CB Financial 10QSB 2007 Q2 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: June 30, 2007

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 Exchange Act 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 August 4, 2007, there were 1,070,208 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
	June 30, 2007 and December 31, 2006	3
	Consolidated Statements of Operations
	Three Months and Six Months Ended June 30, 2007 and 2006	4
	Consolidated Statements of Cash Flows
	Six Months Ended June 30, 2007 and 2006	5
	Notes to Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3 -	Controls and Procedures	15
Part II.	OTHER INFORMATION
Item 1 -	Legal Proceedings	16
Item 4-	Submission of Matters to a Vote of Security Holders	16
Item 6 -	Exhibits	16
Signatures		18

2

Part I. FINANCIAL INFORMATION

Item 1.Financial Statements

CB FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

	June 30, 2007			December 31,
	(Unaudited)			2006 *
	(Amounts in thousands,
	except share data)
ASSETS
Cash and due from banks	$	3,728		$	4,321
Interest-earning deposits in banks		2,085			4,183
Federal funds sold		4,893			5,879
Time deposits		1,379			1,140
Investment securities available for sale, at fair value		31,502			29,684
Loans		131,857			120,619
Allowance for loan losses		(2,044	)		(1,687	)
NET LOANS		129,813			118,932
Accrued interest receivable		985			887
Stock in Federal Home Loan Bank of Atlanta, at cost		597			594
Premises and equipment		2,254			2,312
Bank-owned life insurance		4,443			1,390
Real estate owned		285			452
Other assets		1,819			1,384
TOTAL ASSETS	$	183,783		$	171,158
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand	$	11,087		$	11,896
Savings		1,365			1,144
Money market and NOW		38,189			35,825
Time		109,214			98,546
TOTAL DEPOSITS		159,855			147,411
Long term borrowings		11,405			11,405
Accrued interest payable		300			271
Accrued expenses and other liabilities		224			328
TOTAL LIABILITIES		171,784			159,415
Stockholders’ equity:
Preferred stock, 20,000,000 shares authorized, none issued		-			-
Common stock, no par value, 80,000,000 shares authorized;
1,070,208 shares issued and outstanding		10,600			10,586
Retained earnings		1,804			1,212
Accumulated other comprehensive loss		(405	)		(55	)
TOTAL STOCKHOLDERS’ EQUITY		11,999			11,743
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY	$	183,783		$	171,158

*Derived from audited financial statements.

3

CB FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
	(In thousands, except share and per share data)
INTEREST INCOME
Loans	$	2,720	$	2,376	$	5,327	$	4,607
Investments		376		224		753		424
Federal funds sold		58		70		109		122
Interest-earning bank deposits		30		50		82		103
Other interest and dividends		22		37		41		105
TOTAL INTEREST INCOME		3,206		2,757		6,312		5,361
INTEREST EXPENSE
Money market, NOW and savings deposits		249		211		482		492
Time deposits		1,319		949		2,546		1,719
Borrowings		152		152		303		292
TOTAL INTEREST EXPENSE		1,720		1,312		3,331		2,503
NET INTEREST INCOME		1,486		1,445		2,981		2,858
PROVISION FOR LOAN LOSSES		217		332		404		727
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		1,269		1,113		2,577		2,131
NON-INTEREST INCOME
Service charges on deposit accounts		132		139		270		267
Mortgage operations		72		96		132		163
Other income		102		18		162		57
TOTAL NON-INTEREST INCOME		306		253		564		487
NON-INTEREST EXPENSE
Salaries and employee benefits		632		549		1,303		1,088
Occupancy and equipment		99		112		192		189
Data processing expenses		137		145		256		258
Other (Note D)		319		245		553		418
TOTAL NON-INTEREST EXPENSE		1,187		1,051		2,304		1,953
INCOME BEFORE INCOME TAXES		388		315		837		665
INCOME TAXES		103		92		245		207
NET INCOME	$	285	$	223	$	592	$	458
Net Income Per Common Share
Basic	$	.27	$	.21	$	.55	$	.43
Diluted		.25		.20		.53		.42
Weighted Average Shares Outstanding
Basic		1,070,208		1,064,253		1,070,208		1,064,253
Diluted		1,121,149		1,100,877		1,118,905		1,098,472

See accompanying notes

4

CB FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six Months Ended
	June 30, _
	2007			2006
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	592		$	458
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization		60			88
Stock based compensation expense		14			-
Provision for loan losses		404			727
Provision for losses on real estate owned		-			10
Gain on sale of real estate owned		(4	)		-
Earnings on bank-owned life insurance		(53	)		(26	)
Deferred income tax expense (benefit)		62			(188	)
Change in assets and liabilities:
Increase in accrued interest receivable		(98	)		(128	)
Increase in other assets		(277	)		(311	)
Increase in accrued interest payable		29			23
Decrease in accrued expenses and other liabilities		(103	)		(294	)
NET CASH PROVIDED BY
OPERATING ACTIVITIES		626			359
CASH FLOWS FROM INVESTING ACTIVITIES
Net maturities (purchases) of time deposits		(240	)		4,489
Purchase of available-for-sale investments		(5,235	)		(5,139	)
Maturities, sales and calls of available for sale investments		2,853			1,709
Purchase of bank owned life insurance		(3,000	)		-
Net increase in loans		(11,299	)		(2,203	)
Proceeds from sale of real estate owned		185			32
Purchase of Federal Home Loan Bank stock		(3	)		(65	)
Purchases of bank premises and equipment		(9	)		(649	)
NET CASH USED BY
INVESTING ACTIVITIES		(16,748	)		(1,826	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in deposits		12,445			6,946
Decrease in Federal Home Loan Bank advances		-			(83	)
Net repayments of short term borrowings		-			(1,055	)
NET CASH PROVIDED BY
FINANCING ACTIVITIES		12,445			5,808
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS		(3,677	)		4,341
CASH AND CASH EQUIVALENTS, BEGINNING		14,383			9,510
CASH AND CASH EQUIVALENTS, ENDING	$	10,706		$	13,851
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	3,302		$	2,480
Income taxes paid		390			779

5

CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED 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 six month periods ended June 30, 2007 and 2006, 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 six month period ended June 30, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2007.

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 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.

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 2006 annual report on Form 10-KSB. This quarterly report should be read in conjunction with such annual report.

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.”

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. 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 adoption of SFAS No. 123R, the Company used the intrinsic value method as prescribed by APB No. 28 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 grant date.

6

CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED 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. Options granted each year to purchase shares under the Purchase Plan expire at the end of each calendar year.

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 six months ended June 30, 2007, we have used the following assumptions in our determination of fair value: expected-volatility of 9.10%; expected dividends of zero, and risk free interest rate of 4.38%. For options granted under the Purchase Plan during the six months ended June 30, 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 one year at the grant date and .5 years at June 30, 2007.

On January 1, 2007, the Company granted 8,000 options which are scheduled to vest on December 31, 2007. The aggregate intrinsic value of these options totaled approximately $21,000 as of the grant date and $39,000 as of June 30, 2007, respectively.

The weighted-average grant-date fair value of options granted under the Purchase Plan during the six months ended June 30, 2007 was $3.44. No options were exercised under the Purchase Plan during the six months ended June 30, 2007 and June 30, 2006. As of June 30, 2007, there was approximately $14,000 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 2007. During the six months ended June 30, 2007 and 2006, we recorded $14,000 and zero respectively in stock based compensation expense related to this plan.

7

CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C - LOANS

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

	Six Months Ended
	June 30
	2007			2006
	(Dollars in thousands)
Allowance for loan losses at beginning of period	$	1,687		$	1,775
Provision for loan losses		404			727
Loans charged-off		(81	)		(1,046	)
Recoveries		34			131
Allowance for loan losses at end of period	$	2,044		$	1,587
Allowance for loan losses as a percent of loans at period end		1.55	%		1.37	%

At June 30, 2007, the Company had loan commitments outstanding of $270,000, pre-approved but unused lines of credit totaling $30.5 million and commercial and standby letters of credit of approximately $497,000. 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 June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
	(Dollars in thousands)
Postage, printing and office supplies	$	34	$	18	$	48	$	46
Advertising and promotion		32		40		72		65
Professional services		91		71		155		107
Other		162		116		278		200
Total	$	319	$	245	$	553	$	418

8

CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E - COMPREHENSIVE INCOME (LOSS)

A summary of comprehensive income (loss) is as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2007			2006			2007			2006
	(Dollars in thousands)
Net income	$	285		$	223		$	592		$	458
Other comprehensive income (loss):
Net decrease in the
fair value of investment securities
available for sale, net of tax		(378	)		(145	)		(350	)		(170	)
Total comprehensive income (loss)	$	(93	)	$	78		$	242		$	288

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 Bank 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				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Weighted average outstanding
shares used for basic EPS		1,070,208		1,064,253		1,070,208		1,064,253
Plus incremental shares from
assumed exercise of:
Stock options		49,915		36,256		47,926		34,105
Employee stock purchase plan options		1,026		367		771		114
Weighted average outstanding
shares used for diluted EPS		1,121,149		1,100,877		1,118,905		1,098,472

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

9

CB FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED 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 31, 2006 to shareholders of record on July 21, 2006. 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 June 30, 2006 have been reclassified to conform to the presentation as of June 30, 2007. The reclassifications had no effect on the net income or total stockholder’s equity as previously reported.

10

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

June 30, 2007 and December 31, 2006

Total assets at June 30, 2007 were $183.8 million compared with $171.2 million at December 31, 2006, an increase of $12.6 million, or 7.4%. The increase in assets was mainly comprised of a $10.9 million, or 9.1%, increase in loans during the period to $129.8 million as of June 30, 2007. In addition, the Company purchased bank owned life insurance (“BOLI”) in the amount of $3.0 million. The increase in loans and BOLI was funded by an 8.4%, or $12.4 million, increase in deposits and a reduction in liquid investments of $1.6 million. Liquid investments totaled $43.6 million, or 23.7% of assets, at June 30, 2007 and consists of cash and due from banks, interest-earning deposits in other banks, federal funds sold, time deposits and investment securities available for sale.

Total stockholders’ equity increased from $11.7 million at December 31, 2006 to $12.0 million at June 30, 2007. The increase was the result of retention of $592,000 in earnings, net of $350,000 in other comprehensive loss related to the net decrease in the fair value of investment securities available for sale. At June 30, 2007, 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

June 30, 2007 and 2006

Overview.Net income for the quarter ended June 30, 2007 was $285,000, or $.25 per diluted share compared to $223,000, or $.20 per diluted share, for the quarter ended June 30, 2006. The increase in earnings was primarily attributable to a reduction in the provision for loan losses. The provision for loan losses declined by $115,000, to $217,000 for the second quarter of 2007, versus $332,000 for the comparable quarter in 2006.

Other variances are discussed below.

Net Interest Income.Net interest income increased by $41,000, or 2.8%, from $1.45 million for the 2006 quarter to $1.49 million for the quarter ended June 30, 2007. Total interest income, which increased by $449,000, or 16.3%, benefited from a higher volume of earning assets and a higher yield earned on those assets. Average earning assets and the yield earned on average assets increased by $21.0 million and 19 basis points, respectively, from the quarter ended June 30, 2006 to the quarter ended June 30, 2007. Total interest expense increased by $408,000, or 31.1%, due to the higher level of average interest-bearing liabilities used to support asset growth and an approximate 55 basis points increase in cost from the second quarter of 2006 to the second quarter of 2007.

Our balance sheet is asset sensitive and benefited from several prime rate increases through June 30, 2006. Since that time, the prime rate has remained at 8.25% and we have experienced some net interest margin compression.

11

Provision for Loan Losses. The Bank recorded a $217,000 provision for loan losses, after $26,000 in net charge-offs in the second quarter of 2007, compared to the $332,000 provision made in the same quarter of 2006 after net charge-offs of $419,000. 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 second 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 at June 30, 2007 was $2,044,000, representing 1.55% of total loans outstanding, up from $1,587,000, 1.37% of total loans outstanding at June 30, 2006 due to reclassification of risk grade. Nonperforming loans totaled $1,312,000 and $1,492,000 at June 30, 2007 and June 30, 2006, respectively.

Non-Interest Income. Non-interest income increased $53,000, or 20.9%, to $306,000 for the quarter ended June 30, 2007, as compared with $253,000 for the three months ended June 30, 2006. Service charges on deposit accounts declined slightly as a result of reduced fees earned on insufficient fund charges, and totaled $132,000 for second quarter of 2007 as compared with $139,000 for the second quarter of 2006. 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 $72,000 in the second quarter of 2007, a decrease of $24,000 from the $96,000 earned during the second quarter of 2006. Other income totaled $102,000 for the quarter ended June 30, 2007, an increase of $84,000 from $18,000 earned during the quarter ended June 30, 2006. Earnings from BOLI represented $41,000 of the total for the 2007 quarter, up $28,000 from the 2006 second quarter as a result of the $3 million purchase of BOLI discussed above. The other major difference in other income resulted from a $49,000 loss on the sale of real estate owned recorded during the second quarter of 2006.

Non-Interest Expenses. Non-interest expenses totaled $1,187,000 for the three months ended June 30, 2007, an increase or $136,000, or 12.9%, from total non-interest expenses of $1,051,000 for the three months ended June 30, 2006. This increase is mainly attributable to increased compensation and benefits associated with the increase in the number of employees, professional fees, and an increase of $24,000 in FDIC insurance.

Income Taxes. The Company provided $103,000 for income taxes during the three months ended

June 30, 2007. The Company had $92,000 in income tax expense for the three months ended June 30, 2006. The decrease in the effective tax rate from 29.2% to 26.6% is primarily attributable to the continued investment in non-taxable assets, such as municipal securities and BOLI.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED

June 30, 2007 and 2006

Net Income. Net income for the six months ended June 30, 2007 was $592,000, or $.53 per diluted share compared to $458,000, or $.42 per diluted share, for the six months ended June 30, 2006. The annualized return on average assets was 0.67% and 0.59% for the two periods ended June 30, 2007 and 2006, respectively. The annualized return on average equity for the current period was 9.89% compared to 8.63% for the prior period. The increase in earnings and returns on assets and equity was primarily attributable to a reduction in the provision for loan losses. The provision for loan losses declined by $323,000 to $404,000 for the first half of 2007 versus $727,000 for the comparable period in 2006.

Other variances are discussed below.

12

Net Interest Income.Net interest income increased to $2,981,000 for the six months ended

June 30, 2007, a $123,000 or 4.3% increase from the $2,858,000 earned in first six months of 2006. Total interest income, which increased by $951,000, or 17.7%, benefited from a higher volume of earning assets and a higher yield earned on those assets. Average earning assets and the yield earned on average assets increased by $18.1 million and 39 basis points, respectively, from the six months ended June 30, 2006 to the six months ended June 30, 2007. Total interest expense increased by $828,000, or 33.1%, due to the higher level of average interest-bearing liabilities used to support asset growth and an approximate 61 basis points increase in cost from the first half of 2006 to the first half of 2007.

Our balance sheet is asset sensitive and benefited from several prime rate increases through June 30, 2006. Since that time, the prime rate has remained at 8.25% and we have experienced some net interest margin compression.

Provision for Loan Losses. The Bank recorded a $404,000 provision for loan losses, after $47,000 in net charge-offs in the first half of 2007, compared to the $727,000 provision made in the same half of 2006 after net charge-offs of $915,000. 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 half 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 at June 30, 2007 was $2,044,000, representing 1.55% of total loans outstanding, up from $1,587,000, 1.37% of total loans outstanding at June 30, 2006 due to reclassification of risk grade. Nonperforming loans totaled $1,312,000 and $1,492,000 at June 30, 2007 and June 30, 2006, respectively.

Non-Interest Income. Non-interest income increased $77,000, or 15.8%, to 564,000 for the six months ended June 30, 2007, as compared with $487,000 for the six months ended June 30, 2006. Service charges on deposit accounts increased slightly and totaled $270,000 for first half of 2007 as compared with $267,000 for the first half of 2006. 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 $132,000 in the first half of 2007, a decrease of $31,000 from the $163,000 earned during the first half of 2006. Other income totaled $162,000 for the six months ended June 30, 2007, an increase of $105,000 from $57,000 earned during the six months ended June 30, 2006. Earnings from BOLI represented $27,000 of the total for the 2007 period, up $27,000 from the 2006 first half as a result of the $3 million purchase of BOLI discussed above. The other major difference in other income resulted from a $49,000 loss on the sale of real estate owned recorded during the first half of 2006.

Non-Interest Expenses. Non-interest expenses totaled $2,304,000 for the six months ended June 30, 2007, an increase or $351,000, or 18.0%, from total non-interest expenses of $1,953,000 for the six months ended June 30, 2006. This increase is mainly attributable to increased compensation and benefits associated with the increase in the number of employees, professional fees, and an increase of $24,000 in FDIC insurance.

Income Taxes. The Company provided $245,000 for income taxes during the six months ended

June 30, 2007. The Company had $207,000 in income tax expense for the six months ended June 30, 2006. The decrease in the effective tax rate from 31.1% to 29.2% is primarily attributable to the continued investment in non-taxable assets, such as municipal securities and BOLI.

13

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.

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 23.7% of our total assets at June 30, 2007. 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 $15.2 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 June 30, 2007, 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 a Tier 1 leverage ratio of 9.63% as of June 30, 2007, 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.

14

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.

15

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 4.Submission of Matters to a Vote of Security Holders.

The Annual Meeting of the Company’s Stockholders was held on May 24, 2007. Of 1,070,208 shares entitled to vote at the meeting, 622,593 shares were represented in person or by proxy. The following matters were voted on at the meeting:

Proposal 1:   To elect three members of the Board of Directors for a three-year term until the Annual Meeting of Shareholders in 2009. Votes for each nominee were as follows:

Name	For		Withheld
John C. Anthony, Jr.		621,569		1,024
Robert E. Kirkland III		619,953		2,640
W. Coalter Paxton III		621,478		1,115

The following directors continue in office after the meeting:

Thomas E. Brown III	Gregory A. Turnage	S. Christopher Williford
Norman B. Osborn	Judy A. Muirhead	David W. Woodard

Proposal 2: To ratify the appointment of Elliott Davis, LLC as the Bank’s independent auditor for the year ending December 31, 2007.

For	Against	Abstain
620,971	196	1,426

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

16

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
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

17

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: August 10, 2007	By:	/s/ Norman B. Osborn
		Norman B. Osborn
		President and Chief Executive Officer

 

Date: August 10, 2007	By:	/s/ Dora Kicklighter
		Dora Kicklighter
		Principal Accounting Officer

18