CB Financial 10QSB 2006 Q1 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended: March 31, 2006

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

For the transition period from __________ to ___________

Commission file number:000-51351

CB Financial Corporation

(Exact name of Small Business Issuer as Specified in its Charter)

North Carolina	20-2928613
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

3710 Nash Street North

Post Office Box 8189 (Zip 27893)

Wilson, North Carolina 27896-1120

(Address of principal executive offices)

(252) 243-5588

(Issuer’s Telephone Number, Including Area Code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

   Yes x No o

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

   Yes o No x

As of May 4, 2006, there were 1,014,228 shares of the issuer’s common stock outstanding.

Transitional Small Business Disclosure Format (Check one): Yes o No x

			Page No.
Part I.	FINANCIAL INFORMATION
Item 1 -	Financial Statements (Unaudited)
		Consolidated Statements of Financial Condition
		March 31, 2006 and December 31, 2005	3
		Consolidated Statements of Operations
		Three Months Ended March 31, 2006 and 2005	4
		Consolidated Statements of Cash Flows
		Three Months Ended March 31, 2006 and 2005	5
		Notes to Consolidated Financial Statements	6
Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3 -	Controls and Procedures		16
Part II.	OTHER INFORMATION
Item 1 -	Legal Proceedings		17
Item 6 -	Exhibits		17

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Part I. FINANCIAL INFORMATION

Item 1.Financial Statements

CB FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 

	March 31, 2006			December 31,
	(Unaudited)			2005*
ASSETS	(Amounts in thousands, except share data)
Cash and due from banks	$	3,576		$	4,903
Interest-earning deposits in banks		3,772			4,607
Federal funds sold		3,216			--
Time deposits		3,964			5,453
Investment securities available for sale, at fair value		13,005			13,441
Investment securities held to maturity, at amortized cost		6,079			6,083
Loans		113,718			114,468
Allowance for loan losses		(1,674	)		(1,775	)
NET LOANS		112,044			112,693
Accrued interest receivable		678			628
Stock in Federal Home Loan Bank of Atlanta, at cost		594			529
Premises and equipment		1,732			1,757
Bank-owned life insurance		1,351			1,338
Real estate owned		107			117
Other assets		1,531			1,222
TOTAL ASSETS	$	151,649		$	152,771
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand	$	11,100		$	11,638
Savings		1,273			1,129
Money market and NOW		39,867			35,107
Time		76,898			81,195
TOTAL DEPOSITS		129,138			129,069
Short term borrowings		--			1,055
Long term borrowings		11,405			11,488
Accrued interest payable		231			238
Accrued expenses and other liabilities		223			479
TOTAL LIABILITIES		140,997			142,329
Stockholders' equity:
Preferred stock, 20,000,000 shares authorized, none issued		--			--
Common stock, no par value, 80,000,000 shares authorized;
1,014,228 shares issued and outstanding		9,640			9,640
Retained earnings		1,195			960
Accumulated other comprehensive loss		(183	)		(158	)
TOTAL STOCKHOLDERS' EQUITY		10,652			10,442
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	151,649		$	152,771

*Derived from audited financial statements.

See accompanying notes.

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CB FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended March 31,
	2006		2005
	(In thousands, except share and per share data)
INTEREST INCOME
Loans	$	2,231	$	1,386
Investment securities		200		118
Federal funds sold		52		37
Interest-earning deposits in banks		53		20
Other interest and dividends		68		31
TOTAL INTEREST INCOME		2,604		1,592
INTEREST EXPENSE
Money market, NOW and savings deposits		281		193
Time deposits		770		343
Borrowings		140		14
TOTAL INTEREST EXPENSE		1,191		550
NET INTEREST INCOME		1,413		1,042
PROVISION FOR LOAN LOSSES		395		113
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		1,018		929
NON-INTEREST INCOME
Service charges on deposit accounts		128		117
Mortgage operations		67		50
Other income		39		48
TOTAL NON-INTEREST INCOME		234		215
NON-INTEREST EXPENSE
Salaries and employee benefits		539		375
Occupancy and equipment		77		42
Data processing expenses		113		77
Other (Note D)		173		137
TOTAL NON-INTEREST EXPENSE		902		631
INCOME BEFORE INCOME TAXES		350		513
INCOME TAXES		115		201
NET INCOME	$	235	$	312
Net Income Per Common Share
Basic	$	.23	$	.31
Diluted		.22		.30
Weighted Average Common Shares Outstanding
Basic		1,014,228		1,007,348
Diluted		1,045,519		1,025,660

See accompanying notes.

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CB FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended March 31,
	2006			2005
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	235		$	312
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization		42			35
Provision for loan losses		395			113
Provision for losses on real estate owned		10			--
Earnings on life insurance		(13	)		(12	)
Deferred income tax benefit		(188	)		--
Change in assets and liabilities:
Increase in accrued interest receivable		(50	)		(48	)
Increase in other assets		(106	)		(203	)
Decrease (increase) in accrued interest payable		(7	)		12
Decrease (increase) in accrued expenses and other liabilities		(256	)		170
NET CASH PROVIDED BY
OPERATING ACTIVITIES		62			379
CASH FLOWS FROM INVESTING ACTIVITIES
Net maturities of time deposits		1,489			792
Purchase of available-for-sale securities		(499	)		(1,502	)
Maturities, sales and calls of available for sale investments		891			711
Purchase of held to maturity securities		--			(671	)
Net decrease (increase) in loans		254			(2,573	)
Purchase of FHLB stock		(65	)		(43	)
Purchases of premises and equipment		(9	)		(16	)
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES		2,061			(3,302	)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Federal Home Loan Bank advances		(83	)		(84	)
Net decrease in short term borrowings		(1,055	)
Increase in deposits		69			5,865
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES		(1,069	)		5,781
NET INCREASE IN
CASH AND CASH EQUIVALENTS		1,054			2,858
CASH AND CASH EQUIVALENTS, BEGINNING		9,510			10,794
CASH AND CASH EQUIVALENTS, ENDING	$	10,564		$	13,652

See accompanying notes.

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CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION

In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three month periods ended March 31, 2006 and 2005, in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of CB Financial Corporation (the “Company”) and its wholly-owned subsidiary, Cornerstone Bank. Operating results for the three month period ended March 31, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2006.

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, 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 CB Financial Corporation's no par value common stock was exchanged for each of the outstanding shares of Cornerstone Bank's $5.00 par value common stock. The Company currently has no operations and conducts no business on its own other than owning the Bank.

The organization and business of Cornerstone Bank, accounting policies followed by the Bank and other information are contained in the notes to the consolidated financial statements filed as part of the Company’s 2005 annual report on Form 10-KSB. This quarterly report should be read in conjunction with such annual report.

NOTE B - STOCK BASED COMPENSATION

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No. 123R”) which was issued by the FASB in December 2004. SFAS No. 123R revised SFAS No. 123 “Accounting for Stock Based Compensation,” and supersedes APB No. 25, “Accounting for Stock Issued to Employees,” (APB No. 25) 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 (presumptively 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.

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.

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CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

Stock Option Plans

The Company has an Employee Stock Option Plan (the “Employee Plan”) and a Director Stock Option Plan (the “Director Plan”) in effect at March 31, 2006. All options outstanding under both plans as of December 31, 2005 were fully vested and no new options were issued during the three-month period ending March 31, 2006. Therefore, no option related compensation cost has been charged against income for the three months ended March 31, 2006.

In 2003, the Company implemented the Employee Plan and the Director Plan (together, the “Plans”) that were approved by shareholders in 2002. Each plan makes available options to purchase 76,461 shares of the Company’s common stock for an aggregate number of common shares reserved for options equal to 152,922. No options were granted prior to 2003. On August 31, 2003, options to purchase 125,682 shares of common stock were granted. All options granted originally were scheduled to vest over five years, with 20% vesting on the first anniversary of the grant date, and 20% vesting annually thereafter. During 2005, an amendment was made to the Plans providing for accelerated vesting of all options, resulting in all options being immediately vested. All unexercised options expire ten years after the date of grant. Options granted under the Plans can have a term of up to ten years from the date of grant, provided however, that in the case of an employee who owns shares representing more than 10% of the outstanding common stock at the time an Incentive Stock Option (ISO) is granted, the term of such ISO shall not exceed five years. Vesting of options is determined at the time of grant and ranges from immediate to ten years. Options under the Employee Plan must be granted at a price that shall be the average of the highest and lowest selling price on such exchange date or, if no sales on such date, shall be the mean between the bid and asked price. In the case of the employee who owns shares representing more than 10% of the Company’s outstanding shares of common stock at the time the ISO is granted, the exercise price shall not be less than 110% of the market value of the optioned shares at the time the ISO is granted. The exercise price of all options granted under the Plans is $10.43.

The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. No options were granted for the quarters ended March 31, 2006 and March 31, 2005. The risk-free interest rate is based upon a U.S. Treasury instrument with a life that is similar to the expected life of the option grant. Expected volatility is an estimate based upon approximate volatility of community bank stocks. The expected term of the options is an estimate based on the period between the initial full vesting term and expiration of the options. The expected dividend yield of zero is based upon the previous dividend history of the Company. No post-vesting restrictions exist for these options.

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CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

Stock Option Plans (continued)

A summary of option activity under the Plans as of March 31, 2006 and changes during the three month period ended March 31, 2006 is presented below:

									Weighted
			Shares				Weighted		Average
			Available				Average		Remaining		Aggregate
	Shares		For Future		Shares		Exercise		Contractual		Intrinsic
	In Plans		Grants		Outstanding		Price		Term		Value
At December 31, 2005		152,922		30,547		122,375	$	10.43		7.7	$	559,254
Exercised
Authorized
Forfeited
Granted
At March 31, 2006		152,922		30,547		122,375	$	10.43		7.4	$	620,441
Exercisable at March 31, 2006						122,375	$	10.43		7.4	$	620,441

No options were exercised for the three months ended March 31, 2005.

Had compensation costs for the Company’s stock option plan been determined using the fair value method, the Company’s pro forma net income would have been affected as presented below for the quarter ended March 31, 2005.

	Three Months Ended
	March 31, 2005
	(Amounts in thousands,
	except per share data)
Net income:
As reported	$	312
Deduct: Total stock-based employee
compensation expense determined
under fair value method for all awards,
net of related tax effects		(13	)
Pro forma	$	299
Basic net income per share:
As reported	$	.31
Pro forma		.30
Diluted net income per share:
As reported	$	.30
Pro forma		.29

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CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (the “Purchase Plan”) is a voluntary plan that enables full-time employees of the Bank to purchase shares of the Company’s common stock based on their continued service over a specified period of time. The Purchase Plan is administered by a committee of the Board of Directors, which has a broad discretionary authority to administer the Purchase Plan. The Company’s Board of Directors may amend or terminate the Purchase Plan any time. The Purchase Plan is intend 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.

The fair value of each option grant under the Purchase Plan was estimated on the date of grant using the same option valuation model used for options granted under the Plans and assumes that service period requirements will be achieved. If such requirements are not met, no compensation cost is recognized and any recognized compensation is reversed. For options granted under the Purchase Plan during the quarter ended March 31, 2006 we have used the following assumptions in our determination of fair value: expected-volatility of 5.21%; expected dividends of zero, and risk free interest rate of 4.38%. The expected term for options granted under the Purchase Plan is 1 year at the grant date and .75 years at March 31, 2006.

There were not outstanding options under the Purchase Plan as of December 31, 2005. On January 1, 2006, the Company granted 8,000 options which are scheduled to vest on December 31, 2006. The aggregate intrinsic value of these options totaled approximately $18,000 as of the grant date and $22,000 as of March 31, 2006, respectively.

The weighted-average grant-date fair value of options granted during the quarter ended March 31, 2006 was $2.87. No options were exercised under the Purchase Plan during the quarters ended March 31, 2006 and March 31, 2005. As of March 31, 2006, there was approximately $23,000 of unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Purchase Plan; that cost is expected to be recognized over the remaining quarters of 2006.

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CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

NOTE C - LOANS

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

	Three Months Ended
	March 31,
	2006			2005
	(Dollars in thousands)
Allowance for loan losses at beginning of period	$	1,775		$	1,216
Provision for loan losses		395			113
Loans charged-off		(523	)		(10	)
Recoveries		27			5
Allowance for loan losses at end of period	$	1,674		$	1,324
Allowance for loan losses as a percent of loans
at period end		1.47	%		1.44	%

At March 31, 2006, the Company had loan commitments outstanding of $325,000, pre-approved but unused lines of credit totaling $33.5 million and commercial and standby letters of credit of $20,700. In management’s opinion, these commitments represent no more than normal lending risk to the Company and will be funded from normal sources of liquidity.

NOTE D - OTHER NON-INTEREST EXPENSE

The major components of other non-interest expense are as follows:

		Three Months Ended
		March 31,
		2006		2005
		(Dollars in thousands)
Postage, printing and office supplies	$	28	$	14
Advertising and promotion		25		15
Professional services		36		42
Other		84		66
Total	$	173	$	137

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CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

NOTE E - COMPREHENSIVE INCOME

A summary of comprehensive income is as follows:

		Three Months Ended March 31,
		2006			2005
		(Dollars in thousands)
Net income	$	235		$	312
Other comprehensive income:
Net decrease in the
fair value of investment securities
available for sale, net of tax		(25	)		(90	)
Total comprehensive income	$	210		$	222

NOTE F - 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.

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

	Three Months Ended March 31,
	2006		2005
Weighted average outstanding
shares used for basic EPS		1,014,228		1,007,348
Plus incremental shares from assumed exercise of:
Stock options		31,051		18,312
Employee stock purchase plan options		240		--
Weighted average outstanding
shares used for diluted EPS		1,045,519		1,025,660

No adjustments were required to be made to net income in the computation of diluted earnings per share.

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CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO FINANCIAL STATEMENTS

NOTE F - PER SHARE RESULTS (CONTINUED)

Stock Dividend

The Board of Directors of the Company approved a 21-for-20 stock split to be effected in the form of a 5% stock dividend payable on August 26, 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 this stock dividend.

NOTE G - RECLASSIFICATIONS

Certain amounts presented on the accompanying consolidated financial statements as of March 31, 2005 have been reclassified to conform to the presentation as of March 31, 2006. The reclassifications had no effect on the net income or total stockholder’s equity as previously reported.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of  Operations

Management’s discussion and analysis is intended to assist readers in the understanding and evaluation of the financial condition and results of operations of CB Financial Corporation and its wholly owned bank subsidiary, Cornerstone Bank (the “Company”). This quarterly report on Form 10-QSB to shareholders may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and other business of the Company that are subject to various factors which could cause actual results to differ materially from those estimates. Factors which could influence the estimates include changes in national, regional and local market conditions, legislative and regulatory conditions, and the interest rate environment.

FINANCIAL CONDITION AT

March 31, 2006 and December 31, 2005

During the first three months of 2006, the Company’s total assets decreased to $151.6 million, a decrease of $1.1 million or .73% from total assets at December 31, 2005 of $152.7 million. This decrease in assets was mainly attributable to a slight decrease in loans during the first three months to $113.7 million, down from $114.5 million at December 31, 2005. Although there does not appear to be much of change in the net balance sheet structure during the first 3 months of 2006, in reality there were significant changes. In 2005, the Bank entered into an agreement to be the subscription escrow agent for a de novo bank. As a result, the Bank, until the funds were disbursed on March 13, 2006, had received and held “temporary” deposits totaling approximately $11.5 million. The Bank also funded $4.1 million in loans that were repurchased by the de novo upon its opening. The escrow and loan funding arrangements temporarily impacted the balance structure in liquid investments, deposits, and loans during the quarter.

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 and held to maturity totaled $33.6 million, or 22.1% of total assets and 26.0% of total deposits, at March 31, 2006, representing a decrease of $0.9 million from $34.5 million at December 31, 2005. Total stockholders’ equity increased from $10.4 million at December 31, 2005 to $10.7 million at March 31, 2006 as a result of retention of net income of $235,000 during the three month period. At March 31, 2006, both the Bank and Company’s capital exceeded the levels that are deemed to be “well-capitalized” under applicable regulatory capital requirements.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED

March 31, 2006 and 2005

Overview.The Company earned net income of $235,000 or $.22 per diluted share, for the quarter ended March 31, 2006, as compared to net income of $312,000 or $.30 per diluted share, for the first quarter of 2005. This decrease of $77,000 or $0.08 per diluted share in net operating results was principally attributable to the increase in provision for loan losses. Provision for loan losses increased from $113,000 in 2005 to $395,000 for the first quarter of 2006, while non-interest expense increased from $902,000 to $631,000 during the same time period. The variances are discussed in detail below.

Total Interest Income.Total interest income increased to $2.6 million for the quarter ended

March 31, 2006, a $1.0 million or 63.56% increase from the $1.6 million earned in first quarter of 2005. Total interest income benefited from the short-term growth in the level of average earning assets during the quarter associated with the previously mentioned de novo agreements and an improvement in the net interest margin. Average total interest-earning assets increased by 23.9 million, or 19.9% annualized, compared to the three months ended March 31, 2005, while the average balance of total interest-bearing liabilities increased by $26.4 million, or 28.8% annualized during the same period. Our portfolio is very asset sensitive and has benefited from 8 rate increases since March 31, 2005 totaling 2.00%. This rate sensitivity has contributed to the increase in the net interest spread. Additionally, the management of the rates applicable to interest-bearing liabilities has resulted in the increased amount of net interest income.

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Provision for Loan Losses. The Bank recorded a $395,000 provision for loan losses, after $523,000 in charge-offs in the first quarter of 2006, compared to the $113,000 provision made in the same quarter of 2005 after charge-offs of $10,000. 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 an analysis of the risk characteristics of various classifications of loans, previous loan loss experience, specific loans which have loan loss potential, delinquency trends, estimated fair values of underlying collateral, current economic conditions, the views of the Bank’s regulators (who have the authority to require additional reserves), and geographic and industry loan concentrations. In the first quarter of 2006 the provision for loan losses was made principally in response to risk changes in the portfolio and charge-offs. The allowance for loan losses was $1,674,000 representing 1.47% of loans outstanding, down from 1.55% of total loans outstanding at December 31, 2005. Nonperforming loans totaled $2,848,000 and $2,193,000 at March 31, 2006 and December 31, 2005, respectively. In October of 2005, federal bankruptcy laws were changed and many bankruptcies occurred in advance of the change. In Wilson County over one thousand cases were filed, 11 of which were Cornerstone customers. The increase in the Bank’s nonperforming loans was mainly attributable to these 11 bankruptcies. Most of these had not been past due prior to the filing.

Non-Interest Income. Non-interest income increased $19,000 to $234,000 for the quarter ended March 31, 2006, as compared with $215,000 for the three months ended March 31, 2005. Service charges on deposit accounts, which represent a relatively stable and predictable source of non-interest income, totaled $128,000 for first quarter of 2006 as compared with $117,000 for the first quarter of 2005, with the increase resulting principally from deposit growth from period to period. 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. The Bank had income from mortgage operations of $67,000 in first quarter of 2006, an increase of $17,000 from the $50,000 earned during the first quarter of 2005.

Non-Interest Expenses. Non-interest expenses totaled $902,000 for the three months ended March 31, 2006, an increase from total non-interest expenses of $631,000 for the three months ended March 31, 2005. This increase is mainly attributable to increased compensation and benefits associated with the increase in the number of employees, occupancy expense related to a new branch opened in November 2005 and the increase in the information systems expense related to the increase in customer transactions. The Company’s plan for 2006 calls for continued asset growth, and management expects that growth in revenueswill continue to exceed increases in non-interest costs and expenses.

Income Taxes. The Bank provided $115,000 for income taxes during the three months ended

March 31, 2006. The Bank had $201,000 in income tax expense for the three months ended March 31, 2005. The decrease in the effective tax rate from 39.2% to 32.9% is attributable to the continued investment in non-taxable assets, such as municipal securities.

LIQUIDITY

Our liquidity is a measure of our ability to fund loans, withdrawals and maturities of deposits, and other cash outflows in a cost effective manner. Our 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.

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Liquid assets (consisting of cash and due from banks, interest-earning deposit with other banks, federal funds sold and investment securities classified as available for sale) comprised 18.2% of our total assets at March 31, 2006. We have traditionally been a net seller of federal funds, as our liquidity has exceeded our need to fund new loan demand. Should the need arise, we would have the capability to sell securities classified as available for sale or to borrow funds as necessary. We have established credit lines with other financial institutions to purchase up to $15.3 million in federal funds. As a member of the Federal Home Loan Bank of Atlanta (“FHLB of Atlanta”) we may obtain longer-term advances up to 10% of our assets. As of March 31, 2006, we had $6.3 million in advances outstanding with the FHLB of Atlanta.

Management believes that our current sources of funds provide adequate liquidity for our current cash flow needs.

CAPITAL

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

ratio (Tier I capital as a percentage of tangible assets) of 4.0%. The Bank had an equity to assets ratio of 10.0% on March 31, 2006, and at that date exceeded the regulatory capital levels above which an institution is considered to be “well capitalized.” 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.

FORWARD-LOOKING INFORMATION

This report contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Company. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management of the Company 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 SEC. The Company undertakes no obligation to update any forward-looking statements.

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Item 3.Controls and Procedures

The Company maintains a system of internal controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. The Company’s Board of Directors, operating through its audit committee which is composed entirely of independent outside directors, provides oversight to the Company’s financial reporting process.

The Company's management, under the supervision and with the participation of the Chief Executive Officer and the Principal Accounting Officer of the Company (its principal executive officer and principal financial officer, respectively), have concluded based on their evaluation as of the end of the period covered by this Report that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Principal Accounting Officer of the Company, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in internal control over financial reporting during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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Part II.OTHER INFORMATION

Item 1. Legal Proceedings.

In the opinion of management, neither the Company nor the Bank is involved in any pending legal proceedings other than routine litigation incidental to its business.

Item 6.Exhibits

Exhibit Name	Description
Exhibit (2)	Articles of Share Exchange and Agreement and Plan of Reorganization dated May 26, 2005, incorporated herein by reference to Exhibit (2) to the Form 8-K filed with the SEC on June 10, 2005
Exhibit 3(i)	Articles of Incorporation, incorporated herein by reference to Exhibit 3(i) to the Form 8-K filed with the SEC on June 10, 2005
Exhibit 3(ii)	Bylaws, incorporated herein by reference to Exhibit 3(ii) to the Form 8-K filed with the SEC on June 10, 2005
Exhibit 4(i)	Specimen Stock Certificate, incorporated herein by reference to Exhibit 4 to the Form 8-K filed with the SEC on June 10, 2005
Exhibit 4(ii)	Indenture dated July 12, 2005 between the Company and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4(i) to the Form 8-K filed with the SEC on July 15, 2005
Exhibit 4(iii)	Amended and Restated Declaration of Trust dated July 12, 2005 by and among the Company, as sponsor, U.S. Bank National Association, as institutional trustee, and the Administrators named therein, incorporated herein by reference to Exhibit 4(ii) to the Form 8-K filed with the SEC on July 15, 2005
Exhibit 4(iv)	Form of Junior Subordinated Debenture (included as an exhibit to Exhibit 4(ii) above), incorporated herein by reference to Exhibit 4(iii) to the Form 8-K filed with the SEC on July 15, 2005
Exhibit 4(v)	Form of Capital Security Certificate (included as an exhibit to Exhibit 4(iii) above), incorporated herein by reference to Exhibit 4(iv) to the Form 8-K filed with the SEC on July 15, 2005
Exhibit 4(vi)	Guarantee Agreement dated July 12, 2005 between the Company and U.S. Bank National Association, incorporated herein by reference to Exhibit 4(v) to the Form 8-K filed with the SEC on July 15, 2005
Exhibit 10(i)	Employment Agreement with Norman B. Osborn, incorporated herein by reference to Exhibit 10(i) to the Form 10-SB of Cornerstone Bank filed with the FDIC on April 30, 2001
Exhibit 10(ii)	Employment Agreement with Robert W. Kernodle, incorporated herein by reference to Exhibit 10(ii) to the Form 10-SB of Cornerstone Bank filed with the FDIC on April 30, 2001

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  Exhibit Name   Description

Exhibit 10(iii)	Employment Agreement with G. Brooks Batchelor, incorporated herein by reference to Exhibit 10(iii) to the Form 10-SB of Cornerstone Bank filed with the FDIC on April 30, 2001
Exhibit 10(iv)	Employment Agreement with Robert H. Ladd III, incorporated herein by reference to Exhibit 10(iv) to the Form 10-SB of Cornerstone Bank filed with the FDIC on April 30, 2001
Exhibit 10(v)	Director Stock Option Plan, incorporated herein by reference to Exhibit 10(v) to the Form 10-SB of Cornerstone Bank filed with the FDIC on April 30, 2001
Exhibit 10(vi)	Employee Stock Option Plan, incorporated herein by reference to Exhibit 10(vi) to the Form 10-SB of Cornerstone Bank filed with the FDIC on April 30, 2001
Exhibit 10(vii)	Cornerstone Bank 2005 Employee Incentive Compensation Plan, incorporated by reference to Exhibit 10(vii) to the Form 10-KSB of Cornerstone Bank filed with the FDIC on March 29, 2005
Exhibit 10(viii)	Cornerstone Bank 2005 Management Team Incentive Compensation Plan, incorporated by reference to Exhibit 10(viii) to the Form 10-KSB of Cornerstone Bank filed with the FDIC on March 29, 2005
Exhibit 10(ix)	Cornerstone Bank 2005 Chief Executive Officer Incentive Compensation Plan, incorporated by reference to Exhibit 10(ix) to the Form 10-KSB of Cornerstone Bank filed with the FDIC on March 29, 2005
Exhibit 10(x)	Lease Agreement dated September 2, 2005 by and between CB Financial Corporation and Cornerstone Bank, as lessee, and H/C Wilson, Inc., as lessor, incorporated herein by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on September 9, 2005
Exhibit 11	Statement Regarding Computation of Per Share Earnings
Exhibit 31.1	Certification of Norman B. Osborn
Exhibit 31.2	Certification of Dora Kicklighter
Exhibit 32	Certification of Periodic Financial Report Pursuant to 18 U.S.C. § 1350

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SIGNATURES

Under the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CB FINANCIAL CORPORATION
Date: May 22, 2006	By:	/s/ Norman B. Osborn
		Norman B. Osborn
		President and Chief Executive Officer

Date: May 22, 2006	By:	/s/ Dora Kicklighter
		Dora Kicklighter
		Principal Accounting Officer

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