594Money
                    market and NOW
                
                
                35,824,994
                
                
                35,107,497Time
                    (Note G)
                
                
                98,545,945
                
                
                81,195,030TOTAL
                    DEPOSITS
                
                
                147,410,956
                
                
                129,069,398Short
                    term borrowings
                
                
                -
                
                
                1,055,000Long
                    term borrowings
                
                
                11,405,000
                
                
                11,488,333Accrued
                    interest payable
                
                
                270,609
                
                
                237,943Accrued
                    expenses and other liabilities
                
                
                327,516
                
                
                478,816TOTAL
                    LIABILITIES
                
                
                159,414,081
                
                
                142,329,490Commitments
                    (Notes L and N)Stockholders’
                    equity (Notes K and N):Preferred
                    stock, 20,000,000 shares authorized,none
                    issued
                
                
                -
                
                
                -Common
                    stock, no par value, 80,000,000shares
                    authorized; 1,070,208 and 1,014,228shares
                    issued and outstanding, respectively
                
                
                10,586,164
                
                
                9,640,494Retained
                    earnings
                
                
                1,212,273
                
                
                959,825Accumulated
                    other comprehensive loss
                
                
                (54,650
                )
                
                (158,527
                )TOTAL
                    STOCKHOLDERS’ EQUITY
                
                
                11,743,787
                
                
                10,441,792TOTAL
                    LIABILITIES ANDSTOCKHOLDERS’
                    EQUITY
                
                $
                171,157,868
                
                $
                152,771,282
  *See
            accompanying notes.*
  18
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***CONSOLIDATED
          STATEMENTS OF OPERATIONS***
 ***Years
          Ended December 31, 2006 and 2005***
 
 **2006**
                
                **2005*****INTEREST******INCOME***Loans
                
                $
                9,588,140
                
                $
                6,617,468Investment
                    securities—taxable
                
                
                799,700
                
                
                483,002Investment
                    securities—tax exempt
                
                
                246,999
                
                
                131,112Federal
                    funds sold
                
                
                306,261
                
                
                139,834Interest-earning
                    deposits in banks
                
                
                232,764
                
                
                130,276Other
                    interest and dividends
                
                
                145,810
                
                
                116,868TOTALINTERESTINCOME
                
                
                11,319,674
                
                
                7,618,560***INTEREST
                    EXPENSE***Money
                    market, NOW and savings deposits
                
                
                897,116
                
                
                867,374Time
                    deposits
                
                
                4,053,008
                
                
                1,919,988Short
                    term borrowings
                
                
                952
                
                
                6,694Long
                    term borrowings
                
                
                599,726
                
                
                254,148TOTAL
                    INTEREST EXPENSE
                
                
                5,550,802
                
                
                3,048,204NET
                    INTEREST INCOME
                
                
                5,768,872
                
                
                4,570,356***PROVISION
                    FOR LOAN LOSSES (Note E)***
                
                
                941,937
                
                
                625,327***NET
                    INTEREST INCOME AFTER******PROVISION
                    FOR LOAN LOSSES***
                
                
                4,826,935
                
                
                3,945,029***NON-INTEREST
                    INCOME***Service
                    charges on deposit accounts
                
                
                505,825
                
                
                438,469Mortgage
                    operations
                
                
                328,913
                
                
                217,623Loss
                    on sale of investment securities
                
                
                (12,638
                )
                
                -Other
                    income
                
                
                207,566
                
                
                211,182TOTAL
                    NON-INTEREST INCOME
                
                
                1,029,666
                
                
                867,274***NON-INTEREST
                    EXPENSE***Salaries
                    and employee benefits
                
                
                2,297,305
                
                
                1,710,675Occupancy
                    and equipment
                
                
                377,307
                
                
                203,903Data
                    processing expenses
                
                
                527,191
                
                
                384,298Other
                    (Note J)
                
                
                1,015,700
                
                
                769,150TOTAL
                    NON-INTEREST EXPENSE
                
                
                4,217,503
                
                
                3,068,026INCOME
                    BEFORE INCOME TAXES
                
                
                1,639,098
                
                
                1,744,277INCOME
                    TAXES (Note I)
                
                
                524,000
                
                
                609,000NET
                    INCOME
                
                $
                1,115,098
                
                $
                1,135,277***NET
                    INCOME PER SHARE***Basic
                
                $
                1.05
                
                $
                1.07Diluted
                
                
                1.01
                
                
                1.04***WEIGHTED
                    AVERAGE SHARES OUTSTANDING***Basic
                
                
                1,064,302
                
                
                1,058,033Diluted
                
                
                1,105,237
                
                
                1,086,486
  *See
            accompanying notes.*
  19
  **CB
          FINANCIAL CORPORATION AND SUBSIDIARY**
 ***CONSOLIDATED
          STATEMENTS OF COMPREHENSIVE INCOME***
 ***Years
          Ended December 31, 2006 and 2005***
 
 **2006**
                
                **2005*****NET
                    INCOME***
                
                $
                1,115,098
                
                $
                1,135,277***OTHER
                    COMPREHENSIVE INCOME (LOSS):***Securities
                    available for sale:Unrealized
                    holding gains (losses) onavailable-for-sale
                    securities
                
                
                289,831
                
                
                (299,458
                )Tax
                    effect
                
                
                (111,730
                )
                
                115,440Unrealized
                    losses resulting from transfer of securitiesfrom
                    held to maturity to available for sale
                
                
                (133,426
                )
                
                -Tax
                    effect
                
                
                51,436
                
                
                -Reclassification
                    of losses on sale of investmentsecurities
                    recognized in net income
                
                
                12,638
                
                
                -Tax
                    effect
                
                
                (4,872
                )
                
                -TOTAL
                    OTHER COMPREHENSIVE INCOME (LOSS)
                
                
                103,877
                
                
                (184,018
                )COMPREHENSIVE
                    INCOME
                
                $
                1,218,975
                
                $
                951,259
  *See
            accompanying notes.*
  20
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***CONSOLIDATED
          STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY***
 ***Years
          Ended December 31, 2006 and 2005***
 
 **Common
                      stock**
                  
                  **Additional**
                    **paid-in**
                  
                  **Retained**
                  
                  **Accumulated**
                    **Other**
                    **comprehensive**
                    **income**
                  
                  **Total**
                    **stockholders’****Shares**
                  
                  **Amount**
                  
                  **capital**
                  
                  **earnings**
                  
                  **(loss)**
                  
                  **equity*****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
                  )
                  
                  10,441,792Net
                      income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,115,098
                  
                  
                  -
                  
                  
                  1,115,098Other
                      comprehensive income
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  103,877
                  
                  
                  103,8775%
                      stock dividend, net offractional
                      shares paid in cash
                  
                  
                  50,025
                  
                  
                  850,425
                  
                  
                  -
                  
                  
                  (862,650
                  )
                  
                  -
                  
                  
                  (12,225
                  )Issuance
                      of common stock
                  
                  
                  5,955
                  
                  
                  72,293
                  
                  
                  -
                  
                  
                  -
                  
                  
                  72,293Stock
                      based compensation expense
                  
                  
                  -
                  
                  
                  22,952
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  22,952***BALANCE
                      AT DECEMBER 31, 2006***
                  
                  
                  1,070,208
                  
                  $
                  10,586,164
                  
                  $
                  -
                  
                  $
                  1,212,273
                  
                  $
                  (54,650
                  )
                  $
                  11,743,787
  *See
            accompanying notes.*
  21
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***CONSOLIDATED
          STATEMENTS OF CASH FLOWS***
 ***Years
          Ended December 31, 2006 and 2005***
 
 **2006**
                
                **2005*****CASH
                    FLOWS FROM OPERATING ACTIVITIES***Net
                    income
                
                $
                1,115,098
                
                $
                1,135,277Adjustments
                    to reconcile net income tonet
                    cash provided by operating activities:Depreciation
                    and amortization
                
                
                148,720
                
                
                170,774Compensation
                    expense
                
                
                22,952
                
                
                19,812Impairment
                    of cost method investments
                
                
                83,318
                
                
                -Realized
                    loss on available-for-sale securities
                
                
                12,638
                
                
                -(Gain)
                    loss on sale of bank equipment
                
                
                296
                
                
                (250
                )(Gain)
                    loss on sale of real estate owned
                
                
                21,695
                
                
                (29,574
                )Provision
                    for loan losses
                
                
                941,937
                
                
                625,327Provision
                    for real estate loan losses
                
                
                10,685
                
                
                -Earnings
                    on bank-owned life insurance
                
                
                (51,778
                )
                
                (52,248
                )Deferred
                    income tax expense (benefit)
                
                
                123,000
                
                
                (188,000
                )Change
                    in assets and liabilities:Increase
                    in accrued interest receivable
                
                
                (258,788
                )
                
                (185,076
                )(Increase)
                    decrease in other assets
                
                
                (345,987
                )
                
                172,582Increase
                    in accrued interest payable
                
                
                32,666
                
                
                130,581Increase
                    (decrease) in accrued expenses and other liabilities
                
                
                (151,300
                )
                
                300,213NET
                    CASH PROVIDED BY OPERATING ACTIVITIES
                
                
                1,705,152
                
                
                2,099,418***CASH
                    FLOWS FROM INVESTING ACTIVITIES***Net
                    maturities (purchases) of time deposits
                
                
                4,313,000
                
                
                (1,136,561
                )Purchase
                    of available-for-sale investments
                
                
                (14,730,729
                )
                
                (6,050,152
                )Sales
                    of available for sale investments
                
                
                992,828
                
                
                -Proceeds
                    from sale of bank equipment
                
                
                -
                
                
                250Proceeds
                    from sale of real estate owned
                
                
                676,992
                
                
                68,538Proceeds
                    from maturities and calls of available for sale
                    investments
                
                
                3,723,292
                
                
                3,164,405Purchases
                    of held to maturity investments
                
                
                -
                
                
                (4,426,953
                )Net
                    increase in loans
                
                
                (8,225,429
                )
                
                (25,321,247
                )Purchase
                    of Federal Home Loan Bank stock
                
                
                (65,000
                )
                
                (256,200
                )Purchase
                    of investments accounted for under the cost method
                
                
                (87,500
                )
                
                (175,000
                )Investment
                    in unconsolidated trust
                
                
                -
                
                
                (155,000
                )Purchases
                    of bank premises and equipment
                
                
                (693,519
                )
                
                (327,168
                )NET
                    CASH USED BY INVESTING ACTIVITIES
                
                
                (14,096,065
                )
                
                (34,615,088
                )***CASH
                    FLOWS FROM FINANCING ACTIVITIES***Increase
                    in deposits
                
                
                18,341,558
                
                
                20,445,347Issuance
                    of common stock
                
                
                72,293
                
                
                75,200Cash
                    paid for fractional shares (12,225)
                
                
                -Net
                    increase (decrease) in short term borrowings
                
                
                (1,138,333
                )
                
                1,055,000Net
                    increase in long term borrowings
                
                
                -
                
                
                9,821,666NET
                    CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                17,263,293
                
                
                31,397,213NET
                    INCREASE (DECREASE)IN
                    CASH AND CASH EQUIVALENTS
                
                
                4,872,380
                
                
                (1,118,457
                )***CASH
                    AND CASH EQUIVALENTS, BEGINNING***
                
                
                9,510,501
                
                
                10,628,958***CASH
                    AND CASH EQUIVALENTS, ENDING***
                
                $
                14,382,881
                
                $
                9,510,501
  *See
            accompanying notes.*
  22
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***CONSOLIDATED
          STATEMENTS OF CASH FLOWS, continued***
 ***Years
          Ended December 31, 2006 and 2005***
 
 **2006**
                
                **2005*****CASH
                    AND CASH EQUIVALENTS***Cash
                    and due from banks
                
                $
                4,320,996
                
                $
                4,903,580Interest-earning
                    deposits in banks
                
                
                4,182,885
                
                
                4,606,921Federal
                    funds sold
                
                
                5,879,000
                
                
                -$
                14,382,881
                
                $
                9,510,501***SUPPLEMENTAL
                    DISCLOSURES OF CASH FLOW INFORMATION***Interest
                    paid
                
                $
                5,518,136
                
                $
                2,924,589Income
                    taxes paid
                
                
                960,000
                
                
                397,692Unrealized
                    loss on investment securities available for sale, net
                
                
                178,101
                
                
                184,018Transfer
                    from loans to real estate owned
                
                
                1,043,913
                
                
                117,413
  *See
            accompanying notes.*
  23
   ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***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 CB Financial Capital Trust I, a Connecticut
          statutory trust to facilitate the issuance of $5 million of trust preferred
          securities.
 
 ***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 and the valuation of deferred
          tax
          assets.
 
 ***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.
  24
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***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.”
  25
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***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,
          2006.
 
 Periodically,
          the Company invests in nonmarketable equity securities which are accounted
          for
          under the cost method. These investments are carried at cost unless a
          determination has been made that they are impaired. During 2006, management
          identified a change in the circumstances of one of these investments that
          resulted in a writedown in its fair value of $83,318. 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.
  26
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)***
 
 ***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.
 
 ***Advertising
          Costs***
 
 Advertising
          costs are expensed as incurred.
 
 ***Stock
          Compensation Plans***
 
 Effective
          January 1, 2006, the Company adopted Statement of Financial Accounting
          Standard
          (“SFAS”) No. 123 (revised 2004), “ *Share-Based
          Payment”* ,
          which
          was issued by the Financial Accounting Standards Board (“FASB”) in December
          2004. SFAS No. 123R revises SFAS No. 123 *Accounting
          for Stock Based Compensation,* and
          supersedes Accounting Principles Board Opinion (“APB”) No. 25, “ *Accounting
          for Stock Issued to Employees”* ,
          and its
          related interpretations. SFAS No. 123R requires recognition of the cost
          of
          employee services received in exchange for an award of equity instruments
          in the
          financial statements over the period the employee is required to perform
          the
          services in exchange for the award (usually the vesting period). SFAS No.
          123R
          also requires measurement of the cost of employee services received in
          exchange
          for an award based on the grant-date fair value of the award. SFAS No.
          123R also
          amends SFAS No. 95 “ *Statement
          of Cash Flows”* ,
          to
          require that excess tax benefits be reported as financing cash inflows,
          rather
          than as a reduction of taxes paid, which is included within operating cash
          flows.
  27
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)***
 
 The
          Company adopted SFAS No. 123R using the modified prospective application
          as
          permitted under SFAS No. 123R. Accordingly, prior period amounts have not
          been
          restated. Under this application, the Company is required to record compensation
          expense for all awards granted after the date of adoption and for the unvested
          portion of previously granted awards that remain outstanding at the date
          of
          adoption. Prior to the adoption of SFAS No. 123R, the Company used the
          intrinsic
          value method as prescribed by APB No. 25 and thus recognized no compensation
          expense for options granted with exercise prices equal to the fair market
          value
          of the Company's common stock on the date of grant. The following table
          illustrates the effect on net income if the Company had applied the fair
          value
          recognition provisions of SFAS No. 123 to the prior year:
 
 **2005****(Amounts
                    in thousands,**
                  **except
                    per share data)**Net
                    income:As
                    reported
                
                $
                1,135Total
                    stock-based employee compensation expenseincluded
                    in net income
                
                
                20Deduct:
                    Total stock-based employee compensationexpense
                    determined under fair value methodfor
                    all awards, net of related tax effects
                
                
                (208
                )Pro
                    forma
                
                $
                947Basic
                    net income per share:As
                    reported
                
                $
                1.07Pro
                    forma
                
                
                .90Diluted
                    net income per share:As
                    reported
                
                $
                1.04Pro
                    forma
                
                
                .87
  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 N).
 
 ***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
          options, and are determined using the treasury stock method.
  28
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)***
 
 ***Per
          Share Results (Continued)***
 
 The
          basic
          and diluted weighted average shares outstanding are as follows:
 
 **2006**
                ****
                **2005**Weighted
                    average outstanding shares used for basic EPS
                
                
                1,064,302
                
                
                1,058,033Plus
                    incremental shares from assumed exercise ofstock
                    options and employee stock purchase plan purchases
                
                
                40,935
                
                
                28,453Weighted
                    average outstanding shares used for diluted EPS
                
                
                1,105,237
                
                
                1,086,486
 
 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, 2006 and 2005,
          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
          July
          17, 2006, the Company’s Board of Directors declared a 5% stock dividend, which
          was distributed on August 31, 2006 to shareholders of record on July 31,
          2006.
          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. 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***
 
 SFAS No. 155, *“Accounting
          for Certain Hybrid Financial Instruments — an amendment of
          SFAS No. 133 and 140”* provides
          entities relief from the requirement to separately determine the fair value
          of
          an embedded derivative that would otherwise be bifurcated from the host
          contract
          under SFAS No. 133. This statement allows an irrevocable election on an
          instrument-by-instrument basis to measure such a hybrid financial instrument
          at
          fair value. This statement is effective for all financial instruments acquired
          or issued after the beginning of the fiscal years beginning after
          September 15, 2006. The Company has evaluated this statement and determined
          that it will have no material effect on the Company’s financial position,
          results of operations and cash flows.
 
 SFAS No. 156, *“Accounting
          for Servicing of Financial Assets — an amendment of
          SFAS No. 140”* requires
          that all separately recognized servicing assets and liabilities be initially
          measured at fair value and, permits (but does not require) subsequent
          measurement of servicing assets and liabilities at fair value. This statement
          is
          effective for fiscal years beginning after September 15, 2006. The Company
          has evaluated this statement and determined that it will have no material
          effect
          on the Company’s financial position, results of operations and cash flows.
 
 SFAS
          No.
          158, “ *Employers’
          Accounting for Defined Benefit Pension and Other Postretirement
          Plans* .”
This
          statement requires recognition on the balance sheet of a plan’s overfunded or
          underfunded status with an offset to comprehensive income. This statement
          also
          requires, with limited exceptions, that the funded status of the plan be
          determined as of the employer’s fiscal year
          end.
          The balance sheet recognition provisions of SFAS No. 158 are effective
          for
          entities with publicly traded equity securities for years ending after
          December
          15, 2006 and for all other entities for years ending after June 15, 2007.
          This
          statement will have no impact on the Company’s financial position, results of
          operations and cash flows.
  29
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)***
 ***Recent
          Accounting Pronouncements (Continued)***
  FIN
          48 -
          In July 2006, the FASB issued Financial Interpretation No. 48, *“Accounting
          for Uncertainty in Income Taxes-an interpretation of FASB Statement
          No. 109” (“FIN 48”),* which is
          a change in accounting for income taxes. FIN 48 specifies how tax benefits
          for
          uncertain tax positions are to be recognized, measured, and derecognized
          in
          financial statements; requires certain disclosures of uncertain tax matters;
          specifies how reserves for uncertain tax positions should be classified
          on the
          balance sheet; and provides transition and interim period guidance, among
          other
          provisions. FIN 48 is effective for fiscal years beginning after
          December 15, 2006 and as a result, is effective for the Company in the
          first quarter of fiscal 2007. FIN 48 will have no impact on the Consolidated
          Financial Statements.
 
 SAB
          108 -
          In September 2006, the SEC staff issued Staff Accounting Bulletin (“SAB”) No.
          108, “ *Considering
          the Effects of Prior Year Misstatements when Quantifying Misstatements
          in
          Current Year Financial Statements.”* SAB 108
          was issued in order to eliminate the diversity of practice surrounding
          how
          public companies quantify financial statements misstatements.
 
 Traditionally,
          there have been two widely-recognized methods for quantifying the effects
          of
          financial statement misstatements: the “roll-over” method and the “iron curtain”
method. The roll-over method focuses primarily on the impact of a misstatement
          on the income statement - including the reversing effect of prior year
          misstatements - but its use can lead to the accumulation of misstatements
          in the
          balance sheet. The iron-curtain method, on the other hand, focuses primarily
          on
          the effect of correcting the period-end balance sheet with less emphasis
          on the reversing effects of prior year errors on the income statement.
          Subsequent to SAB 108 we used the roll-over method for quantifying identified
          financial statement misstatements.
 
 In
          SAB
          108, the SEC staff established an approach that requires quantification
          of
          financial statement misstatements based on the effects of the misstatements
          on
          each of the Company’s financial statements and the related financial statement
          disclosures. This model is commonly referred to as a “dual approach” because it
          requires quantification of errors under
          both the iron curtain and the roll-over methods.
 
 SAB
          108
          permits existing public companies to
          initially apply its provisions either by (i) restating prior financial
          statements as if the “dual approach” had always been used or (ii) recording the
          cumulative effect of initially applying the “dual approach” as adjustments to
          the carrying values of assets and liabilities as of October 1, 2006 with
          an
          offsetting adjustment recorded to the opening balance of retained earnings.
          Use
          of the “cumulative effect” transition method requires detailed disclosure of the
          nature and amount of each individual error being corrected through the
          cumulative adjustment and how and when it arose. The adoption of SAB 108
          did not
          impact the Company’s financial statements.
  30
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (Continued)***
 ***Recent
          Accounting Pronouncements (Continued)***
 
 EITF
          06-4
          - The Emerging Issues Task Force (“EITF”) reached a consensus at its September
          2006 meeting regarding EITF 06-4, “ *Accounting
          for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
          Split-Dollar Life Insurance Arrangements”.* The
          scope of EITF 06-4 is limited to the recognition of a liability and related
          compensation costs for endorsement split-dollar life insurance policies
          that
          provide a benefit to an employee that extends to postretirement periods.
          Therefore, this EITF would not apply to a split-dollar life insurance
          arrangement that provides a specified benefit to an employee that is limited
          to
          the employee’s active service period with an employer. This EITF 06-4 is
          effective for fiscal years beginning after December 15, 2007, with earlier
          application permitted. The effects of this EITF are not expected to materially
          impact the Company’s financial statements.
 
 EITF
          06-5
          - The EITF reached a consensus at its September 2006 meeting regarding
          EITF
          06-5, “ *Accounting
          for Purchases of Life Insurance Determining the Amount That Could be Realized
          in
          Accordance with FASB Technical Bulletin No. 85-5* .”
The
          scope of EITF 06-5 is limited to the determination of net cash surrender
          value
          of a life insurance contract in accordance with Technical Bulletin 85-4.
          This
          EITF outlines when contractual limitations of the policy should be considered
          when determining the net realizable value of the contract. EITF 06-5 is
          effective for fiscal years beginning after December 15, 2006, with earlier application permitted. The adoption of EITF 06-5 will have no material impact on the
          financial statements of the Company.
 
 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 2005 financial statements have been reclassified to conform
          to
          the 2006 presentation. The reclassifications had no effect on net income
          or
          stockholders’ equity as previously reported.
 
 ***NOTE
          C - RESTRICTIONS ON CASH***
 
 The
          Bank
          is required to maintain average balances on hand or with the Federal Reserve
          Bank. At December 31, 2006 and 2005, these reserve balances amounted to
          $229,000
          and $508,000, respectively.
  31
  *CB
          FINANCIAL CORPORATION AND SUBSIDIARY*
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          D - INVESTMENT SECURITIES***
 
 The
          amortized cost and fair value of investment securities, with gross unrealized
          gains and losses, are as follows:
  **December
                    31, 2006****Amortized**
                  **cost**
                
                **Gross**
                  **unrealized**
                  **gains**
                
                **Gross**
                  **unrealized**
                  **losses**
                
                **Fair**
                  **value**Securities
                    available for sale:Government
                    sponsored enterprises
                
                $
                8,777,766
                
                $
                38,032
                
                $
                (30,698
                )
                $
                8,785,100Municipal
                    securities
                
                
                7,910,206
                
                
                27,058
                
                
                (49,171
                )
                
                7,888,093Mortgage-backed
                    securities
                
                
                13,085,539
                
                
                60,733
                
                
                (134,887
                )
                
                13,011,385$
                29,773,511
                
                $
                125,823
                
                $
                (214,756
                )
                $
                29,684,578
 
 **December
                    31, 2005****Amortized**
                  **cost**
                
                **Gross**
                  **unrealized**
                  **gains**
                
                **Gross**
                  **unrealized**
                  **losses**
                
                **Fair**
                  **value**Securities
                    available for sale:Government
                    sponsored enterprises
                
                $
                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
 
 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, 2006 and 2005.  At December 31, 2006, the unrealized losses
          relate to six government sponsored enterprises, eleven mortgage-backed
          securities and seventeen municipal securities. All investment securities
          with
          unrealized losses are considered by management to be temporarily impaired
          given
          the credit ratings on these securities and management’s intent and ability to
          hold these securities until recovery. 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 or until the securities
          approach their maturity date. Should the Company decide in the future to
          sell
          securities in an unrealized loss position, or determine that impairment
          of any
          securities is other than temporary, irrespective of a decision to sell,
          an
          impairment loss would be recognized in the period such determination is
          made.
 
 **December
                    31, 2006****Less
                    Than 12 Months**
                
                **12
                    Months or More**
                
                **Total****Fair
                    value**
                
                **Unrealized**
                  **losses**
                
                **Fair
                    value**
                
                **Unrealized
                    losses**
                
                **Fair
                    value**
                
                **Unrealized****losses**Government
                    sponsored enterprises
                
                $
                710,125
                
                $
                3,834
                
                $
                2,697,608
                
                $
                26,864
                
                $
                3,407,733
                
                $
                30,698Municipal
                    securities
                
                
                -
                
                
                -
                
                
                4,801,426
                
                
                49,171
                
                
                4,801,426
                
                
                49,171Mortgage-backed
                    securities
                
                
                725,187
                
                
                39
                
                
                6,374,650
                
                
                134,848
                
                
                7,099,837
                
                
                134,887Total
                    temporarily impairedavailable
                    for sale securities
                
                $
                1,435,312
                
                $
                3,873
                
                $
                13,873,684
                
                $
                210,883
                
                $
                15,308,996
                
                $
                214,756
  32
 ***CB
            FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
            31, 2006 and 2005***
 ***NOTE
          D - INVESTMENT SECURITIES (Continued)***
 
 **December
                    31, 2005****Less
                    Than 12 Months**
                
                **12
                    Months or More**
                
                **Total****Fair
                    value**
                
                **Unrealized**
                  **losses**
                
                **Fair
                    value**
                
                **Unrealized**
                  **l****osses**
                
                **Fair**
                  **value**
                
                **Unrealized**
                  **losses**Securities
                    available for sale:Government
                    sponsored enterprises
                
                $
                3,813,190
                
                $
                54,273
                
                $
                1,967,031
                
                $
                31,725
                
                $
                5,780,221
                
                $
                85,998Mortgage-backed
                    securities
                
                
                4,907,158
                
                
                93,390
                
                
                2,547,132
                
                
                81,405
                
                
                7,454,290
                
                
                174,795Total
                    temporarily impairedavailable
                    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
 
 Securities
          with a carrying value of $5.7 million and $5.7 million December 31, 2006
          and
          2005, respectively, were pledged to secure borrowings.
 
 For
          the
          years ended December 31, 2006 and 2005, proceeds from sales of securities
          available for sale amounted to $992,828 and $0, respectively. From the
          sales,
          gross realized losses amounted to $12,638 and $0 and gross realized gains
          amounted to $0 and $0 for the years ended December 31, 2006 and 2005,
          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, 2006, 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:Government
                    sponsored enterprisesDue
                    within one year
                
                $
                1,501
                
                $
                1,486
                
                
                4.02
                %Due
                    after one but within five years
                
                
                4,950
                
                
                4,960
                
                
                4.83
                %Due
                    after five but within ten years
                
                
                2,327
                
                
                2,339
                
                
                4.99
                %8,778
                
                
                8,785
                
                
                4.74
                %Mortgage-backed
                    securitiesDue
                    after five but within ten years
                
                
                646
                
                
                625
                
                
                4.50
                %Due
                    after ten years
                
                
                12,439
                
                
                12,386
                
                
                5.06
                %13,085
                
                
                13,011
                
                
                5.06
                %Municipal
                    securitiesDue
                    after one but within five years
                
                
                1,083
                
                
                1,067
                
                
                3.43
                %Due
                    after five but within ten years
                
                
                551
                
                
                549
                
                
                3.87
                %Due
                    after ten years
                
                
                6,277
                
                
                6,273
                
                
                4.23
                %7,911
                
                
                7,889
                
                
                4.09
                %$
                29,774
                
                $
                29,685
                
                
                4.70
                %
 
 33
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          D - 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.
 
 During
          2006, approximately $6.3 million in book value of municipal securities
          were
          transferred from held to maturity to available for sale. The related unrealized
          loss on the securities at the time of transfer was $133,426 and is reflected
          in
          other comprehensive income (loss). The reclassification was made in order
          to
          have all the
          Bank’s securities classified as available for sale and thereby simplify
          reporting as well as to create additional ongoing flexibility in the investment
          portfolio.
 
 ***NOTE
          E - LOANS***
 
 Following
          is a summary of loans at December 31, 2006 and 2005:
  **2006**
                
                **2005****Amount**
                
                **Percent**
                  **of
                    total**
                
                **Amount**
                
                **Percent**
                  **of
                    total****(Dollars
                    in thousands)**Residential
                    - mortgage
                
                $
                4,461
                
                
                3.70
                %
                $
                4,753
                
                
                4.15
                %Residential
                    - construction
                
                
                3,241
                
                
                2.69
                %
                
                3,733
                
                
                3.26
                %Home
                    equity lines of credit
                
                
                9,372
                
                
                7.77
                %
                
                6,916
                
                
                6.04
                %Commercial
                    and industrial loans
                
                
                96,611
                
                
                80.07
                %
                
                92,607
                
                
                80.88
                %Loans
                    to individuals
                
                
                6,966
                
                
                5.77
                %
                
                6,496
                
                
                5.67
                %Total
                    loans
                
                
                120,651
                
                
                100.00
                %
                
                114,505
                
                
                100.00
                %Less:Allowance
                    for loan losses
                
                
                (1,687
                )
                
                
                
                
                (1,775
                )Deferred
                    loan fees and costs, net
                
                
                (32
                )
                
                
                
                
                (37
                )Net
                    loans receivable
                
                $
                118,932
                
                
                
                
                $
                112,693
 
 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.
 
 There
          was
          one restructured loan for approximately $8,000 at December 31, 2006 and
          one
          restructured loan for approximately $11,000 at December 31, 2005.
 
 As
          of
          December 31, 2006 there were approximately $1.4 million in non-accrual
          loans.
          The average recorded investment in impaired loans during the year ended
          December
          31, 2006 was approximately $1,569,000. Interest income that would have
          been
          recorded on impaired loans totaled approximately $74,000 for the year ended
          December 31, 2006.
 
 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.
  34
 ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
 
  ***NOTE
          E - LOANS (Continued)***
 
 The
          following is a summary of information pertaining to impaired and non-accrual
          loans:
 **December
                      31,****2006**
                  
                  **2005****(in
                      thousands)**Impaired
                      loans without a valuation allowance
                  
                  $
                  1
                  
                  $
                  266Impaired
                      loans with a valuation allowance
                  
                  
                  1,486
                  
                  
                  1,948Total
                      impaired loans
                  
                  $
                  1,487
                  
                  $
                  2,214Valuation
                      allowance related to impaired loans
                  
                  $
                  151
                  
                  
                  236Total
                      non-accrual loans
                  
                  $
                  1,369
                  
                  $
                  2,214Total
                      loans past due ninety days or more and still accruing
                  
                  $
                  -
                  
                  
                  -
 
 **Years
                      Ended December 31,****2006**
                  
                  **2005****(in
                      thousands)**Average
                      investment in impaired loans
                  
                  $
                  1,569
                  
                  $
                  494Interest
                      income recognized on impaired loans
                  
                  $
                  121
                  
                  $
                  74Interest
                      income recognized on a cash basis on impaired loans
                  
                  $
                  121
                  
                  $
                  74
 No
            additional funds are committed to be advanced in connection with impaired
            loans.
 35
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
 
  ***NOTE
          E - LOANS (Continued)***
 
 Following
          is a summary of activity in the allowance for loan losses for the years
          indicated:
 **At
                      or for the Years Ended December 31,****2006**
                  
                  **2005****(Dollars
                      in thousands)**Allowance
                      for loan losses at beginning of year
                  
                  $
                  1,775
                  
                  $
                  1,216Provision
                      for loan losses
                  
                  
                  942
                  
                  
                  6252,717
                  
                  
                  1,841Loans
                      charged-off:Residential
                      - mortgage
                  
                  
                  -
                  
                  
                  -Home
                      Equity
                  
                  
                  (13
                  )
                  
                  -Commercial
                      and industrial
                  
                  
                  (1,146
                  )
                  
                  (89
                  )Loans
                      to individuals
                  
                  
                  (137
                  )
                  
                  (10
                  )Total
                      charge-offs
                  
                  
                  (1,296
                  )
                  
                  (99
                  )Recoveries
                      of loans previously charged-off:Commercial
                      and industrial
                  
                  
                  237
                  
                  
                  27Home
                      equity
                  
                  
                  12
                  
                  
                  -Loans
                      to individuals
                  
                  
                  17
                  
                  
                  6Total
                      recoveries
                  
                  
                  266
                  
                  
                  33Net
                      charge-offs
                  
                  
                  (1,030
                  )
                  
                  (66
                  )Allowance
                      for loan losses at end of year
                  
                  $
                  1,687
                  
                  $
                  1,775Net
                      charge-offs as a percent of average loans outstanding during
                      the
                      year
                  
                  
                  .89
                  %
                  
                  .07
                  %Allowance
                      for loan losses as a percent of loans at period end
                  
                  
                  1.40
                  %
                  
                  1.55
                  %
 
 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,****2006**
                  
                  **2005****%
                      of Total**
                  
                  **%
                      of Total****Amount**
                  
                  **Loans**
                  
                  **Amount**
                  
                  **Loans****(Dollars
                      in thousands)**Residential
                      - mortgage
                  
                  $
                  62
                  
                  
                  3.70
                  %
                  $
                  74
                  
                  
                  4.15
                  %Residential
                      - construction
                  
                  
                  45
                  
                  
                  2.69
                  %
                  
                  58
                  
                  
                  3.26
                  %Home
                      equity lines of credit
                  
                  
                  131
                  
                  
                  7.77
                  %
                  
                  107
                  
                  
                  6.04
                  %Commercial
                      and industrial loans
                  
                  
                  1,351
                  
                  
                  80.07
                  %
                  
                  1,436
                  
                  
                  80.88
                  %Loans
                      to individuals
                  
                  
                  98
                  
                  
                  5.77
                  %
                  
                  100
                  
                  
                  5.67
                  %Total
                  
                  $
                  1,687
                  
                  
                  100.00
                  %
                  $
                  1,775
                  
                  
                  100.00
                  %
  36
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
 
  ***NOTE
          E - LOANS (Continued)***
 
 At
          December 31, 2006, the Company had loan commitments outstanding of $300,000,
          pre-approved but unused lines of credit totaling $28.4 million and commercial
          and standby letters of credit of $46,500. 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:
 **2006**
                  
                  **2005**Balance
                      at beginning of year
                  
                  $
                  3,862
                  
                  $
                  1,785Borrowings
                  
                  
                  350
                  
                  
                  4,138Repayments
                  
                  
                  (495
                  )
                  
                  (2,061
                  )Balance
                      at end of year
                  
                  $
                  3,717
                  
                  $
                  3,862
  ***NOTE
          F - PREMISES AND EQUIPMENT***
 
 Following
          is a summary of the Company’s premises and equipment at December 31, 2006 and
          2005:
 **2006**
                  
                  **2005**Land
                  
                  $
                  848,037
                  
                  $
                  251,037Buildings
                  
                  
                  1,248,465
                  
                  
                  1,240,208Leasehold
                      improvements
                  
                  
                  43,451
                  
                  
                  37,091Furniture
                      and equipment
                  
                  
                  869,643
                  
                  
                  816,9453,009,596
                  
                  
                  2,345,281Less
                      accumulated depreciation
                  
                  
                  (697,868
                  )
                  
                  (588,009
                  )Total
                  
                  $
                  2,311,728
                  
                  $
                  1,757,272
 
 Depreciation
          and amortization amounting to $132,749 and $109,646 for the years ended
          December
          31, 2006 and 2005, 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:
 2007
                  
                  $
                  94,3492008
                  
                  
                  83,0452009
                  
                  
                  83,0452010
                  
                  
                  83,0452011
                  
                  
                  59,802Thereafter
                  
                  
                  32,400$
                  435,686
 
 37
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
 
  ***NOTE
          F - PREMISES AND EQUIPMENT*** ***(Continued)***
 
 Rental
          expense amounting to approximately $58,000 and $5,000 during the years
          ended
          December 31, 2006 and 2005, respectively, is included in occupancy and
          equipment
          expense on the accompanying consolidated statements of operations.
 
 **NOTE
          G - DEPOSITS**
 
 At
          December 31, 2006, the scheduled maturities of time deposits (dollars in
          thousands) are as follows:
 2007
                  
                  $
                  81,5762008
                  
                  
                  10,0592009
                  
                  
                  4,4952010
                  
                  
                  2,0622011
                  
                  
                  354Total
                  
                  $
                  98,546
 
 The
          above
          table includes time deposits of $100,000 and over, which at
          December 31, 2006, totaled $37.8 million. Of that total, $12.6 million
          had scheduled maturities within three months; $8.5 million after three
          but
          within six months; $11.8 million after six but within twelve months; and
          $4.9
          million after twelve months. Time deposits of $100,000 and over totaled
          $33.0
          million at December 31, 2005.
 
 ***NOTE
          H - BORROWINGS***
 
 The
          Company may purchase federal funds through unsecured federal funds lines
          of
          credit totaling $15.2 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 (5.13% and 4.60% at December 31, 2006
          and
          2005, respectively). Advances totaling $0 and $1,055,000 were outstanding
          under
          these lines at December 31, 2006 and 2005. The maximum amounts outstanding
          under
          these lines of credit at any month end during 2006 and 2005 were $0 and
          $3,300,000, respectively. The average amounts outstanding under these lines
          of
          credit were $15,175 for 2006 and $171,463 for 2005.
 
 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, 2006 was approximately $3.8 million.
 
 Advances
          from the FHLB of Atlanta consisted of the following at December 31, 2006
          and 2005:
 **Interest**Maturity
                  
                  **Rate**
                  
                  **2006**
                  
                  **2005**March
                      14, 2006
                  
                  
                  1.88
                  %
                  $
                  -
                  
                  $
                  83,333September
                      8, 2015
                  
                  
                  3.93
                  %
                  
                  5,000,000
                  
                  
                  5,000,000July
                      16, 2012
                  
                  
                  3.90
                  %
                  
                  1,250,000
                  
                  
                  1,250,000$
                  6,250,000
                  
                  $
                  6,333,333
  38
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
 
  ***NOTE
          H - 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. However, the Notes issued
            by the
            Company and purchased by the Trust are included on the consolidated balance
            sheet. In addition, the related interest expense continues to be included
            on the
            consolidated income statement.
 
 ***NOTE
          I - INCOME TAXES***
 
 The
          significant components of the provision for income taxes for 2006 and 2005
          are
          as follows:
 **2006**
                  
                  **2005**Current
                      tax provision:Federal
                  
                  $
                  313,000
                  
                  $
                  653,000State
                  
                  
                  88,000
                  
                  
                  144,000401,000
                  
                  
                  797,000Deferred
                      tax provision:Federal
                  
                  
                  101,000
                  
                  
                  (156,000
                  )State
                  
                  
                  22,000
                  
                  
                  (32,000
                  )123,000
                  
                  
                  (188,000
                  )Provision
                      for income tax expense before adjustmentto
                      deferred tax asset valuation allowance
                  
                  
                  524,000
                  
                  
                  609,000Decrease
                      in valuation allowance
                  
                  
                  -
                  
                  
                  -Provision
                      for income taxes
                  
                  $
                  524,000
                  
                  $
                  609,000
 
 39
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
 
  ***NOTE
          I - 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:
 **2006**
                  
                  **2005**Tax
                      expense computed at the statutory federal rate
                  
                  $
                  557,000
                  
                  $
                  593,000Increase
                      (decrease) resulting from:State
                      income taxes, net of federal tax effect
                  
                  
                  73,000
                  
                  
                  74,000Nontaxable
                      income
                  
                  
                  (96,000
                  )
                  
                  (56,000
                  )Adjustment
                      to deferred tax asset valuation allowance
                  
                  
                  -
                  
                  
                  -Other,
                      net
                  
                  
                  (10,000
                  )
                  
                  (2,000
                  )Provision
                      for income taxes
                  
                  $
                  524,000
                  
                  $
                  609,000
 
 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, 2006 and 2005 are as follows:
 **2006**
                  
                  **2005**Deferred
                      tax assets relating to:Allowance
                      for loan losses
                  
                  $
                  471,000
                  
                  $
                  560,000Pre-opening
                      costs and expenses
                  
                  
                  2,000
                  
                  
                  -Investment
                      securities available for sale
                  
                  
                  34,000
                  
                  
                  99,450Other
                  
                  
                  11,000
                  
                  
                  -Total
                      deferred tax assets
                  
                  
                  518,000
                  
                  
                  659,450Deferred
                      tax liabilities relating to:Premises
                      and equipment differences
                  
                  
                  (144,000
                  )
                  
                  (107,000
                  )Prepaid
                      expenses
                  
                  
                  (15,000
                  )
                  
                  (6,000
                  )Investment
                      securities available for sale
                  
                  
                  -
                  
                  
                  -Total
                      deferred tax liabilities
                  
                  
                  (159,000
                  )
                  
                  (113,000
                  )Net
                      recorded deferred tax asset
                  
                  $
                  359,000
                  
                  $
                  546,450
 
 ***NOTE
          J - OTHER NON-INTEREST EXPENSE***
 
 The
          major
          components of other non-interest expense for the years ended December 31,
          2006
          and 2005 are as follows:
 **2006**
                  
                  **2005**Postage,
                      printing and office supplies
                  
                  $
                  97,013
                  
                  $
                  104,276Advertising
                      and promotion
                  
                  
                  127,685
                  
                  
                  99,071Professional
                      services
                  
                  
                  274,974
                  
                  
                  189,769Other
                  
                  
                  516,028
                  
                  
                  376,034Total
                  
                  $
                  1,015,700
                  
                  $
                  769,150
 40
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
 
  ***NOTE
          K - 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, 2006, that the Company meets all capital adequacy requirements
          to
          which it is subject. At December 31, 2006 and 2005, the Company’s total
          risk-based capital, Tier 1 risk-based capital, and leverage ratios were
          14.43%
          and 15.5%, 12.66% and 12.8%, 9.35% and 9.6%, respectively.
  As
          of
          December 31, 2006, 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
                      Requirements****Capital**
                  
                  **Capital**
                  
                  **For
                      Capital**
                  
                  **To
                      Be Well****Amount**
                  
                  **Ratio**
                  
                  **Adequacy**
                  
                  **Capitalized**As
                      of December 31, 2006Tier
                      1 capital (to risk-weighted assets)
                  
                  $
                  16,715
                  
                  
                  13.1
                  %
                  
                  4.0
                  %
                  
                  6.0
                  %Total
                      capital - Tier 2 capital(to
                      risk-weighted assets)
                  
                  
                  18,306
                  
                  
                  14.4
                  %
                  
                  8.0
                  
                  
                  10.0
                  %Leverage
                      - Tier 1 capital (to average assets)
                  
                  
                  16,715
                  
                  
                  9.94
                  %
                  
                  4.0
                  
                  
                  5.0
                  %As
                      of December 31, 2005Tier
                      I capital (to risk-weighted assets)
                  
                  $
                  15,538
                  
                  
                  14.1
                  %
                  
                  4.0
                  %
                  
                  6.0
                  %Total
                      capital - Tier 2 capital(to
                      risk-weighted assets)
                  
                  
                  16,920
                  
                  
                  15.4
                  %
                  
                  8.0
                  
                  
                  10.0
                  %Leverage
                      - Tier 1 capital (to average assets)
                  
                  
                  15,538
                  
                  
                  10.5
                  %
                  
                  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
          L - 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.
 
 41
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
 
  ***NOTE
          L - 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, 2006 is as follows:
 
 Financial
          instruments whose contract amounts represent credit risk:
 Commitments
                      to extend credit
                  
                  $
                  300,000Undisbursed
                      lines of credit
                  
                  
                  28,434,140Commercial
                      and standby letters of credit
                  
                  
                  46,500
 
 ***NOTE
          M - 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.
  42
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          M - 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 L,
          it is not practicable to estimate the fair value of future financing
          commitments.
  43
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          M - 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, 2006 and 2005:
 
 **2006**
                
                **2005****Carrying**
                  **amount**
                
                **Estimated**
                  **fair
                    value**
                
                **Carrying**
                  **amount**
                
                **Estimated**
                  **fair
                    value****(In
                    thousands)**Financial
                    assets:Cash
                    and due from banks
                
                $
                4,321
                
                $
                4,321
                
                $
                4,904
                
                $
                4,904Interest-earning
                    deposits in banks
                
                
                4,183
                
                
                4,183
                
                
                4,607
                
                
                4,607Federal
                    funds sold
                
                
                5,879
                
                
                5,879
                
                
                -
                
                
                -Time
                    deposits
                
                
                1,140
                
                
                1,140
                
                
                5,453
                
                
                5,453Investment
                    securities available for sale
                
                
                29,685
                
                
                29,685
                
                
                13,441
                
                
                13,441Investment
                    securities held to maturity
                
                
                -
                
                
                -
                
                
                6,083
                
                
                5,942Accrued
                    interest receivable
                
                
                887
                
                
                887
                
                
                628
                
                
                628Federal
                    Home Loan Bank stock
                
                
                594
                
                
                594
                
                
                529
                
                
                529Investment
                    in bank-owned life insurance
                
                
                1,390
                
                
                1,390
                
                
                1,338
                
                
                1,338Loans
                
                
                118,932
                
                
                118,955
                
                
                112,693
                
                
                112,642Financial
                    liabilities:Deposits
                
                
                147,411
                
                
                147,397
                
                
                129,069
                
                
                129,128Borrowings
                
                
                11,405
                
                
                11,092
                
                
                12,543
                
                
                12,465Accrued
                    interest payable
                
                
                271
                
                
                271
                
                
                238
                
                
                238
 
 ***NOTE
          N - 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, 2006 and 2005, expense attributable to the
          Plan
          amounted to $81,850 and $62,836, 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 80,284 shares (adjusted
          for all stock dividends) of the Company’s common stock for an aggregate number
          of common shares reserved for options equal to 160,568. 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, 2006 and 2005,
          giving
          effect to 5% stock dividends in both 2006 and 2005, is as follows:
  44
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          N - EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)***
 
 ***Stock
          Option Plans (Continued)***
 
 **Outstanding
                    Options**
                
                **Exercisable
                    Options****Shares
                    in Plans**
                
                **Shares**
                  **Available**
                  **for
                    Future**
                  **Grants**
                
                **Number
                    Outstanding**
                
                **Weighted
                    Average**
                  **Exercise**
                  **Price**
                
                **Number
                    Outstanding**
                
                **Weighted
                    Average**
                  **Exercise**
                  **Price**At
                    December 31, 2004
                
                
                160,568
                
                
                31,507
                
                
                129,061
                
                $
                9.93
                
                
                25,815
                
                $
                9.93Options
                    granted/vested
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                102,667
                
                
                9.93Options
                    forfeited
                
                
                -
                
                
                579
                
                
                (579
                )
                
                9.93
                
                
                -
                
                
                -At
                    December 31, 2005
                
                
                160,568
                
                
                32,086
                
                
                128,482
                
                
                9.93
                
                
                128,482
                
                
                9.93Options
                    granted/vested
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Options
                    forfeited
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -At
                    December 31, 2006
                
                
                160,568
                
                
                32,086
                
                
                128,482
                
                $
                9.93
                
                
                128,482
                
                $
                9.93
 
 The
          weighted average remaining life of all options outstanding as of December
          31,
          2006, all of which have an exercise price of $9.93, is 6.7 years.
 
 The
          aggregate intrinsic value of all options outstanding was $1,004,729 as
          of
          December 31, 2006. All options outstanding were exercisable as of both
          dates.
 
 ***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.
  45
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          N - EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)***
 
 As
          of
          December 31, 2006, 44,100 shares (adjusted for all stock dividends) of
          our
          common stock had been reserved for issuance under the Purchase Plan and
          13,179
          shares have been purchased under the plan, of which 7,224 shares were purchased
          during 2005 and 5,955 were purchased during 2006.
 
 Total
          stock based compensation expense under the Purchase Plan was $22,952 in
          2006.
 
 ***NOTE
          O - 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 year ended December
          31, 2006 and as of and for the period ended December 31, 2005 presented
          in
          thousands.
  ***Condensed
          Balance Sheets***
 ***December
          31, 2006 and 2005***
 
 **2006**
                
                **2005**Assets:Cash
                    on deposit in subsidiary
                
                $
                100
                
                $
                75Investment
                    in subsidiary bank
                
                
                16,660
                
                
                15,380Other
                    assets
                
                
                155
                
                
                155Total
                    assets
                
                $
                16,915
                
                $
                15,610Liabilities:Junior
                    subordinated debentures
                
                $
                5,155
                
                $
                5,155Other
                    liabilities
                
                
                16
                
                
                14Total
                    liabilities
                
                
                5,171
                
                
                5,169Stockholders’
                    equity:Common
                    stock
                
                
                10,586
                
                
                9,640Retained
                    earnings
                
                
                1,212
                
                
                960Accumulated
                    other comprehensive loss
                
                
                (54
                )
                
                (159
                )Total
                    stockholders’ equity
                
                
                11,744
                
                
                10,441Total
                    liabilities and stockholders’ equity
                
                $
                16,915
                
                $
                15,610
  ***Condensed
          Statements of Operations***
 ***Year
          Ended December 31, 2006 and***
 ***Period
          Ended December 31, 2005***
 
 **2006**
                
                **2005**Equity
                    in undistributed net income of bank subsidiary
                
                $
                1,176
                
                $
                621Dividends
                    from bank subsidiary
                
                
                395
                
                
                121Interest
                    income
                
                
                11
                
                
                3Interest
                    expense
                
                
                (361
                )
                
                (138
                )Other
                    expense
                
                
                (106
                )
                
                (20
                )$
                1,115
                
                $
                587
 46
  ***CB
          FINANCIAL CORPORATION AND SUBSIDIARY***
 ***NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS***
 ***December
          31, 2006 and 2005***
  ***NOTE
          O - PARENT COMPANY FINANCIAL DATA (Continued)***
 
 ***Condensed
          Statements of Cash Flows***
 ***Year
          Ended December 31, 2006 and***
 ***Period
          Ended December 31, 2005***
 
 **2006**
                
                **2005**Operating
                    activities:Net
                    income
                
                $
                1,115
                
                $
                587Undistributed
                    net income of bank subsidiary
                
                
                (1,176
                )
                
                (621
                )Compensation
                    expense
                
                
                23
                
                
                20Increase
                    in other liabilities
                
                
                2
                
                
                14(36
                )
                
                -Investing
                    activities:Investment
                    in subsidiary
                
                
                0
                
                
                (5,155
                )Fractional
                    shares paid
                
                
                (12
                )
                
                -(12
                )
                
                (5,155
                )Financing
                    activities:Proceeds
                    from junior subordinateddebentures
                
                
                -
                
                
                5,155Issuance
                    of common stock
                
                
                73
                
                
                7573
                
                
                5,230Net
                    increase in cash
                
                
                25
                
                
                75Cash,
                    beginning of period
                
                
                75
                
                
                -Cash,
                    end of period
                
                $
                100
                
                $
                75
 
 47
  ***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*
 *Owner/Manager
          of Brown Oil Company*
 
 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*
  48
  ***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***
  Elliott
          Davis, PLLC
 Certified
          Public Accountants
 Post
          Office Box 760
 Galax,
          VA
          24333
  ***Common
          Stock***
  The
          Company had 1,070,208 shares of common stock outstanding which were held
          by
          approximately 1,360 holders of record (excluding shares held in street
          name) as
          of December 31, 2006. 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 2006 and 2005, all of which were, to the
          knowledge
          of management, at prices ranging from $14.29 to $17.75 per share. The price
          paid
          for the Company’s common stock in the last trade known to management to have
          occurred during 2006 was $17.75, which trade occurred on
 December
          19, 2006.
 
 ***Annual
          Shareholders Meeting***
  The
          2007
          Annual Meeting of shareholders of CB Financial Corporation will be held
          at 10:00
          a.m. on May 24, 2007 at Something Different, 3342 Airport Boulevard, Wilson,
          North Carolina 27896.
 
 ***Annual
          Report on Form 10-KSB***
  A
          copy of
          CB Financial Corporation’s 2006 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* *.*
  49