FPB Bancorp (FPBI) 10-K 2008 FY Annual report

2008

ANNUAL

REPORT

LETTER TO SHAREHOLDERS

March 13, 2009

Dear Shareholders:

We want to share with you the Annual Report for FPB Bancorp, Inc. (FPBI) for the year ended December 31, 2008. It goes without saying that 2008 was a very sobering and historical year, with many dramatic changes both economically and politically in Florida, as well as the entire country. We have seen our area greatly impacted by continued declines in real estate values and high unemployment, resulting in a high number of business failures and residential foreclosures, ranking Florida as one of the top five states in the country in these categories.

By now we all know what the phrase “sub-prime mortgage” means and how it has affected the local, state, national and worldwide economies. Our subsidiary, First Peoples Bank did not engage in any sub-prime lending, nor did we invest in any of the exotic investment vehicles that were being offered industry wide. The economic downturn has, however, negatively affected our Bank’s earnings and has impacted not only our loan portfolio, but credit quality across the banking industry. This has resulted in a number of our customers being unable to make the scheduled payments on their loans. Banking regulations require us to downgrade these loans and recognize any future potential losses in our loan portfolio, causing us to have to significantly increase our loan loss reserves for these potential future losses.

We opened two branches in 2008, which were previously planned and budgeted in our long-range growth strategy. The performance of those offices has been dramatically affected by the economic downturn, which significantly reduced the original growth projections. As the economy rebounds, we expect the growth at those locations to resume.

FPBI and First Peoples Bank continue to be well-capitalized. We were among the first banks in the country to apply and receive funds under the U.S. Treasury T.A.R.P.-Capital Purchase Program. Although we were well-capitalized before applying, those funds will allow us to meet our customer’s borrowing needs and provide for supplemental capital for additional reserves that might be required should economic conditions continue to deteriorate.

We ended 2008 with a consolidated net loss of approximately $3.0 million compared to 2007 net earnings of $177,000. This dramatic change is a stark reminder of the impact of the declining local and national economies. Our management team recognized the downturn early on, electing to slow our loan growth in 2008. Net loans grew by $12 million, an increase of only 7%, and ended the year with total loans of $184.2 million. This was in contrast to loan growth in several prior years, which averaged above 20%.

In anticipation of the net loss for 2008, the Board and management took steps to reduce costs and expenses throughout the Company which included reducing staff in all areas by approximately 18%, freezing all executive and employee salaries, suspending bonuses, and reducing director fees.

The recession has impacted both loan and deposit rates. The Prime rate of interest decreased from 7 ¼% to the current 3¼%, with a total of seven downward prime rate decreases. This downward decrease in rates had a profound affect on our income, as many of our loans are tied to an adjustable rate, and the income earned on these loans decreased with the market.

FPBI ended 2008 with total consolidated assets of $239 million, a 22% increase, or $42 million over year-end. Deposits were up 16%, or $28 million for a total of $200 million. All interest bearing accounts at First Peoples Bank are FDIC insured for $250,000 per account title and all non-interest bearing accounts are insured with no cap until December 31, 2009. We would like to emphasize that no one has ever lost a penny on an account that is covered by FDIC insurance.

Our directors, officers and employees remain very active in many community functions, charitable organizations and events, with over 3,000 volunteer hours in 2008. As a local community bank we make quick decisions and are working with our customers, some of whom are experiencing difficulties throughout these trying times. This sometimes can mean lower performance scores for our bank when compared with our peer banks in some of the media published rating services, such as Bauer Financial. Our management team and directors, however, feel compelled to assist our customers, protect their credit scores and keep local businesses open rather than close them down. While our collection efforts have had to be intensified, we continue to assist borrowers who are trying to work their way through the current financial turmoil we are experiencing.

We can assure you that our management and Board of Directors are working diligently to ensure the success and profitability of FPBI and First Peoples Bank. We will continue to strive to keep your Company safe and sound throughout this downward economic cycle and we are confident that we will be able to meet all challenges and overcome them. On April 26, 2009, we will be celebrating the 10th anniversary of First Peoples Bank. We will operate as we always have, proud of our heritage and purpose, to serve our customers and community and strive to enhance long-term shareholder value.

We continue to be optimistic about the future of the bank in the communities that we serve.  People will always be FIRSTat First Peoples Bank and if you haven’t stopped in for a visit or to open your shareholder account, or our new Advantage Checking Account, please do so at any of our six convenient full service locations. On behalf of our directors, management and staff we again want to thank you for your support, commitment and belief in our mission to bring community and people centered banking to our area.

Sincerely,

David W. Skiles                                                                                                         Gary A. Berger

 

President & CEO                                                                                     Chairman of the Board

CORPORATE PROFILE

FPB Bancorp, Inc. (the "Holding Company") owns 100% of the outstanding common stock of First Peoples Bank (the "Bank") and the Bank owns 100% of the outstanding common stock of Treasure Coast Holdings, Inc., (collectively referred to as the "Company"). The Holding Company operates as a one-bank holding company and its only business activity is the operation of the Bank.  The Bank is a state (Florida)-chartered commercial bank and its deposits are insured up to the maximum amounts by the Federal Deposit Insurance Corporation, which are currently $250,000 for all qualified deposits, and unlimited for non-interest bearing transaction accounts, both through  December 31, 2009. The Bank offers a variety of community banking services to individual and corporate customers through its six banking offices located in Port St. Lucie, Stuart, Fort Pierce, Vero Beach and Palm City, Florida.  The newest office opened in May, 2008, on Gatlin Boulevard in Port St. Lucie, Florida.  In addition, the Palm City, Florida office opened in January of 2008 and an 11,000 square foot Operations Center in Jensen Beach, Florida, opened in March of 2007.  The new subsidiary, Treasure Coast Holdings, Inc., was incorporated in June 2008 for the sole purpose of managing foreclosed assets.  At December 31, 2008, we had total consolidated assets of $239 million and total consolidated stockholders' equity of $24.9 million.  For the year ended December 31, 2008, we had net losses of $3.0 million.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains certain forward-looking statements which represent our expectations or beliefs, including, but not limited to, statements concerning the banking industry and our operations, performance, financial condition and growth.  For this purpose, any statements contained in this Report that are not statements of historical fact may be deemed forward-looking statements.  Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "can," "estimate," or "continue" or the negative of other variations thereof or comparable terminology are intended to identify forward-looking statements.  These statements by their nature may involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors, including competition, general economic conditions, changes in interest rates, and changes in the value of real estate and other collateral securing loans, among other things.

This statement has not been reviewed, or confirmed for accuracy or relevance, by the Federal Deposit Insurance Corporation.

Contents	Page
Financial Highlights	1
Selected Financial Data	2
Management's Discussion and Analysis of Financial Condition and Results of Operations	3-19
Consolidated Financial Statements	20-52
Report of Independent Registered Public Accounting Firm	53
Board of Directors	54
Non-Director Executive Officers	54
First Peoples Bank Board of Directors and Officers	55
Community Liaison Board	56
General Information	57
Common Stock Prices and Dividends	57

FINANCIAL HIGHLIGHTS

December 31, 2008 and 2007 or the Years Then Ended

(Dollars in thousands, except per share figures)

At Year End:	2008			2007			2006
Assets	$	239,173		$	196,753		$	153,439
Loans, net	$	184,182		$	172,251		$	130,133
Securities	$	33,239		$	6,793		$	8,953
Deposits	$	200,683		$	172,677		$	130,219
Stockholders' equity	$	24,896		$	21,931		$	21,063
Book value per share (1)	$	9.53		$	10.66		$	10.52
Shares outstanding (1)		2,058,047			2,058,047			2,001,513
Equity as a percentage of assets		10.41	%		11.15	%		13.73	%
Nonperforming assets as a percentage of total assets		5.05	%		.89	%		.22	%
For The Year:
Interest income	$	13,802		$	13,588		$	10,626
Net (loss) earnings	$	(2,978	)	$	177		$	631
(Loss) earnings per common share, basic (1)	$	(1.46	)	$	.09		$	.32
(Loss) earnings per common share, diluted (1)	$	(1.46	)	$	.09		$	.31
Return on average assets		(1.37	)%		.10	%		.43	%
Return on average equity		(13.97	)%		.83	%		3.04	%
Average equity as a percentage of average assets		9.79	%		12.11	%		14.08	%
Non-interest expenses to average assets		3.89	%		4.18	%		4.12	%
Yields and Rates:
Loan portfolio		7.02	%		8.49	%		8.33	%
Securities		4.95	%		4.87	%		3.97	%
Other interest-earning assets		2.00	%		4.98	%		4.56	%
All interest-earning assets		6.71	%		8.18	%		7.65	%
Deposits		4.05	%		4.85	%		3.82	%
Borrowings		2.54	%		4.00	%		4.74	%
All interest-bearing liabilities		4.04	%		4.85	%		3.83	%
Interest-rate spread (2)		2.67	%		3.33	%		3.82	%
Net yield on average interest earning assets (3)		3.33	%		4.53	%		4.79	%

_________________

(1) All per share amounts reflect the 5% stock dividends declared on May 16, 2007 and paid on June 15, 2007.

(2) Average yield on all interest-earning assets less average rate paid on all interest-bearing liabilities.

(3) Net interest income divided by average interest-earning assets.

1

SELECTED FINANCIAL DATA

December 31, 2008, 2007, 2006, 2005 and 2004 and the

Years Ended December 31, 2008, 2007, 2006, 2005 and 2004

(Dollars in thousands, except per share figures)

 

At Year End:	2008			2007			2006			2005			2004
Cash and cash equivalents	$	5,457		6,795			5,422			12,366			9,759
Securities		33,239		6,793			8,953			12,244			11,371
Loans, net		184,182		172,251			130,133			95,666			68,794
All other assets		16,295		10,914			8,931			7,033			4,673
Total assets	$	239,173		196,753			153,439			127,309			94,597
Deposit accounts	$	200,683		172,677			130,219			102,809			81,936
Federal Home Loan Bank advances		11,100		100			100			2,600			2,500
All other liabilities		2,494		2,045			2,057			1,559			2,741
Stockholders' equity		24,896		21,931			21,063			20,341			7,420
Total liabilities and stockholders' equity	$	239,173		196,753			153,439			127,309			94,597
For the Period:
Total interest income	$	13,802		13,588			10,626			7,243			4,345
Total interest expense		6,951		6,060			3,976			1,939			1,074
Net interest income		6,851		7,528			6,650			5,304			3,271
Provision for loan losses		4,059		885			429			352			380
Net interest income after provision for loan losses		2,792		6,643			6,221			4,952			2,891
Non-interest income		874		996			824			930			759
Non-interest expenses		8,464		7,385			6,082			4,639			3,440
(Loss) earnings before income taxes		(4,798	)	254			963			1,243			210
Income tax (benefit)		(1,820	)	77			332			478			87
Net (loss) earnings	$	(2,978	)	177			631			765			123
(Loss) earnings per basic common share (1)	$	(1.46	)	.09			.32			.50			.14
(Loss) earnings per diluted common share (1)	$	(1.46	)	.09			.31			.49			.14
Weighted-average number of common shares outstanding  for basic (1)		2,058,047		2,017,553			1,998,871			1,539,513			902,068
Weighted-average number of common shares outstanding for diluted (1)		2,058,047		2,034,070			2,030,344			1,553,623			902,068
Ratios and Other Data:
Return on average assets		(1.37	)%	.10		%	.43		%	.64		%	.15		%
Return on average equity		(13.97	)%	.83		%	3.04		%	5.42		%	1.67		%
Average equity as a percentage of average assets		9.79	%	12.11		%	14.08		%	11.85		%	9.02		%
Interest-rate spread during the period		2.67	%	3.33		%	3.82		%	3.79		%	3.87		%
Net yield on average interest-earning assets		3.33	%	4.53		%	4.79		%	4.67		%	4.36		%
Non-interest expenses to average assets		3.89	%	4.18		%	4.12		%	3.89		%	4.23		%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.20		1.33			1.34			1.51			1.34
Nonperforming loans and foreclosed real estate as a  percentage of total assets at end of year		5.05	%	.89		%	.22		%	-		%	.52		%
Allowance for loan losses as a percentage of total loans at end of year		1.36	%	1.36		%	1.36		%	1.42		%	1.56		%
Total number of banking offices		6		4			4			3			3
Total shares outstanding at end of year (1)		2,058,047		2,058,047			2,001,513			1,996,172			903,079
Book value per share at end of year (1)	$	9.53		$	10.66		$	10.52		$	10.19		$	8.22

  (1)   All per share amounts reflect the 5% stock dividends declared on May 16, 2007 and paid on June 15, 2007.

2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and our results of operations should be read in conjunction with the consolidated financial statements and the related notes, as of December 31, 2008 and 2007, included elsewhere in this Annual Report.  This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements.

General

FPB Bancorp, Inc. (the "Holding Company") owns 100% of the outstanding common stock of First Peoples Bank (the "Bank") and the Bank owns 100% of the outstanding common stock of Treasure Coast Holdings, Inc., (collectively referred to as the "Company"). The Holding Company operates as a one-bank holding company and its only business activity is the operation of the Bank.  The Bank is a state (Florida)-chartered commercial bank and its deposits are insured up to the maximum amounts by the Federal Deposit Insurance Corporation, which are currently $250,000 for all qualified deposits, and unlimited for non-interest bearing transaction accounts, both through  December 31, 2009. The Bank offers a variety of community banking services to individual and corporate customers through its six banking offices located in Port St. Lucie, Stuart, Fort Pierce, Vero Beach and Palm City, Florida.  The newest office opened in May, 2008, on Gatlin Boulevard in Port St. Lucie, Florida.  In addition, the Palm City, Florida office opened in January of 2008 and an 11,000 square foot Operations Center in Jensen Beach, Florida, opened in March of 2007.  The new subsidiary, Treasure Coast Holdings, Inc., was incorporated in June 2008 for the sole purpose of managing foreclosed assets.  At December 31, 2008, we had total consolidated assets of $239 million and total consolidated stockholders' equity of $24.9 million.  For the year ended December 31, 2008, we had net losses of $3.0 million.

Management’s Strategy

We are organized as a locally-owned, locally managed community financial institution, owned and managed by people who are actively involved in our market area and are committed to our economic growth and development.  With local ownership, management, and directors, we believe that we can be more responsive to the communities that we serve.  Local ownership allows faster, more responsive and flexible decision-making, which is not available at the majority of the financial institutions in or near our market area which consist primarily of branch offices of large regional holding company banks with headquarters located elsewhere in the United States.

Our principal business is to attract deposits from the general public and to invest those funds in various types of loans and other interest-earning assets.  Funds are provided for the operations by the proceeds from the sale of investments, from amortization and repayment of outstanding loans and investments, from net deposit inflow, and from borrowings.  Our earnings depend primarily upon the difference between: (1) non-interest income, and the interest and fees we receive from loans, the securities held in our investment portfolio and other investments; and (2) the expenses we incur in connection with obtaining funds for lending (including interest paid on deposits and other borrowings) and expenses relating to day-to-day operations.

To the extent market conditions permit, our strategy is intended to insulate our interest rate gap from adverse changes in interest rates by maintaining spreads through the adjustability of our interest-earning assets and interest-bearing liabilities.  Our ability to reduce interest-rate risk in our loan and investment portfolios depends upon a number of factors, many of which are beyond our control, including among others, competition for loans and deposits in our market area and conditions prevailing in the economy.

(continued)

3

Our primary sources of funds for loans and for other general business purposes are our capital, deposits and loan repayments.  We expect that loan repayments will be relatively stable sources of funds, while deposit inflows and outflows will be significantly influenced by prevailing interest rates, money market rates, and general economic conditions.  Generally, short-term borrowings may be used to compensate for reductions in normal sources of funds while longer-term borrowings may be used to support expanded lending activities.

Our customers are primarily individuals, professionals, small and medium-size businesses, and seasonal retirees located predominantly in St. Lucie, Martin and Indian River Counties, Florida.  Our offices are currently located in Stuart, Palm City, Port St. Lucie, Fort Pierce and Vero Beach, Florida.  The Gatlin Boulevard office in Port St. Lucie, Florida opened in May of 2008 and the Palm City office in Palm City, Florida opened in January of 2008.  An 11,000 square foot Operations Center opened in March, 2007 in Jensen Beach, Florida.

We continually seek to develop new business through an ongoing program of personal calls on both present and potential customers. As a local independent bank, we utilize traditional local advertising media to promote and develop loans and deposits.  In addition, all of our directors have worked and lived in or near our market area for a number of years.  We believe that these factors, coupled with the past and continued involvement of the directors, officers and staff in various local community activities, will further promote our image as a locally owned independent institution, which we believe is an important factor to our targeted customer base.

Critical Accounting Policies

Our financial condition and results of operations are sensitive to accounting measurements and estimates of matters that are inherently uncertain.  When applying accounting policies in areas that are subjective in nature, we must use our best judgment to arrive at the carrying value of certain assets.  The most critical accounting policy we apply is related to the valuation of the loan portfolio.

A variety of estimates impact the carrying value of the loan portfolio including the calculation of the allowance for loan losses, valuation of underlying collateral, the timing of loan charge-offs and the amount and amortization of loan fees and deferred origination costs.

Establishing allowance for loan losses requires the most difficult and subjective judgment of all.  The allowance is established and maintained at a level we believe is adequate to cover losses resulting from the inability of borrowers to make required payments on loans.  Estimates for loan losses are arrived at by analyzing risks associated with specific loans and with the entire loan portfolio, current trends in delinquencies and charge-offs, the views of our regulators, changes in the size and composition of the loan portfolio and peer comparisons.  The analysis also requires consideration of both the local and national economic climate and direction, and changes in the interest rate environment, which may impact a borrower’s ability to pay, legislation impacting the banking industry and economic conditions specific to the bank’s service area.  Because the calculation of the allowance for loan losses relies on our estimates and judgments relating to inherently uncertain events, results may differ from our estimates.

The allowance for loan losses is also discussed as part of “Results of Operations” and in Note 3 to the consolidated financial statements.  The significant accounting policies are discussed in Note 1 to the consolidated financial statements.

4

Regulation

As a bank holding company, we are regulated by the Board of Governors of the Federal Reserve System. As a Florida state chartered commercial bank, we are subject to extensive regulation by the Florida Office of Financial Regulation, Department of Financial Services (the “Department”), and the Federal Deposit Insurance Corporation (“FDIC”).  We file reports with the Department and the FDIC concerning our activities and financial condition, in addition to obtaining regulatory approvals from all three agencies prior to entering into certain transactions such as mergers with or acquisitions of other financial institutions.  Periodic examinations are performed by the Department and the FDIC to monitor our compliance with the various regulatory requirements.

Credit Risk

Our primary business is making business and consumer loans.  That activity entails potential loan losses, the magnitude of which depends on a variety of economic factors affecting borrowers which are beyond our control.  While underwriting guidelines have been instituted and credit review procedures have been put in place to protect us from avoidable credit losses, some losses will inevitably occur.  At December 31, 2008, we had nonperforming assets of $12.1 million.

Allowance for Loan Losses

The following table presents information regarding our total allowance for loan losses as well as the allocation of such amounts to the various categories of loans at December 31, (dollars in thousands):

	2008				2007				2006				2005				2004
			Loans to Total Loans				Loans to Total Loans				Loans to Total Loans				Loans to Total Loans				Loans to Total Loans
	Amount				Amount				Amount				Amount				Amount
Commercial	$	1,292	34.04	%	$	1,156	34.15	%	$	811	38.13	%	$	576	37.42	%	$	468	32.27	%
Commercial real estate		916	50.54			857	47.31			631	42.24			478	40.79			312	43.90
Construction		113	5.23			145	6.38			65	4.59			53	4.47			36	2.47
Consumer		228	10.02			234	12.13			293	14.80			274	17.11			255	21.10
Residential real estate		3	.17			1	.03			1	.24			2	.21			26	.26
Total allowance for loan losses	$	2,552	100.00	%	$	2,393	100.00	%	$	1,801	100.00	%	$	1,383	100.00	%	$	1,097	100.00	%
Allowance for loan losses as a percentage of total      loans outstanding			1.36	%			1.36	%			1.36	%			1.42	%			1.56	%

5

Loan Portfolio

The following table sets forth the composition of our loan portfolio at December 31, (dollars in thousands):

	2008					2007					2006					2005					2004
				% of Total					% of Total					% of Total					% of Total					% of Total
	Amount					Amount					Amount					Amount					Amount
Commercial	$	63,768		34.04	%	$	59,878		34.15	%	$	50,521		38.13	%	$	36,510		37.42	%	$	22,640		32.27	%
Commercial real estate		94,675		50.54			82,951		47.31			55,967		42.24			39,794		40.79			30,803		43.90
Construction		9,793		5.23			11,186		6.38			6,089		4.59			4,365		4.47			1,731		2.47
Consumer		18,762		10.02			21,279		12.13			19,618		14.80			16,688		17.11			14,803		21.10
Residential real estate		324		.17			48		.03			315		.24			206		.21			181		.26
		187,322		100.00	%		175,342		100.00	%		132,510		100.00	%		97,563		100.00	%		70,158		100.00	%
Less:
Deferred loan costs and fees, net		(588	)				(698	)				(576	)				(514	)				(267	)
Allowance for loan losses		(2,552	)				(2,393	)				(1,801	)				(1,383	)				(1,097	)
Loans, net	$	184,182				$	172,251				$	130,133				$	95,666				$	68,794

6

The following table sets forth certain information on non-accrual loans and foreclosed assets, the ratio of such loans and foreclosed assets to total assets as of the dates indicated, and certain other related information (dollars in thousands).  The increase in non-accrual loans is primarily attributable to the downturn in the economy, and the expectations for a lengthened period of economic weakness.

	At December 31,
	2008			2007			2006			2005			2004
Non-accrual loans:
Real estate loans	$	6,627		$	1,077		$	172		$	-		$	465
Consumer loans		224			27			18			-			1
Commercial and all other loans		3,254			297			154			-			30
Total non-accrual loans		10,105			1,401			344			-			496
Accruing loans over 90 days delinquent:
Real estate loans		-			243			-			-			-
Consumer loans		-			-			-			-			-
Commercial and all other loans		250			106			-			-			-
Total accrual loans over 90 days delinquent		250			349			-			-			-
Total nonperforming loans		10,355			1,750			344			-			496
Foreclosed assets		1,714			-			-			-			-
Total non-performing loans and foreclosed assets	$	12,069		$	1,750		$	344		$	-		$	496
Total non-performing loans as a percentage of total loans		5.53	%		1.00	%		.26	%		-	%		.71	%
Total non-performing loans as a percentage of total assets		4.33	%		.89	%		.22	%		-	%		.52	%
Total non-performing loans and foreclosed assets as a percentage of            total assets		5.05	%		.89	%		.22	%		-	%		.52	%
Restructured troubled debt	$	12,279		$	-		$	-		$	-		$	-

As of December 31, 2008, the $12.3 million in restructured troubled debt are performing loans.

7

Allowance for Credit Losses

In originating loans, we recognize that credit losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, and, in the case of a collateralized loan, the quality of the collateral for the loan as well as general economic conditions.  It is management’s policy to maintain an adequate allowance for loan losses based on, among other things, management’s loan loss experience, evaluation of economic conditions, and regular reviews of delinquencies and loan portfolio quality. We consider several factors in determining the allowances, including charge-off history, the relative level of nonperforming assets, and the value of the underlying collateral.

The calculation of the allowance for loan losses is divided into two primary allocation groups: (1) impaired loans; and (2) all other loans.  For impaired loans, we have determined an allowance amount to set aside which we believe is sufficient to cover any potential collateral shortfall.  Problem loans are identified by the loan officer, by our loan review process, by our Bank’s loan committee, or by the Bank’s regulatory examiners.  All other loans are multiplied by an historical experience factor adjusted for qualitative factors to determine the appropriate level of the allowance for loan losses.

We actively monitor our asset quality to charge-off loans against the allowance for loan losses when appropriate or to provide specific loss allowances when necessary. Although we believe we use the best information available to make determinations with respect to the allowance for credit losses, future adjustments may be necessary if economic conditions differ from the economic conditions in the assumptions used in making the initial determinations.  We consider several factors in determining the allowances, including charge-off history, the relative level of nonperforming assets, and the value of the underlying collateral.  Nonperforming loans  at December 31, 2008, increased to 5.53% of total loans, compared to 1.00% at December 31, 2007.  During 2008, our allowance increased by $159,000 or 6.6%, and totaled $2.6 million at December 31, 2008, as well as the increase in non-performing loans. Additional allowance was made to cover the loan growth of 32% in 2008, as well as the increase in non-performing loans. We believe that the allowance for loan losses was adequate at December 31, 2008.

The following table sets forth information with respect to activity in our allowance for loan losses during the years indicated (dollars in thousands):

	Year Ended December 31,
	2008			2007			2006			2005			2004
Allowance at beginning of year	$	2,393		$	1,801		$	1,383		$	1,097		$	852
Charge-offs:
Real estate loans		2,898			123			-			-			-
Consumer loans		394			49			19			17			36
Commercial and all other loans		631			128			14			55			111
Total charge-offs		3,923			300			33			72			147
Recoveries:
Real estate loans		10			-			-			-			-
Consumer loans		6			6			10			1			3
Commercial and all other loans		7			1			12			5			9
Total recoveries		23			7			22			6			12
Provision for loan losses charged to operations		4,059			885			429			352			380
Allowance at end of year	$	2,552		$	2,393		$	1,801		$	1,383		$	1097
Ratio of net charge-offs during the year to average loans outstanding   during the year		2.11	%		.19	%		.01	%		.08	%		.25	%
Allowance for loan losses as a percentage of total loans at end of year		1.36	%		1.36	%		1.36	%		1.42	%		1.56	%
Allowance for loan losses as a percentage of non-performing loans		24.65	%		136.74	%		523.55	%		-	%		221.17	%

8

Capital Resources and Liquidity

In managing liquidity, our objective is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for expansion.  Liquidity management addresses the ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.  Our primary sources of internally generated funds are principal and interest payments on loans receivable, cash flows generated from operations, and cash flows generated by investments.  External sources of funds include increases in deposits and advances from the FHLB.  We also have “Fed Funds” lines of credit extended by our correspondent banks to utilize for overnight cash flow needs.  Longer term funding sources include brokered CD's and repurchase agreements both with our primary correspondent bank.

Our management team monitors our liquidity position on an on-going basis and reports regularly to our Board of Directors the level of liquidity compared to minimum levels established by Board policy.  As of December 31, 2008, our level of liquidity was within the established guidelines of Board policy.

We are subject to various regulatory capital adequacy requirements promulgated by each of the FDIC and the Department.  Failure to meet minimum capital requirements can result in certain mandatory and, possibly, additional discretionary actions by federal and state regulators that, if undertaken, could have a direct material effect on our financial condition and results of operations.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier 1 capital to risk weighted assets and Tier 1 capital to average assets.  As of December 31, 2008, we exceeded all applicable capital adequacy requirements.  See "Regulation and Supervision - Capital Requirements."

As of December 31, 2008, our actual and required minimum capital ratios were as follows (dollars in thousands):

	Actual					Minimum For Capital Adequacy   Purposes					Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2008:	Amount		%			Amount		%			Amount		%
Total Capital to Risk-Weighted Assets	$	21,280		10.88	%	$	15,647		8.00	%	$	19,559		10.00	%
Tier 1 Capital to Risk-Weighted Assets		18,834		9.63			7,824		4.00			11,736		6.00
Tier 1 Capital to Total Assets		18,834		8.27			9,111		4.00			11,389		5.00

Our primary source of cash during the year ended December 31, 2008, was from the proceeds from net deposit inflows of $28 million, proceeds from Federal Home Loan Bank advances of $11.0 million, net proceeds from the sale and repayment of securities totaling $7.9 million, and proceeds from the issuance of preferred stock and common stock warrants to the US Treasury of $5.8 million. Cash was used primarily to purchase securities, premises and equipment and originate loans. At December 31, 2008, we had outstanding commitments to originate loans totaling $700,000, available lines of credit of $16.2 million, and standby letters of credit of $148,000.

Investment Activities

Our securities portfolio is managed by our Funds Management Committee in accordance with a written investment policy of the Board of Directors that addresses strategies, types and levels of permitted investments.  At December 31, 2008, our securities portfolio equaled $33.2 million, or 13.9% of total assets. Our investment portfolio is comprised of agency securities and mortgage-backed securities.

We classify securities as either available for sale or held to maturity based upon our intent and ability to hold such securities.  Securities available for sale include debt and equity securities that are held for an indefinite period of time and are not intended to be held to maturity.  Securities available for sale include securities that we intend to use as part of our overall asset/liability management strategy and that may be sold in response to changes in interest rates and resultant prepayment risk and other factors related thereto.

Securities available for sale are carried at fair value, and unrealized gains and losses (net of related tax effects) on such securities are excluded from operations but are included in stockholders’ equity.  Upon realization, such gains and losses will be included in our operations.  Investment securities and mortgage-backed securities, other than those designated as available for sale are comprised of debt securities that we have the affirmative intent and ability to hold to maturity.  Securities held to maturity are carried at cost, and are adjusted for amortization of premiums and accretion of discounts over the estimated lives of the securities.

9

Securities

The following table sets forth the carrying value of our securities portfolio at December 31, 2008 (in thousands):

	2008		2007		2006
Securities available for sale:
U.S. Government agency securities	$	16,375	$	6,061	$	5,445
Mortgage-backed securities		16,863		728		999
		33,238		6,789		6,444
Securities held to maturity:
U.S. Government agency securities		-		-		2,500
Mortgage-backed securities		1		4		9
		1		4		2,509
Total	$	33,239	$	6,793	$	8,953

The following table sets forth, by maturity distribution, certain information pertaining to the securities portfolio as follows (dollars in thousands):

	Due in				From One Year				From Five Years				Due in More Than
	One Year or Less				to Five Years				to Ten Years				Ten Years				Total
	Carrying		Average		Carrying		Average		Carrying		Average		Carrying		Average		Carrying		Average
	Value		Yield		Value		Yield		Value		Yield		Value		Yield		Value		Yield
December 31,  2008:
U.S. Government agency securities	$	1,000	2.46	%	$	1,002	4.32	%	$	3,577	4.94	%	$	10,796	5.39	%	$	16,375	5.05	%
Mortgage-backed securities																		16,864	5.49
Total																	$	33,239	5.27	%
December 31, 2007:
U.S. Government agency securities	$	1,499	4.26	%	$	1,003	5 00	%	$	3,559	5.71	%		-	-		$	6,061	5.24	%
Mortgage-backed securities																		732	4.03
Total																	$	6,793	5.11	%
December 31, 2006:
U.S. Government agency securities	$	3,986	3.20	%	$	2,964	4.69	%	$	995	5.62	%		-	-		$	7,945	4.06	%
Mortgage-backed securities																		1,008	3.96
Total																	$	8,953	4.05	%

Regulatory Capital Requirements

Under FDIC regulations, we are required to meet certain minimum regulatory capital requirements.  This is not a valuation allowance and has not been created by charges against operations.  It represents a restriction on stockholders’ equity.

Quantitative measures established by regulation to ensure capital adequacy require financial institutions to maintain minimum amounts and ratios of total and Tier 1 capital, as defined in the regulations, to risk-weighted assets, also as defined in the regulations, and of Tier 1 capital to average assets.  We believe, as of December 31, 2008, that we met all capital adequacy requirements to which we are subject.  See Note 16 to our consolidated financial statements for the actual capital amounts and ratios.

10

Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates.  We do not engage in securities trading or hedging activities and do not invest in interest-rate derivatives or enter into interest rate swaps.  Our market risk arises primarily from interest-rate risk inherent in our loan and deposit-taking activities.  To that end, we actively monitor and manage our interest-rate risk exposure.  The measurement of market risk associated with financial instruments is meaningful only when all related and offsetting on- and off-balance-sheet transactions are aggregated, and the resulting net positions are identified.  Disclosures about the fair value of financial instruments, which reflect changes in market prices and rates, can be found in Note 7 of Notes to Consolidated Financial Statements.

     The primary objective in managing interest-rate risk is to maximize earnings and minimize the potential adverse impact of changes in interest rates on our net interest income and capital, while adjusting our asset-liability structure to obtain the maximum yield-cost spread on that structure.  We rely primarily on our asset-liability structure to manage interest-rate risk.  However, a sudden and substantial decrease in interest rates may adversely impact our earnings, to the extent that the interest-earning assets and interest-bearing liabilities do not change at the same speed, to the same extent, or on the same basis.

Asset and Liability Structure

Our asset and liability management program establishes and implements various internal asset-liability decision processes, as well as communications and control procedures to aid us in managing our operations.  We believe that these processes and procedures provide us with better capital planning, asset mix and volume controls, loan-pricing guidelines, and deposit interest-rate guidelines which should result in tighter controls and less exposure to interest-rate risk.

The matching of assets and liabilities may be accomplished in part by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution’s interest rate sensitivity “gap.”  An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.  The interest-rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period.  The gap ratio is computed as the amount of rate sensitive assets less the amount of rate sensitive liabilities divided by total assets.  A gap is considered positive when the amount of interest-rate sensitive assets exceeds interest-rate sensitive liabilities.  A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets.  During a period of rising interest rates, a negative gap would adversely affect net interest income, while a positive gap would result in an increase in net interest income.  During a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive gap would adversely affect net interest income.

In order to minimize the potential for adverse effects of material and prolonged increases in interest rates on the results of operations, we continue to monitor asset and liability management policies to better match the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities.  Such policies have consisted primarily of emphasizing the origination of adjustable-rate loans; maintaining a stable core deposit base; and maintaining a significant portion of liquid assets consisting primarily of cash and short-term securities.

11

The following table sets forth certain information relating to interest-earning assets and interest-bearing liabilities at December 31, 2008, that are estimated to mature or are scheduled to reprice within the period shown (dollars in thousands):

				More than One			More than Five
				Year and			Years and			Over
	One Year			Less than			Less than			Fifteen
	or Less			Five Years			Fifteen Years			Years			Total
Mortgage and commercial loans (1):
Commercial	$	29,604		$	30,263		$	3,901		$	-		$	63,768
Commercial real estate		15,939			63,795			14,351			590			94,675
Construction		1,633			5,164			2,979			17			9,793
Consumer		6,952			11,184			478			148			18,762
Residential mortgage		195			-			-			129			324
Total loans		54,323			110,406			21,709			884			187,322
Interest-bearing deposits with banks		247			-			-			-			247
Federal funds sold		2,384			-			-			-			2,384
Federal Home Loan Bank stock		-			-			-			853			853
Securities (2)		11,997			3,045			2,814			15,383			33,239
Total rate-sensitive assets		68,951			113,451			24,523			17,120			224,045
Deposit accounts (3):
Money market deposits	$	30,262		$	-		$	-		$	-		$	30,262
NOW deposits		5,039			-			-			-			5,039
Savings deposits		4,157			-			-			-			4,157
Certificates of deposit		107,016			34,717			-			-			141,733
Total deposit accounts		146,474			34,717			-			-			181,191
Federal Home Loan Bank advances		3,000			8,100			-			-			11,100
Total rate-sensitive liabilities		149,474			42,817			-			-			192,291
GAP (repricing differences)	$	(80,523	)	$	70,634		$	24,523		$	17,120		$	31,754
Cumulative GAP	$	(80,523	)	$	(9,889	)	$	14,634		$	31,754
Cumulative GAP/total assets		(33.67	)%		(4.13	)%		6.12	%		13.28	%

                          (1) In preparing the table above, adjustable-rate loans are included in the period in which the interest rates are next scheduled to adjust rather than in the period in which the loans mature.  Fixed-rate loans are scheduled, including repayment, according to their maturities.

                          (2) Securities are scheduled through the maturity or call dates.

                          (3) Money-market, NOW, and savings deposits are regarded as readily accessible withdrawable accounts.  All other time deposits are scheduled through the maturity dates.

12

The following table reflects the contractual principal repayments by period of the loan portfolio at December 31, 2008 (in thousands):

			Commercial Real		Residential
Years Ending	Commercial		Estate		Mortgage		Consumer		Construction
December 31,	Loans		Loans		Loans		Loans		Loans
2009	$	23,873	$	17,861	$	109	$	7,489	$	1,891
2010		8,080		8,579		101		4,820		385
2011		5,494		5,785		8		3,179		385
2012-2013		7,081		9,631		15		2,124		770
2014-2015		4,735		8,604		13		627		718
2016 & beyond		14,505		44,215		78		523		5,644
Total	$	63,768	$	94,675	$	324	$	18,762	$	9,793

Of the $136.1 million of loans due after 2009, 24.11% of such loans have fixed interest rates and 75.89% have adjustable interest rates.

The following table sets forth total loans originated and repaid during the period ended December 31 (in thousands):

Originations:	2008			2007
Commercial loans	$	16,224		$	29,299
Commercial real estate loans		11,110			38,323
Consumer loans		5,467			10,197
Construction loans		2,899			13,637
Residential loans		299			-
Total loans originated		35,999			91,456
Principal reductions and participations sold		(24,019	)		(48,624	)
Increase in total loans	$	11,980		$	42,832

Deposit Activities and Other Sources of Funds

Deposits are the major source of funds for our lending and investment activities.  In addition, we also generate funds from loan principal repayments and prepayments, and from the maturities and cash flow of investment securities.  Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are influenced significantly by general interest rates and money-market conditions.  Borrowings from the Federal Home Loan Bank of Atlanta (the “FHLB”) may be used on a short-term basis to compensate for reductions in the availability of funds from other sources, or for long-term funding purposes.  We have “Fed Funds” lines of credit extended by our correspondent banks to utilize for overnight cash flow needs.  Longer-term funding is available through a Brokered CD Program and a Repurchase Agreement, both of which are set-up with our primary correspondent bank.  Repurchase agreements as a funding source were not utilized in 2008.

Deposit instruments include NOW accounts, demand deposit accounts, money-market accounts, statement savings accounts and certificates of deposit.  Deposit account terms vary, with the principal differences being the minimum balance deposit, early withdrawal penalties and interest rate.  We review our deposit mix and pricing on a frequent basis.

(continued)

13

We believe that we are competitive in the type of accounts and interest rates we offer on our deposit products, although deposit pricing continues to be a challenge.  We determine deposit interest rates based on a number of conditions, including rates paid by competitors, rates on U.S. Treasury securities, rates offered on various FHLB advance programs, and the deposit growth rate we are seeking to achieve.

With the substantial decline in local real estate and general business activity, we have seen similar declines in our deposit balances from both new and existing depositors, as evidenced in the table below.  This decrease in liquidity has resulted in an increase in wholesale funding sources, which has placed further pressure on deposit costs and the net-interest margin.

We may use premiums to attract new deposit accounts.  Such premiums would be reflected in an increase in our advertising and promotion expense, as well as our cost of funds.  We also actively solicit business checking accounts and individual retirement accounts.

 The following table shows the distribution of, and certain other information relating to deposit accounts by type (dollars in thousands):

	At December 31,
	2008				2007				2006
			% of				% of				% of
	Amount		Deposits		Amount		Deposits		Amount		Deposits
Demand deposits	$	19,492	9.71	%	$	23,141	13.40	%	$	20,125	15.45	%
Money-market deposits		30,262	15.08			26,121	15.13			26,541	20.38
NOW deposits		5,039	2.51			3,175	1.84			3,834	2.94
Savings deposits		4,157	2.07			4,061	2.35			5,111	3.92
Subtotal		58,950	29.37			56,498	32.72			55,611	42.69
Certificate of deposits:
0 % - 0.99 %		23	.01			391	.23			274	.21
1.00 % - 1.99 %		140	.07			170	.10			-	-
2.00 % - 2.99 %		11,735	5.85			-	-			932	.72
3.00 % - 3.99 %		48,016	23.93			1,497	.87			2,364	1.82
4.00 % - 4.99 %		59,287	29.54			41,742	24.17			21,272	16.34
5.00 % - 5.99 %		22,532	11.23			72,379	41.91			49,766	38.22
Total certificates of deposit (1)		141,733	70.63			116,179	67.28			74,608	57.31
Total deposits	$	200,683	100.00	%	$	172,677	100.00	%	$	130,219	100.00	%

 (1) Included individual retirement accounts (“IRAs”) totaling $4.3 million, $4.5 and $4.0 million at December 31, 2008, 2007, and 2006 all of which are in the form of certificates of deposit.

14

  The following table presents by various interest rate categories the amounts of certificates of deposit at December 31, 2008, which mature during the periods indicated (in thousands):

	Year Ending December 31,
	2009		2010		2011		2012		2013		Total
0 % - 0.99 %	$	23	$	-	$	-	$	-	$	-	$	23
1.00 % - 1.99 %		140		-		-		-		-		140
2.00 % - 2.99 %		11,348		387		-		-		-		11,735
3.00 % - 3.99 %		42,066		3,353		1,238		23		1,336		48,016
4.00 % - 4.99 %		44,174		13,238		316		1,284		275		59,287
5.00 % - 5.99 %		9,265		5,415		3,477		4,375		-		22,532
Total certificates of deposit	$	107,016	$	22,393	$	5,031	$	5,682	$	1,611	$	141,733

 Jumbo certificates ($100,000 and over) mature as follows (in thousands):

	December 31,
	2008		2007		2006
Due three months or less	$	11,778	$	10,535	$	6,512
Due over three months to six months		4,698		14,286		5,273
Due over six months to one year		22,404		16,464		19,118
Due over one year to five years		16,716		27,249		8,325
	$	55,596	$	68,534	$	39,228

15

Interest Rate Sensitivity

Our operating results depend primarily on our net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities, consisting primarily of deposits.  Net interest income is determined by the difference between yields earned on interest-earning assets and rates paid on interest-bearing liabilities (“interest-rate spread”) and the relative amounts of interest-earning assets and interest-bearing liabilities.  Our interest-rate spread is affected by regulatory, economic, and competitive factors that influence interest rates, loan demand, and deposit flows.  In addition, our operations are also affected by the level of nonperforming loans and foreclosed assets, as well as the level of our non-interest income, and our non-interest expenses, such as salaries and employee benefits, occupancy and equipment costs and income taxes.

The following table sets forth, for the years indicated, information regarding: (i) the total dollar amount of interest and dividend income from interest-earning assets and the resultant average yield; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest/dividend income; (iv) interest rate spread; (v) net interest margin.  Average balances are based on average daily balances (dollars in thousands).

	Year Ended December 31,
	2008						2007						2006
			Interest		Average				Interest		Average				Interest		Average
	Average		and		Yield/		Average		and		Yield/		Average		and		Yield/
	Balance		Dividends		Rate		Balance		Dividends		Rate		Balance		Dividends		Rate
Interest-earning assets:
Loans	$	185,005		12,988	7.02	%	$	151,760		12,878	8.49	%	$	115,533		9,626	8.33	%
Securities		13,608		673	4.95			7,704		375	4.87			10,741		426	3.97
Other interest-earning assets (1)		7,063		141	2.00			6,732		335	4.98			12,587		574	4.56
Total interest-earning assets		205,676		13,802	6.71			166,196		13,588	8.18			138,861		10,626	7.65
Non interest-earning assets		12,065						10,528						8,700
Total assets	$	217,741					$	176,724					$	147,561
Interest-bearing liabilities:
Savings, NOW and money-market deposits		38,292		976	2.55			34,200		1,156	3.38			37,710		1,121	2.97
Certificates of deposit		133,180		5,961	4.48			90,727		4,900	5.40			64,718		2,791	4.31
Other borrowings		552		14	2.54			100		4	4.00			1,350		64	4.74
Total interest-bearing liabilities		172,024		6,951	4.04			125,027		6,060	4.85			103,778		3,976	3.83
Demand deposits		22,765						23,004						20,978
Non-interest bearing liabilities		1,640						7,299						2,034
Stockholders' equity		21,312						21,394						20,771
Total liabilities and stockholders' equity	$	217,741					$	176,724					$	147,561
Net interest income			$	6,851					$	7,528					$	6,650
Interest-rate spread (2)					2.67	%					3.33	%					3.82	%
Net interest margin (3)					3.33	%					4.53	%					4.79	%
Ratio of average interest-earning   assets to average interest-bearing liabilities		1.20						1.33						1.34

(1) Other interest-earning assets included federal funds sold, Federal Home Loan Bank stock and time deposits.

(2) Interest-rate spread represents the difference between the average yield on interest-earning assets and the average rate of interest-bearing liabilities.

(3) Net interest margin is net interest income divided by total average interest-earning assets.

16

Rate/Volume Analysis

The following table sets forth certain information regarding changes in interest income and interest expense for the years indicated.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in rate (change in rate multiplied by prior volume), (2) changes in volume (change in volume multiplied by prior rate) and (3) changes in rate-volume (change in rate multiplied by change in volume).

Year Ended December 31, 2008 vs. 2007:

	Year Ended December 31, 2008 vs. 2007											Year Ended December 31, 2007 vs. 2006
	Increase (Decrease)											Increase (Decrease)
						Rate/												Rate/
	Rate			Volume		Volume			Total			Rate			Volume			Volume			Total
	(In thousands)											(In thousands)
Interest-earning assets:
Loans	$	(2,231	)	$	2,830	$	(489	)	$	110		$	174		$	3,019		$	59		$	3,252
Securities		6			287		5			298			97			(121	)		(27	)		(51	)
Other interest-earning assets		(201	)		17		(10	)		(194	)		53			(267	)		(25	)		(239	)
Total		(2,426	)		3,134		(494	)		214			324			2,631			7			2,962
Interest-bearing liabilities:
Deposits:
Savings, money-market  and NOW deposits		(284	)		138		(34	)		(180	)		154			(105	)		(14	)		35
Certificates of deposit		(835	)		2,287		(391	)		1,061			705			1,121			283			2,109
Other borrowings		(1	)		18		(7	)		10			(10	)		(59	)		9			(60	)
Total		(1,120	)		2,443		(432	)		891			849			957			278			2,084
Net change in net interest income	$	(1,306	)	$	691	$	(62	)	$	(677	)	$	(525	)	$	1,674		$	(271	)	$	878

Comparison of Years Ended December 31, 2008 and 2007

General.  Net losses for the year ended December 31, 2008, were $3.0 million or ($1.46) per basic and diluted common share compared to net earnings of $177,000 or $.09 per basic and diluted common share for the year ended December 31, 2007.  This decrease in net operating results was primarily due to an increase the provision for loan losses of $3.2 million, an increase in interest expense and non-interest expense of $2.0 million, and a decrease in non-interest income of $122,000, partially offset by an increase in interest income of $214,000 and a decrease in income tax of $1.9 million.  In addition to the Company’s growth and expansion, the economic downturns both in our State and the country as a whole have resulted in a decline in the real estate market, new home construction and development, loss of jobs, foreclosures and business failures.  As a result of these factors, and in view of the lengthened expectations for a further weakened economy, we have significantly increased our provision for loan losses.

Interest Income.  Interest income increased to $13.8 million for the year ended December 31, 2008, from $13.6 million for the year ended December 31, 2007.  Interest income on loans increased to $13.0 million from $12.9 million due to an increase in the average loan portfolio balance for the year ended December 31, 2008, partially offset by a decrease in the weighted-average yield earned on the portfolio in 2008.  Interest on securities increased to $673,000 in 2008, from $375,000 in 2007, due to an increase in the average portfolio balance in 2008, and an increase in the average yield earned. Interest on other interest-earning assets decreased to $141,000 for the year ended December 31, 2008, from $335,000 for the year ended December 31, 2007, primarily due to a decrease in the average yield earned in 2008, partially offset by an increase in the average balance in 2008.

Interest Expense.  Interest expense increased to $7.0 million in 2008 from $6.1 million in 2007.  Interest expense increased due to growth in average interest-bearing liabilities in 2008, partially offset by a decrease in the weighted-average rate paid on liabilities.

17

Provision for Loan Losses.  The provision for loan losses is charged to operations to bring the total allowance to a level we deem appropriate and is based upon historical experience, the volume and the type of lending we conduct.  In addition, industry standards, the amounts of nonperforming loans, general economic conditions, particularly as they relate to our market area, and other factors related to the collectibility of our loan portfolio were considered.  The provision for loan losses increased to $4.1 million in 2008 from $885,000 in 2007. The allowance for loan losses increased to $2.6 million at December 31, 2008 from $2.4 million at December 31, 2007. The increase in the allowance was due to the increase in the loan portfolio during the year, as well as an increase in non-performing loans in 2008. Management believes that the allowance for loan losses of $2.6 million is adequate at December 31, 2008.

Non-interest Income.  Non-interest income decreased to $874,000 in 2008 from $996,000 in 2007. This was primarily a result of decreased gains from the sales of loans held for sale and loan brokerage fees in 2008 compared to 2007, partially offset by an increase in service charges on deposit accounts in 2008.

Non-interest Expense.  Total non-interest expense increased to $8.5 million for the year ended December 31, 2008, compared to $7.4 million in 2007.  This was primarily due to increases in professional fees (as a result of an increase in problem assets), employee compensation and benefits, occupancy and equipment, data processing and other expenses, partially offset by a decrease in advertising, all a result of our overall growth and expansion.

Income Taxes.  The income tax benefit was $1.8 million (an effective rate of 38%) for 2008 compared   to an income tax provision of $77,000 (an effective rate of 30%) for 2007.

Comparison of Years Ended December 31, 2007 and 2006

General.  Net earnings for the year ended December 31, 2007, were $177,000 or $.09 per basic and diluted share compared to net earnings of $631,000 or $.32 per basic and $.31 per diluted share for the year ended December 31, 2006.  This decrease in net operating results was primarily due to an increase in interest expense   and non-interest expense, partially offset by an increase in interest income and non-interest income, all as a result of our growth and expansion.  In addition, the economic downturns both in our State and the country as a whole have resulted from a decline in the real estate market, new home construction and development, loss of jobs, foreclosures and business failures.  As a result of these factors, and in view of the lengthened expectations for a further weakened economy, we have begun to increase our reserves for potential impaired loans.

Interest Income.  Interest income increased to $13.6 million for the year ended December 31, 2007, from $10.6 million for the year ended December 31, 2006.  Interest income on loans increased to $12.9 million from $9.6 million due to an increase in the average loan portfolio balance for the year ended December 31, 2007, and an increase in the weighted-average yield earned on the portfolio.  Interest on securities decreased to $375,000 in 2007, from $426,000 in 2006, due to a decrease in the average portfolio balance in 2007, partially offset by an increase in the average yield earned. Interest on other interest-earning assets decreased to $335,000 for the year ended December 31, 2007, from $574,000 for the year ended December 31, 2006, primarily due to a decrease in the average balance in 2007.

Interest Expense.  Interest expense increased to $6.1 million in 2007 from $4.0 million in 2006.  Interest expense increased due to growth in average interest-bearing deposits in 2007, as well as an increase in the weighted-average rate paid on deposits.

Provision for Loan Losses.  The provision for loan losses is charged to operations to bring the total allowance to a level we deem appropriate and is based upon historical experience, the volume and the type of lending we conduct.  In addition, industry standards, the amounts of nonperforming loans, general economic conditions, particularly as they relate to our market area, and other factors related to the collectibility of our loan portfolio were considered.  The provision for loan losses increased to $885,000 in 2007 from $429,000 in 2006.  The allowance for loan losses increased to $2.4 million at December 31, 2007 from $1.8 million at December 31, 2006.  The increase in the allowance was due to the increase in the loan portfolio during the year, as well as an increase in non-performing loans in 2007. Management believes that the allowance for loan losses of $2.4 million is adequate at December 31, 2007.

(continued)

18

Non-interest Income.  Non-interest income increased to $996,000 in 2007 from $824,000 in 2006. This was primarily a result of increased gains from the sales of loans, service charges on deposit accounts and income from bank-owned life insurance in 2007 compared to 2006, partially offset by a decrease in loan brokerage fees.

Non-interest Expense.  Total non-interest expense increased to $7.4 million for the year ended December 31, 2007, compared to $6.1 million in 2006.  This was primarily due to increases in employee compensation and benefits, occupancy and equipment, data processing and other expenses, all a result of our overall growth and expansion.

Income Taxes.  The income tax provision was $77,000 (an effective rate of 30%) for 2007 compared   to $332,000 (an effective rate of 34%) for 2006.

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with U.S. generally accepted accounting principles, which requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.  Unlike most industrial companies, substantially all of our assets and liabilities are monetary in nature.  As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation.  Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.

Selected Quarterly Results

Selected quarterly results of operations for the four quarters ended December 31 are as follows

 (in thousands, except per share amounts):

	2008				2007
	Fourth	Third	Second	First	Fourth	Third	Second	First
	Quarter	Quarter	Quarter	Quarter	Quarter	Quarter	Quarter	Quarter
Interest income	$ 3,313	3,457	3,455	3,577	$ 3,694	3,640	3,286	2,968
Interest expense	1,794	1,674	1,707	1,776	1,737	1,636	1,417	1,270
Net interest income	1,519	1,783	1,748	1,801	1,957	2,004	1,869	1,698
Provision for loan  losses	2,331	896	273	559	317	252	221	95
Loss before income taxes	(2,675)	(1,036)	(469)	(618)	26	43	53	132
Net loss	(1,663)	(643)	(291)	(381)	22	32	37	86
Basic   per common share	(.81)	(.31)	(.14)	(.20)	.01	.02	.02	.04
Diluted earnings per common share	(.81)	(.31)	(.14)	(.20)	.01	.02	.02	.04
Cash dividends declared per common share	-	-	-	-	-	-	-	-

19

FPB BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)

	December 31,
	2008			2007
Assets
Cash and due from banks	$	2,826		4,079
Federal funds sold		2,384		2,466
Interest-bearing deposits with banks		247		250
Total cash and cash equivalents		5,457		6,795
Securities available for sale		33,238		6,789
Security held to maturity (market value of $1 and $4)		1		4
Loans, net of allowance for loan losses of $2,552 and $2,393		184,182		172,251
Premises and equipment, net		5,881		5,466
Federal Home Loan Bank stock, at cost		853		280
Foreclosed assets		1,714		-
Accrued interest receivable		1,355		983
Deferred income taxes		1,654		628
Bank-owned life insurance		2,789		2,681
Other assets		2,049		876
Total assets	$	239,173		196,753
Liabilities and Stockholders' Equity
Liabilities:
Non-interest bearing demand deposits		19,492		23,141
Savings, NOW and money-market deposits		39,458		33,357
Time deposits		141,733		116,179
Total deposits		200,683		172,677
Official checks		1,217		1,214
Federal Home Loan Bank advances		11,100		100
Other liabilities		1,277		831
Total liabilities		214,277		174,822
Commitments (Notes 4 and 7)
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized, 5,800 shares of Series A issued and outstanding		-		-
Additional paid-in capital, preferred		5,800		-
Preferred stock discount		(521	)	-
Common stock, $.01 par value; 5,000,000 shares authorized, 2,058,047 shares issued and outstanding		20		20
Additional paid-in capital, common		24,393		23,813
Accumulated deficit		(4,982	)	(1,936	)
Accumulated other comprehensive income		186		34
Total stockholders' equity		24,896		21,931
Total liabilities and stockholders' equity	$	239,173		196,753

 See Accompanying Notes to Consolidated Financial Statements.

20

FPB BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Operations

(Dollars in thousands, except per share amounts)

	Year Ended December 31,
Interest income:	2008			2007
Loans	$	12,988		12,878
Securities		673		375
Other		141		335
Total interest income		13,802		13,588
Interest expense:
Deposits		6,937		6,056
Federal Home Loan Bank advances		7		1
Other		7		3
Total interest expense		6,951		6,060
Net interest income		6,851		7,528
Provision for loan losses		4,059		885
Net interest income after provision for loan losses		2,792		6,643
Non-interest income:
Service charges and fees on deposit accounts		532		473
Loan brokerage fees		158		205
Gain on sale of loans held for sale		15		175
Gain on sale of securities available for sale		41		-
Income from bank-owned life insurance		108		108
Other fees		20		35
Total non-interest income		874		996
Non-interest expenses:
Salaries and employee benefits		3,974		3,681
Occupancy and equipment		1,528		1,246
Advertising		434		566
Data processing		589		482
Supplies		178		151
Professional fees		589		185
Other		1,172		1,074
Total non-interest expenses		8,464		7,385
(Loss) earnings before income tax (benefit)		(4,798	)	254
Income tax (benefit)		(1,820	)	77
Net (loss) earnings	$	(2,978	)	177
Preferred stock dividend requirements and amortization of preferred stock discount		26		-
Net (loss) earnings available to common shareholders	$	(3,004	)	177
Net (loss) earnings per common share:
Basic	$	(1.46	)	.09
Diluted	$	(1.46	)	.09
Weighted-average number of common shares, basic		2,058,047		2,017,553
Weighted-average number of common shares, diluted		2,058,047		2,034,070

 See Accompanying Notes to Consolidated Financial Statements.

21

FPB BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders' Equity

Years Ended December 31, 2007 and 2008

(Dollars in thousands)

									Accumulated
	­­­­­­­­­­­­­­­­­­­­              Preferred Stock				Common Stock					Other
			Additional				Additional		Compre-		Total
			Paid-In				Paid-In	Accumulated	hensive		Stockholders’
	Shares	Amount	Capital	Discount	Shares	Amount	Capital	Deficit	Income (Loss)		Equity
Balance at December 31, 2006	-	$      -	-	-	1,906,203	$ 19	21,729	(634)	(51)		21,063
Comprehensive income:
Net earnings	-	-	-	-	-	-	-	177	-		177
Net change in unrealized loss on securities available for sale, net of tax of $51	-	-	-	-	-	-	-	-	85		85
Comprehensive income											262
5% stock dividend, fractional shares paid in cash of $6	-	-	-	-	94,915	1	1,472	(1,479)	-		(6)
Share-based compensation	-	-	-	-	-	-	32	-	-		32
Proceeds from exercise of common stock options	-	-	-	-	56,929	-	520	-	-		520
Tax benefit from the exercise of common stock options	-	-	-	-	-	-	60	-	-		60
Balance at December 31, 2007	-	$      -	-	-	2,058,047	$ 20	23,813	(1,936)	34		21,931

                                                                                                                                                           0;                                                                                                             

(continued)

22

FPB BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Stockholders' Equity

Years Ended December 31, 2007 and 2008, Continued

(Dollars in thousands)

									Accumulated
	­­­­­­­­­­­­­­­­­­­­        ��              Preferred Stock				Common Stock					Other
			Additional				Additional		Compre-		Total
			Paid-In				Paid-In	Accumulated	hensive		Stockholders’
	Shares	Amount	Capital	Discount	Shares	Amount	Capital	Deficit	Income (Loss)		Equity
Balance at December 31, 2007	-	$  -	-	-	2,058,047	$ 20	23,813	(1,936)	34		21,931
Comprehensive loss:
Net loss	-	-	-	-	-	-	-	(2,978)	-		(2,978)
Net change in unrealized gain on securities available for sale, net of tax of $92	-	-	-	-	-	-	-	-	152		152
Comprehensive Loss											(2,826)
Proceeds from issuance of  5,800 shares of Series A to US Treasury	5,800	-	5,800	-	-	-	-	-	-		5,800
Allocation of estimated fair value of common stock warrants issued to US Treasury in tandem with preferred stock to common equity	-	-	-	(526)	-	-	526	-	-		-
Preferred stock dividend requirements and amortization of preferred stock discount	-	-	-	5	-	-	-	(26)	-		(21)
Share-based compensation	-	-	-	-	-	-	54	-	-		54
Cumulative effect adjustment related to deferred compensation plans, net of tax benefit of $25 (see note 9)	-	-	-	-	-	-	-	(42)	-		(42)
Balance at December 31, 2008	5,800	$ -	5,800	(521)	2,058,047	$20	24,393	(4,982)	186		24,896

See Accompanying Notes to Consolidated Financial Statements.

23

FPB BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(In thousands)

	Year Ended December 31,
	2008			2007
Cash flows from operating activities:
Net (loss) earnings available to common shareholders	$	(3,004	)	177
Adjustments to reconcile net (loss) earnings available to common shareholders to net cash (used in) provided by operating activities:
Preferred stock dividend requirements and amortization of preferred stock discount		26		-
Depreciation and amortization		468		376
Provision for loan losses		4,059		885
Amortization of loan fees, net		(180	)	(111	)
Deferred income taxes		(1,093	)	(311	)
Net amortization of premiums and discounts on securities		11		8
Gain on sale of loans held for sale		(15	)	(175	)
Gain on sale of securities available for sale		(41	)	-
Proceeds from sale of loans held for sale		400		4,562
Originations of loans held for sale		(385	)	(4,387	)
Increase in accrued interest receivable		(372	)	(155	)
Increase in other assets		(1,173	)	(251	)
Increase (decrease) in official checks and other liabilities		361		(12	)
Income from bank-owned life insurance		(108	)	(108	)
Share-based compensation		54		32
Net cash (used in) provided by operating activities		(992	)	530
Cash flows from investing activities:
Maturities and calls of securities available for sale		-		2,500
Maturities of securities held to maturity		-		2,500
Purchase of securities available for sale		(34,056	)	(3,000	)
Principal payments on securities available for sale		650		283
Proceeds from sale of securities available for sale		7,231		-
Principal payments on securities held to maturity		3		5
Net increase in loans		(17,524	)	(42,892	)
Purchase of premises and equipment		(883	)	(1,564	)
Purchase of Federal Home Loan Bank stock		(573	)	(21	)
Net cash used in investing activities		(45,152	)	(42,189	)
Cash flows from financing activities:
Net increase in deposits		28,006		42,458
Proceeds from Federal Home Loan Bank advances		11,000		-
Proceeds from the issuance of 5,800 shares of  Series A preferred stock to US Treasury		5,800		-
Proceeds from the exercise of common stock options		-		520
Tax benefit associated with exercise of common stock options		-		60
Fractional shares of stock dividends paid in cash		-		(6	)
Net cash provided by financing activities		44,806		43,032
Net (decrease) increase in cash and cash equivalents		(1,338	)	1,373
Cash and cash equivalents at beginning of year		6,795		5,422
Cash and cash equivalents at end of year	$	5,457		6,795

24

FPB BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows, Continued

(In thousands)

	Year Ended December 31,
	2008		2007
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net of interest capitalized of $21 in 2008 and $7 in 2007	$	6,732	6,026
Income taxes	$	75	448
Non-cash transactions:
Accumulated other comprehensive income, net change in unrealized gain (loss) on securities available for sale, net of tax	$	152	85
Cumulative effect adjustment related to deferred compensation plans, net of tax benefit of $25	$	42	-
Transfer of loans to foreclosed assets	$	1,714	-
Accrual of preferred stock dividend	$	21	-
Common stock dividend	$	-	1,473

 See Accompanying Notes to Consolidated Financial Statements.

25

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

     December 31, 2008 and 2007 and the Years Then Ended

(1)  Summary of Significant Accounting Policies

Organization.  FPB Bancorp, Inc. (the "Holding Company") owns 100% of the outstanding common stock of First Peoples Bank (the "Bank") and the Bank owns 100% of the outstanding common stock of Treasure Coast Holdings, Inc., (collectively referred to as the "Company"). The Holding Company operates as a one-bank holding company and its only business activity is the operation of the Bank.  The Bank is a state (Florida)-chartered commercial bank and its deposits are insured up to the maximum amounts by the Federal Deposit Insurance Corporation, which are currently $250,000 for all qualified deposits, and unlimited for non-interest bearing transaction accounts, both through  December 31, 2009. The Bank offers a variety of community banking services to individual and corporate customers through its six banking offices located in Port St. Lucie, Stuart, Fort Pierce, Vero Beach and Palm City, Florida.  The newest office opened in May, 2008, on Gatlin Boulevard in Port St. Lucie, Florida.  In addition, the Palm City, Florida office opened in January of 2008 and an 11,000 square foot Operations Center in Jensen Beach, Florida, opened in March of 2007.  The new subsidiary, Treasure Coast Holdings, Inc., was incorporated in June 2008 for the sole purpose of managing foreclosed assets.

The following is a description of the significant accounting policies and practices followed by the Company, which conform with U.S. generally accepted accounting principles and prevailing practices within the banking industry.

Basis of Presentation.  The consolidated financial statements include the accounts of the Holding Company, the Bank and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates.  In preparing consolidated financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and 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 in the near term relate to the determination of the allowance for loan losses and deferred tax assets.

Cash and Cash Equivalents.  For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, interest-bearing deposits with banks and federal funds sold, all of which mature within ninety days.

The Bank may be required by law or regulation to maintain cash reserves in the form of vault cash or in non-interest earning accounts with the Federal Reserve Bank or other qualified banks. At December 31, 2008 and 2007, there was no required reserve balance.

(continued)

26

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)  Summary of Significant Accounting Policies, Continued

 Securities.  Securities may be classified as either trading, held to maturity or available for sale. Trading securities are held principally for resale and recorded at their fair values.  Unrealized gains and losses on trading securities are included immediately in operations.  Held-to-maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost.  Available-for-sale securities consist of securities not classified as trading securities nor as held-to-maturity securities.  Unrealized holding gains and losses, net of tax, on available-for-sale securities are reported as a net amount in accumulated other comprehensive income. Gains and losses on the sale of available-for-sale securities are determined using the specific-identification method. Premiums and discounts on securities are recognized in interest income using the interest method over the period to maturity.

Loans.  Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance, adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs.

Commitment fees and loan origination fees are deferred and certain direct origination costs are capitalized. Both are recognized as an adjustment of the yield of the related loan.

The accrual of interest on loans is discontinued at the time the loan is ninety days delinquent unless the loan is well collateralized and in process of collection.  In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on non-accrual or charged-off is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Loans Held for Sale.  The Company originates loans guaranteed by the U.S. Small Business Administration, the guaranteed portion of which may be sold at a premium.  These loans are carried at the lower of cost or estimated fair value in the aggregate. There were no loans held for sale at December 31, 2008 or 2007.

Allowance for Loan Losses.  The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to operations.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

(continued)

27

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)  Summary of Significant Accounting Policies, Continued

Allowance for Loan Losses, Continued. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components.  The specific component relates to loans that are classified as impaired. For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.  The general component covers all other loans and is based on historical loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on all loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Foreclosed Assets.  Assets acquired through, or in lieu of, loan foreclosures are to be sold and are initially recorded at the lower of the related loan balance or the fair value at the date of foreclosure establishing a new cost basis.  After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less costs to sell.  Revenue and expenses from operations are included in the consolidated statement of operations.

Premises and Equipment.  Land is stated at cost.  Building and improvements, leasehold improvements, and furniture, fixtures and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation and amortization expense are computed using the straight-line method over the estimated useful life of each type of asset or the length of time the Company expects to lease the property, if shorter.

(continued)

28

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)   Summary of Significant Accounting Policies, Continued

Transfer of Financial Assets.  Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.  Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Income Taxes. Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences between revenues and expenses reported for financial statement and those reported for income tax purposes.  Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Valuation allowances are provided against assets which are not likely to be realized.  The Company recognized the deferred tax asset because management believes, based on detailed financial projections, that it is more likely than not, the Company will have sufficient future earnings to utilize this asset to offset future income tax liabilities.

Share-Based Compensation. The Company follows the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment (“SFAS 123(R)”), and expenses the fair value of any stock options granted after December 31, 2005.  SFAS 123(R) requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options based on estimated fair values.  Under the fair value recognition provisions of SFAS 123(R), the Company recognizes share-based compensation in compensation and benefits for officers and employees, and in other expense for directors in the consolidated statements of operations.  The expense is recognized on a straight-line basis over the vesting period.

Off-Balance-Sheet Instruments.  In the ordinary course of business the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, available lines of credit and standby letters of credit.  Such financial instruments are recorded in the consolidated financial statements when they are funded.

(continued)

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FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies, Continued

(Loss) Earnings Per Share. Basic (loss) earnings per share have been computed on the basis of the weighted-average number of shares of common stock outstanding during the year.  For 2007, diluted earnings per share were computed based on the weighted-average number of shares outstanding plus the effect of outstanding stock options, computed using the treasury stock method. In 2008, outstanding stock options and warrants are not considered dilutive due to the loss incurred by the Company. All per share amounts reflect the 5% stock dividend paid on June 15, 2007. (Loss) earnings per common share have been computed based on the following:

	Year Ended December 31,
	2008	2007
Weighted-average number of common shares outstanding used to calculate basic (loss) earnings per common share	2,058,047	2,017,553
Effect of dilutive stock options and warrants	-	16,517
Weighted-average number of common shares outstanding used to calculate diluted (loss) earnings per common share	2,058,047	2,034,070

The following options were excluded from the calculation of earnings per share for 2007, due to the exercise price being above the average market price:

	Number Outstanding	Exercise Price		Expires
For the year ended December 31, 2007	115,798	$	15.42 - 16.67	2015 - 2017

Fair Value Measurements.  Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS 157).  SFAS 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements.

SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:

Level 1:  Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:  Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable.  Valuations may be obtained from, or corroborated by, third-party pricing services.

(continued)

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FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies, Continued

           Fair Value Measurements, continued

Level 3:  Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.

In October 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active.  This FASB Staff Position clarifies the application of SFAS 157 in determining the fair value of a financial asset when the market for that financial asset is not active.  This FASB Staff Position was effective upon issuance.

In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-2, Effective Date of FASB Statement No. 157.  This FSP delays the effective date of FAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. The impact of adoption had no effect on the Company.

The following describes valuation methodologies used for assets and liabilities measured at fair value:

Securities Available for Sale.  Where quoted prices are available in an active market, securities are classified within level 1 of the valuation hierarchy.  Level 1 securities include highly liquid government bonds, certain mortgage products and exchange-traded equities.  If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.  Examples of such instruments, which would generally be classified within level 2 of the valuation hierarchy, include certain collateralized mortgage and debt obligations and certain high-yield debt securities.  In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within level 3 of the valuation hierarchy.  Securities classified within level 3 include certain residual interests in securitizations and other less liquid securities.

Impaired Loans.  All of the Company’s loans are evaluated individually for impairment.  Estimates of fair value is determined based on a variety of information, including the use of available appraisals, estimates of market value by licensed appraisers or local real estate brokers and the knowledge and experience of the Company’s management related to values of properties in the Company’s market areas.  Management takes into consideration the type, location and occupancy of the property as well as current economic conditions in the area the property is located in assessing estimates of fair value.  Accordingly, fair value estimates for impaired loans is classified as Level 3.

(continued)

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FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies, Continued

Fair Values of Financial Instruments.  The following methods and assumptions were used by the Company in estimating fair values of financial instruments:

Cash and Cash Equivalents.  The carrying amounts of cash and cash equivalents approximate their fair value.

Securities.  Fair values for securities are based on the framework for measuring fair value established by SFAS 157.

Loans.  For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values.  Fair values for certain fixed-rate residential mortgage, commercial real estate and commercial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Federal Home Loan Bank Stock.  Fair value of the Company's investment in Federal Home Loan Bank stock is based on its redemption value, which is its cost of $100 per share.

Deposit Liabilities.  The fair values disclosed for demand, NOW, money-market and savings deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts).  Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on time deposits to a schedule of aggregated expected monthly maturities of time deposits.

Accrued Interest.  The carrying amounts of accrued interest approximate their fair values.

Federal Home Loan Bank Advances.  The fair value of Federal Home Loan Bank advances are estimated using a discounted cash flow analysis based on the Company's current incremental borrowing rate for similar types of borrowings.

Off-Balance-Sheet Instruments.  Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing.

(continued)

32

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 (1)    Summary of Significant Accounting Policies, Continued

Comprehensive Income (Loss).  Accounting principles generally require that recognized revenue, expenses, gains and losses be included in operations.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheets, such items, along with net earnings (loss), are components of comprehensive income (loss).  The components of other comprehensive income (loss) and related tax effects are as follows (in thousands):

	Before			Tax		After
Year Ended December 31, 2008:	Tax			Effect		Tax
Holding gains	$	285		(107	)	178
Gains included in net loss		(41	)	15		(26	)
Net unrealized holding gains	$	244		(92	)	152
Year Ended December 31, 2007:
Holding gains		136		(51	)	85
Gains included in net earnings		-		-		-
Net unrealized holding gains	$	136		(51	)	85

Recent Accounting Pronouncements.  In December 2007, the FASBissued SFAS No. 141(R), Business Combinations ("SFAS 141(R)").  SFAS 141(R) is effective for the Company’s financial statements for the year and interim periods within the year beginning January 1, 2009.  SFAS 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination.  Acquisition related costs including finder's fees, advisory, legal, accounting valuation and other professional and consulting fees are required to be expensed as incurred.  The adoption of SFAS 141(R) had no current effect on the Company’s financial condition or results of operations.

 In December 2007, the FASB issued SFAS No.160, Non-controlling Interests in Consolidated Financial Statements ("SFAS 160").  SFAS 160 requires the Company to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.  SFAS 160 is effective for the Company’s financial statements for the year and interim periods within the year beginning January 1, 2009. The adoption of SFAS 160 had no effect on the Company.

(continued)

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FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(1)    Summary of Significant Accounting Policies, Continued

Recent Accounting Pronouncements, continued

 In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities ("SFAS 161"). This standard requires enhanced disclosures regarding derivative instruments and hedging activities so as to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. SFAS 161 is effective for the Company'sfinancial statements for the year and interim periods within the year beginning January 1, 2009.  The Companydoes not engage in trading or hedging activities, nor does it invest in interest rate derivatives or enter into interest rate swaps. Accordingly, the adoption of SFAS 161 had no effect on its financial statements

 In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles ("SFAS 162"). This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles ("GAAP") in the United States. This Statement was effective in December 2008.  The adoption of SFAS 162 had no effect on the Company.

 In September, 2008, the FASB issued FSP No. 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 ("FSP 133-1"). FSP 133-1 requires expanded disclosures about credit derivatives and guarantees. The expanded disclosure requirements for FSP 133-1 were effective for the Company's financial statements for the year ending December 31, 2008. The adoption of FSP 133-1 had no effect on the Company.

 In June, 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ("FSP 03-6-1"). FSP 03-6-1 defines unvested share-based payment awards that contain non-forfeitable rights to dividends as participating securities that should be included in computing earnings per share (EPS) using the two-class method under SFAS No. 128, Earnings per Share.  FSP 03-6-1 is effective for the Company's financial statements for the year and interim periods within the year beginning January 1, 2009. Additionally, all prior-period EPS data shall be adjusted retrospectively. The adoption of FSP 03-6-1 had no effect on the Company.

 In February, 2008, the FASB issued FSP No. FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions ("FSP 140-3").  FSP 140-3 requires that an initial transfer of a financial asset and a repurchase financing that was entered into contemporaneously with, or in contemplation of, the initial transfer be evaluated together as a linked transaction under SFAS 140, unless certain criteria are met. FSP 140-3 is effective for the Company's financial statements for the year and interim periods within the year beginning January 1, 2009. The adoption of FSP 140-3 had no effect on the Company.

34

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

 (2)  Securities

Securities have been classified according to management's intention.  The carrying amount of securities and their fair values are as follows (in thousands):

	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
At December 31, 2008:   Securities available for sale:
U.S. Government agency securities	$	16,247	128	-		16,375
Mortgage-backed securities		16,693	170	-		16,863
Total securities available for sale	$	32,940	298	-		33,238
Security held to maturity -
Mortgage-backed security	$	1	-	-		1
At December 31, 2007:   Securities available for sale:
U.S. Government agency securities		6,000	62	(1	)	6,061
Mortgage-backed securities		735	-	(7	)	728
Total securities available for sale	$	6,735	62	(8	)	6,789
Security held to maturity -
Mortgage-backed security	$	4	-	-		4

Available-for-sale securities at December 31, 2008, measured at fair value on a recurring basis, are summarized below (in thousands):

		Fair Value Measurements at December 31, 2008 Using
		Quoted Prices
	Fair	In Active	Significant
	Value	Markets for	Other	Significant
	As of	Identical	Observable	Unobservable
	December 31,	Assets	Inputs	Inputs
	2008	(Level 1)	(Level 2)	(Level 3)
Available-for-sale securities	$33,238	-	33,238	-

There were no sales of available-for-sale securities in 2007.  Securities available-for-sale sold during the year ended December 31, 2008 are summarized as follows       

(in thousands):

Principal received from sales	$	7,231
Gross gains	$	41

35

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(2) Securities, Continued

  The scheduled maturities of securities at December 31, 2008 are as follows (in thousands):

	Available for Sale			Held to Maturity
	Amortized Cost		Fair Value	Amortized Cost	Fair Value
Due in one year or less	$	995	1,000	-	-
Due from one to five years		1,000	1,002	-	-
Due from five to ten years		3,499	3,577	-	-
Due in more than ten years		10,753	10,796	-	-
Mortgage-backed securities		16,693	16,863	1	1
	$	32,940	33,238	1	1

At December 31, 2008 and 2007 securities with a carrying value of $24,135,000 and $6,724,000, respectively, were pledged for Federal Home Loan Bank advances, to the Federal Reserve Bank for Treasury Tax and Loan (TT&L) transactions, and the State of Florida as collateral for public funds.

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

(3)  Loans

 The components of loans are as follows (in thousands):

	At December 31,
	2008			2007
Commercial	$	63,768		59,878
Commercial real estate		94,675		82,951
Construction		9,793		11,186
Consumer		18,762		21,279
Residential real estate		324		48
Total loans		187,322		175,342
Deduct:
Deferred loan costs and fees, net		(588	)	(698	)
Allowance for loan losses		(2,552	)	(2,393	)
Loans, net	$	184,182		172,251

 

(continued)

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FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3)  Loans, Continued

An analysis of the change in the allowance for loan losses follows (in thousands):

	Year ended December 31,
	2008			2007
Beginning balance	$	2,393		1,801
Provision for loan losses		4,059		885
Charge-offs, net of recoveries		(3,900	)	(293	)
Ending balance	$	2,552		2,393

Information about impaired loans, all of which are collateral dependent, is as follows (in thousands):

	At December 31,
	2008		2007
Loans identified as impaired:
Gross loans with no related allowance for losses	$	17,977	1,410
Gross loans with related allowance for loan losses recorded		4,707	1,280
Less: Allowance on these loans		486	355
Net investment in impaired loans	$	22,198	2,335
	Year Ended December 31,
	2008		2007
Average investment in impaired loans	$	7,498	1,331
Interest income recognized on impaired loans	$	117	31
Interest income received on impaired loans	$	103	31

Impaired collateral-dependent loans are carried at the lower of cost or fair value.  At December 31, 2008, those impaired collateral-dependent loans which are measured at fair value or a non-recurring basis are as follows (in thousands):

						Losses Recorded in
	Fair				Total	Earnings
	Value(1)	Level 1	Level 2	Level 3	Losses	During 2008
Impaired Loans	$7,811	-	-	$7,811	$(2,970)	$(2,814)

(1) In addition, loans with a carrying value of $14.4 million were measured for impairment using Level 3 inputs and had a fair value in excess of carrying value.

(continued)

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FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(3)  Loans, Continued

Non-accrual loans and loans past due ninety days or more but still accruing were as follows (in thousands):

	At December 31,
	2008		2007
Non-accrual loans	$	10,105	1,401
Past due ninety days or more but still accruing		250	349
	$	10,355	1,750

(4)  Premises and Equipment

A summary of premises and equipment follows (in thousands):

	At December 31,
	2008			2007
Building and improvements	$	3,936		2,779
Land		552		552
Furniture, fixtures and equipment		2,058		1,651
Leasehold improvements		964		811
Construction in process		-		834
Total, at cost		7,510		6,627
Less accumulated depreciation and amortization		(1,629	)	(1,161	)
Premises and equipment, net	$	5,881		5,466

Interest capitalized and included in construction in process during 2008 and 2007 was approximately $21,000 and $7,000, respectively.

The Company leases its Stuart, Florida branch office facility under a non-cancelable lease. The initial lease term is five years with two five-year renewal options.  In November 2005, the Company signed a ten year lease with four five-year renewals, on a branch building in Vero Beach, Florida which opened in March, 2006.  In February of 2006, the Company signed a fifty year lease, with four ten-year renewal options on a ground lease for the Gatlin Boulevard, Port St. Lucie, Florida  branch site, which opened in May of 2008.  In April of 2006, the Company signed a seven year lease, with two five-year renewal options, on the Operations Center in Jensen Beach, Florida which opened in March of 2007. In May of 2007, the Company signed a 10 year lease with two five-year renewal options for a branch office in Palm City, Florida, which opened in January, 2008. The Company is required to pay an allowable share of common area maintenance, insurance and real estate taxes on these leases. Rent expense under the operating leases during the years ended December 31, 2008 and 2007 was approximately $593,000 and $488,000, respectively. In addition, the Company leases space in its Fort Pierce branch office facility to third parties. The leases have initial terms of five years and lease income was approximately $125,000 and $87,000 in 2008 and 2007, respectively.

(continued)

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FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(4)  Premises and Equipment, Continued

At December 31, 2008, future minimum rental commitments, including certain renewal options, under these non-cancelable leases were approximately as follows (in thousands):

Year Ending December 31,	Operating Lease Expense		Operating Lease Income
2009	$	498	73
2010		509	-
2011		521	-
2012		539	-
2013		548	-
Thereafter		15,768	-
Total	$	18,383	73

(5)  Deposits

The aggregate amount of time deposits with a minimum denomination of $100,000 was approximately $55,596,000 and $68,534,000 at December 31, 2008 and 2007, respectively.

                        A schedule of maturities of time deposits at December 31, 2008 follows (in thousands):

Year EndingDecember 31,	Amount
2009	$	107,016
2010		22,393
2011		5,031
2012		5,682
2013		1,611
	$	141,733

(6)  Federal Home Loan Bank Advances

Maturity and interest rate of the advances from the Federal Home Loan Bank of Atlanta ("FHLB") consisted of the following ($ in thousands):

Maturity	Fixed or
Year Ending	Variable			At December 31,
December 31,	Rate	Interest Rate		2008		2007
2009	Fixed	1.32	%	$	3,000	-
2010	Fixed	1.81	%		3,000	-
2011	Fixed	2.31	%		1,000	-
2012	Fixed	3.05	%		2,500	-
2013	Fixed	3.20	%		1,500	-
Thereafter	Fixed (1)	.50	%		100	100
				$	11,100	100

 (1) Low interest rate due to being related to FHLB low-housing project lending.

The advances are collateralized by securities available for sale with a carrying value of approximately $13,193,000 and $250,000 at December 31, 2008 and 2007, respectively.

39

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(7)  Financial Instruments

The estimated fair values of the Company's financial instruments were as follows (in thousands):

	At December 31, 2008			At December 31, 2007
	Carrying Amount		Fair Value	Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	5,457	5,457		6,795	6,795
Securities available for sale		33,238	33,238		6,789	6,789
Securities held to maturity		1	1		4	4
Loans, net		184,182	189,649		172,251	173,071
Federal Home Loan Bank stock		853	853		280	280
Accrued interest receivable		1,355	1,355		983	983
Financial liabilities:
Deposit liabilities		200,683	202,475		172,677	173,078
Federal Home Loan Bank advances		11,100	11,377		100	100
Off-balance-sheet financial instruments		-	-		-	-

(continued)

40

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(7) Financial Instruments, Continued

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 are commitments to extend credit, available lines of credit and standby letters of credit and may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated balance sheet. The contract amounts of these instruments reflect the extent of involvement the Company has in these financial instruments.

The Company's exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed-expiration dates or other termination clauses and may require payment of a fee.  Because 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 Company, upon extension of credit, is based on management's credit evaluation of the counterparty.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that included in extending loans to customers. The Company generally holds collateral supporting these commitments and management does not anticipate any potential losses if these letters of credit are funded.

Standby letters of credit, available lines of credit and commitments to extend credit typically result in loans with a market interest rate when funded.  A summary of Company's financial instruments with off balance sheet risk at December 31, 2008 follows (in thousands):

Standby letters of credit	$	148
Commitments to extend credit	$	700
Available lines of credit	$	16,182

41

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(8)  Credit Risk

The Company grants the majority of its loans to borrowers throughout the Port St. Lucie, Stuart, Palm City, Fort Pierce and Vero Beach, Florida area. Although the Company has a diversified loan portfolio, a significant portion of its borrowers' ability to honor their contracts is dependent upon the economy in St. Lucie County, Martin County and Indian River County, Florida. The Company does not have significant concentrations to any one industry or customer. The Company did have eighteen loans aggregating $14.1 million and $16.9 million at December 31, 2008 and 2007 respectively, with original maturities of five years or less, respectively, where the primary source of repayment is the sale of the related collateral or the conversion of the existing debt into debt at another financial institution. The majority of these loans are located in Martin, St. Lucie and Indian Counties, Florida.

With the uncertain real estate market in Martin, St. Lucie and Indian River Counties, Florida, in the short-term, obtaining refinancing or sale of the collateral, with terms acceptable to the borrower may be difficult or impossible. While some of these loans have been extended, it is possible others will be extended and/or modified or the loans which have been extended may be extended again. Management is closely monitoring these loans and believes the loan loss allowance at December 31, 2008 is adequate.

(9)  Benefit Agreements

The Company has Deferred Compensation Agreements (the "Agreements") with certain officers and directors which require the Company to provide salary continuation benefits to them upon retirement.  The Agreements require the Company to pay annual benefits for five to fifteen years following their normal retirement ages. The Company has purchased life insurance policies on these officers and directors which although not formerly linked, have estimated future cash values that exceed the estimated future benefits that will be due under these Agreements. The Company recognized income on the life insurance policies, net of benefit expense accrued on the Agreements, of $84,000 in 2008 and $86,000 in 2007.

During 2007, the FASB issued EITF No. 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsed Split-Dollar Life Insurance Arrangements” (“EITF 06-4”), which requires an employer to recognize a liability for postretirement death benefits provided under endorsement split-dollar agreements. An endorsement split-dollar agreement is an arrangement whereby an employer owns a life insurance policy that covers the life of an employee and, pursuant to a separate agreement, endorses a portion of the policy’s death benefits to the insured employee’s beneficiary. EITF 06-4 was effective on January 1, 2008. The Company has entered into Supplemental Death Benefit Agreements with certain of its directors and executive officers pursuant to which the Company has agreed to pay a portion of the death benefit payable under certain life insurance policies owned by the Company to the directors’ or executives’ beneficiaries upon their death. As a result of the adoption of EITF 06-4, the Company recognized a cumulative effect adjustment (increase) to accumulated deficit of ($42,000) representing additional liability of $67,000 required to be provided under EITF 06-4 on January 1, 2008 relating to the agreements, net of deferred income taxes of $25,000.

42

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(10) Income Taxes (Benefit)

    Income taxes (benefit) consisted of the following (in thousands):

	Year Ended December 31,
	2008			2007
Current:
Federal	$	(727	)	332
State		-		56
Total current		(727	)	388
Deferred:
Federal		(829	)	(265	)
State		(264	)	(46	)
Total deferred		(1,093	)	(311	)
Income taxes (benefit)	$	(1,820	)	77

The reasons for the differences between the statutory Federal income tax rate and the effective tax rate are summarized as follows (dollars in thousands): 

	Year Ended December 31,
	2008					2007
	Amount			% of Pretax Loss		Amount			% of Pretax Earnings
Income taxes (benefit) at statutory rate	$	(1,631	)	(34	)%	$	86		34	%
Increase (decrease) resulting from:
State taxes, net of Federal tax benefit		(175	)	(3	)		7		3
Income from bank-owned life insurance		(43	)	(1	)		(40	)	(16	)
Nondeductible expenses		12		-			13		5
Share-based compensation		17		-			11		4
Income taxes (benefit)	$	(1,820	)	(38	)%	$	77		30	%

(continued)

43

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(10) Income Taxes (Benefit), Continued

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands).

	At December 31,
	2008		2007
Deferred tax assets:
Allowance for loan losses	$	519	830
Net operating loss carryforward		1,166	-
Deferred compensation        Impaired loan interest		127 68	64 8
Other		110	11
Deferred tax assets		1,990	913
Deferred tax liabilities:
Accrual to cash adjustment		(30	(60	)
Accumulated depreciation		(81	(87	)
Deferred loan costs		(113	(118	)
Unrealized gain on securities available for sale		(112	(20	)
Deferred tax liabilities		(336	(285	)
Net deferred tax asset	$	1,654	628

At December 31, 2008, the Company had net operating loss carryforwards of approximately $2.9 million for Federal and $5.0 million for Florida available to offset future taxable income. The carryforwards will expire in 2028.

(11)  Related Party Transactions

In the ordinary course of business, the Company may make loans at terms and rates prevailing at the time to officers and directors of the Company or their affiliates. The Company also accepts deposits from these same related parties.  These are summarized as follows (in thousands):

	2008			2007
Loans:
Balance at beginning of year	$	4,346		2,824
Borrowings		708		1,892
Repayments		(1,176	)	(370
Balance at end of year	$	3,878		4,346
Deposits	$	3,954		2,867

44

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(12)  Stock Options and Warrants

The Company established a Stock Option Plan in 1998 (“1998 Plan”) for directors, officers and employees of the Company. The 1998 Plan as amended provides for 131,553 shares (adjusted) of common stock to be available for grant.  The exercise price of the stock options is the fair market value of the common stock on the date of grant.  The options expire ten years from the date of grant. At December 31, 2008, no shares remain available for grant, as the Plan Agreement terminated on December 8, 2008. All per share amounts reflect the 5% stock dividend paid on June 15, 2007. A summary of stock option information follows ($ in thousands, except per share amounts):

	Number of Options			Weighted - Average Exercise Price			Weighted - Average Remaining Contractual Term	Aggregate Intrinsic  Value
Outstanding at December 31, 2006		94,932		$	10.19
Options exercised		(56,929	)		(9.12	)
Options forfeited		(1,050	)		(15.42	)
Outstanding at December 31, 2007		36,953			11.68
Options granted		579			8.50
Options forfeited		(771	)		(9.52	)
Outstanding at December 31, 2008		36,761		$	11.68		2.41 years	$	-
Exercisable at  December 31, 2008		36,182		$	11.73		2.30 years	$	-

(continued)

45

 FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(12)  Stock Options and Warrants, Continued

In 2005, the Company established a new option plan (“2005 Plan”) for directors, officers and employees of the Company.  The 2005 Plan provides for 158,743 shares (adjusted) of common stock to be available for grant.  The exercise price of the stock options is the fair market value of the common stock on the date of grant. The 2005 Plan allows for various vesting periods and the options expire ten years from the date of grant. At December 31, 2008, 35,694 shares (adjusted) remain available for grant.  All per share amounts reflect the 5% stock dividend paid on June 15, 2007. A summary of stock option information follows:

	Number of Options			Weighted - Average Exercise Price			Weighted - Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding at December 31, 2006		87,573		$	15.42
Options forfeited		(2,756	)		(15.42	)
Options granted		16,966			16.67
Options outstanding at December 31, 2007		101,783			15.63
Options forfeited		(6,442	)		(14.47	)
Options granted		27,708			9.34
Options outstanding at December 31, 2008		123,049		$	14.27		7.74 years	$	-
Options exercisable at December 31, 2008		85,030		$	15.49		7.30 years	$	-

The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Years Ended December 31,
	2008			2007
Dividend yield		-	%		-	%
Expected life		6 - 6.5 years			6 years
Expected volatility		23.44% - 28.74	%		18.62	%
Risk-free interest rate		4.07% - 4.98	%		3.88	%
Weighted-average grant-date fair value of options issued during the year	$	2.27 - $3.40		$	4.96

(continued)

46

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(12)  Stock Options and Warrants, Continued

The Company has examined its historical pattern of option exercises by its directors and employees in an effort to determine if there was any pattern based on these populations.  From this analysis, the Company could not identify any patterns in the exercise of options.  As such, the Company used the guidance in Staff Accounting Bulletin No. 107 issued by the Securities and Exchange Commission to determine the estimated life of options.  Expected volatility is based on historical volatility of the Company's common stock.  The risk-free rate for periods within the contractual life of the option is based on the U.S. treasury yield curve in effect at the time of grant.  The dividend yield assumptions are based on the Company’s history and expectation of dividend payments.

The total intrinsic value of options exercised in 2007 was $186,000 and the related tax benefit recognized was $60,000. The total fair value of shares vested and recognized as compensation expense was $54,000 and $32,000 for 2008 and 2007 respectively, and the related tax benefit recognized was $2,000 in 2008 and none in 2007. As of December 31, 2008, the Company had 38,598 (adjusted) stock options not fully vested and there was $89,000 of total unrecognized compensation cost related to these non-vested options. This cost is expected to be recognized monthly over a weighted-average period of 1.5 years on a straight-line basis.

Also in January 2004, 22,050 (adjusted) stock options were granted to a third party as compensation for services provided to the Company.  The options, which expire at the end of ten years, were issued at $11.00 per share and are fully vested.  As of December 31, 2008, none of these options had been exercised.

In addition, as discussed in more detail in Note 14, the Company sold on December 5, 2008 to the U.S. Treasury a ten year warrant to purchase at any time up to 183,158 shares of the Company’s common stock for $4.75 per share.

(13)  Profit Sharing Plan

The Company sponsors a section 401(k) profit sharing plan (the "Plan") which is available to all employees electing to participate.  During 2008 and 2007, the Company approved a 1% and 2% match, respectively, to the Plan in an approximate amount of $24,000 and $43,000 respectively.

(14)  Stockholders’ Equity

On December 5, 2008, the Company issued and sold to the United States Department of the Treasury (the “Treasury”) 5,800 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Preferred Shares”), along with a ten year warrant (the “Warrant”) to purchase at any time up to 183,158 shares of the Company’s common stock for $4.75 per share, for a total cash investment of $5.8 million from the Treasury (the “Transaction”). The Transaction was completed pursuant to, and is governed by, the U.S. Treasury’s Capital Purchase Program (the “CPP”), which is designed to attract broad participation by healthy institutions, to stabilize the financial system, and to increase lending for the benefit of the U.S. economy.

(continued)

47

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(14)  Stockholders’ Equity, Continued

The Transaction proceeds of $5.8 million were allocated between the Preferred Shares and Warrant based on the ratio of the estimated fair value of the Warrant to the aggregate estimated fair value of both the Preferred Shares and the Warrant. The value of the Warrant was computed to be $394,000 using the Black Scholes model with the following inputs: expected stock volatility of 61.89%, risk-free interest rate of 4.11%, expected life of 5 years and no dividend yield. The value of the Preferred Shares was computed to be $3.9 million based on the net present value of the expected cash flows over five years using a discount rate of 14%, which represents what the Company believes to be its incremental borrowing rate for a similar transaction in the private sector. The allocation of proceeds to the Warrant was recorded as a “preferred stock discount” against the Preferred Shares, with a corresponding and equal entry to additional paid in common equity in the amount of $526,000. This discount is being amortized over five years on a straight-line basis and increases the loss available to common shareholders.

The Preferred Shares carry a 5% per year cumulative preferred dividend rate, payable quarterly. The dividend rate increases to 9% after five years. Dividends compound if they accrue and are not paid. The Preferred Shares have a liquidation preference of $1,000 per share, plus accrued unpaid dividends. During the first three years after the Transaction, the Company may not redeem the Preferred Shares except in conjunction with a qualified equity offering meeting certain requirements. After three years, the Company may redeem the Preferred Shares, plus accrued unpaid dividends, in whole or in part, subject to the approval of the Company’s primary federal banking regulator.

While the Preferred Shares are outstanding, certain restrictions apply to the Company, including, among others, those that are discussed below.

The Preferred Shares have a senior rank and the Company cannot issue other preferred stock senior to the Preferred Shares. Until the third anniversary of the sale of the Preferred Shares, unless the Preferred Shares have been redeemed in whole or the Treasury has transferred all of the shares to a non-affiliated third party, the Company may not increase its common stock cash dividend or repurchase common stock or other equity shares (subject to certain limited exceptions) without the Treasury’s approval. If the Company were to pay a cash dividend in the future, any such dividend would have to be discontinued if a Preferred Share dividend were missed. Thereafter, dividends on common stock could be resumed only if all Preferred Share dividends in arrears were paid. Similar restrictions apply to the Company’s ability to repurchase common stock if Preferred Share dividends are missed. Failure to pay the Preferred Share dividend is not an event of default. However, a failure to pay a total of six   Preferred Share dividends, whether or not consecutive, gives the holders of the Preferred Shares the right to elect two directors to the Company’s board of directors.  That right would continue until the Company pays all dividends in arrears.

(continued)

48

FPB BANCORP, INC. AND SUBSIDIARY

 Notes to Consolidated Financial Statements, Continued

(14)  Stockholders’ Equity, Continued

Senior Executive Officers of the Company and its subsidiary agreed to limit certain compensation, bonus, incentive and other benefit plans, arrangements, and policies with respect to the Senior Executive Officers during the period that the Treasury owns any debt or equity securities acquired in connection with the Transaction. The Preferred Shares generally are non-voting, other than in connection with proposals to issue preferred stock senior to the Preferred Shares, certain merger transactions, amendments to the rights of the holder of the Preferred Shares, and other than in connection with the board representation rights mentioned above, as required by Delaware State law. The Warrant is exercisable immediately and expires in ten years. The Warrant has anti-dilution protections and certain other protections for the holder, as well as potential registration rights upon written request from the Treasury. If requested by the Treasury, the Warrant (and the underlying common stock) may need to be listed on a national securities exchange. The Treasury has agreed not to exercise voting rights with respect to common shares it may acquire upon exercise of the Warrant. The number of common shares covered by the Warrant may be reduced by up to one-half if the Company completes an equity offering meeting certain requirements by December 31, 2009. If the Preferred Shares are redeemed in whole, the Company has the right to purchase any common shares held by the Treasury at their fair market value at that time.

(15)  Restrictions on Dividends

The Company’s ability to pay cash dividends on its common stock is limited to the amount of dividends it could receive from the Bank plus its own cash and cash equivalents, which amounted to $4.4 million at December 31, 2008. It is also restricted as discussed in Note 14. The amount of dividends the Bank is permitted to pay to the Company is restricted to 100% of its calendar year-to-date net earnings plus retained earnings for the preceding two years.  In addition, no bank may pay a dividend at any time that net earnings in the current year when combined with retained earnings from the preceding two years produce a loss. Under Florida law, a Florida chartered commercial bank may not pay cash dividends that would cause the Bank’s capital to fall below the minimum amount required by Federal or Florida law.

(16) Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the regulatory 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 Bank's and the Company's consolidated financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

(continued)

49

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(16) Regulatory Matters, Continued

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and percentages (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).  Management believes, as of December 31, 2008, the Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2008, the most recent notification from the regulatory authorities categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage percentages as set forth in the following tables. There are no conditions or events since that notification that management believes have changed the Bank's category.  The Bank's actual capital amounts and percentages are also presented in the table ($ in thousands).

	Actual				Minimum for Capital Adequacy Purposes				Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		%		Amount		%		Amount		%
As of December 31, 2008:
Total Capital to Risk - Weighted Assets	$	21,280	10.88	%	$	15,647	8.00	%	$	19,559	10.00	%
Tier 1 Capital to Risk - Weighted Assets		18,834	9.63			7,824	4.00			11,736	6.00
Tier 1 Capital To Total Assets		18,834	8.27			9,111	4.00			11,389	5.00
As of December 31, 2007:
Total Capital to Risk - Weighted Assets	$	20,202	11.09		$	14,579	8.00		$	18,224	10.00
Tier 1 Capital to Risk - Weighted Assets		17,923	9.83			7,290	4.00			10,934	6.00
Tier 1 Capital To Total Assets		17,923	9.09			7,884	4.00			9,855	5.00

50

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(17) Holding Company Financial Information

The Holding Company's unconsolidated financial information is as follows (in thousands):

Condensed Balance Sheets

	At December 31,
	2008		2007
Assets
Cash and cash equivalents	$	4,402	3,687
Investment in subsidiary		20,248	17,957
Other assets		342	287
Total assets	$	24,992	21,931
Liabilities
Total liabilities	$	96	-
Stockholders’ Equity
Stockholders’ Equity		24,896	21,931
Total Liabilities and Stockholders’ Equity	$	24,992	21,931

Condensed Statements of Operations

	Year Ended  December 31,
	2008			2007
Revenues	$	-		-
Expenses		(159	)	(96	)
Loss before (loss) earnings of subsidiary		(159	)	(96	)
(Loss) earnings of subsidiary		(2,819	)	273
Net (loss) earnings	$	(2,978	)	177

(continued)

51

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements, Continued

(17) Holding Company Financial Information, Continued

Condensed Statements of Cash Flows

	Year Ended
	December 31,
	2008			2007
Cash flows from operating activities:
Net (loss) earnings available to common shareholders	$	(3,004	)	177
Adjustments to reconcile net (loss) earnings to net cash used in operating activities:            Preferred stock dividend requirements and amortization of preferred stock discount		26		-
Share-based compensation		54		32
Undistributed (losses) earnings of subsidiary		2,819		(273	)
Increase in other assets		(55	)	(108	)
Increase in other liabilities		75		-
Net cash used in operating activities		(85	)	(172	)
Cash flows from investing activity -
Investment in subsidiary		(5,000	)	(5,000	)
Cash flows from financing activities:
Proceeds from the issuance of 5,800 shares of Series A preferred stock to the US Treasury		5,800		-
Proceeds from the exercise of common stock options		-		520
Tax benefit associated with exercise of common stock options		-		60
Fractional shares of stock dividends, paid in cash		-		(6	)
Net cash provided by financing activities		5,800		574
Net increase (decrease) in cash and cash equivalents		715		(4,598	)
Cash and cash equivalents at beginning of year		3,687		8,285
Cash and cash equivalents at end of year	$	4,402		3,687
Non-cash transactions:
Accumulated other comprehensive income of subsidiary,       net change in unrealized gain (loss) on securities available for sale, net of tax	$	152		85
Accrual of preferred stock dividend	$	21		-
Cumulative effect adjustment related to deferred compensation plans, net of tax benefit of $25	$	42		-
Common stock dividend	$	-		1,473

52

Report of Independent Registered Public Accounting Firm

FPB Bancorp, Inc.

Port St. Lucie, Florida:

We have audited the accompanying consolidated balance sheets of FPB Bancorp, Inc. and Subsidiary (the "Company") as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

HACKER, JOHNSON & SMITH PA

Fort Lauderdale, Florida

March 3, 2009

53

BOARD OF DIRECTORS

Gary A. Berger, Chairman

Donald J. Cuozzo

Ann L. Decker, Secretary

Timothy K. Grimes

John S. Leighton, III

Paul J. Miret

Robert L. Schweiger

Robert L. Seeley

David W. Skiles, President & Chief Executive Officer

Paul A. Zinter, Vice Chairman

NON-DIRECTOR EXECUTIVE OFFICERS

Marge Riley, Executive Vice President and Chief Operating Officer

Nancy E. Aumack, Senior Vice President and Chief Financial Officer

54

FIRST PEOPLES BANK

BOARD OF DIRECTORS

Gary A. Berger, Chairman

Donald J. Cuozzo

Ann L. Decker, Secretary

Timothy K. Grimes

John S. Leighton, III

Paul J. Miret

Robert L. Schweiger

Robert L. Seeley

David W. Skiles, President & Chief Executive Officer

Paul A. Zinter, Vice Chairman

OFFICERS

Marge Riley, Executive Vice President and Chief Operating Officer

Nancy E. Aumack, Senior Vice President and Chief Financial Officer

William V. West, Senior Vice President and Senior Lender

Stephen J. Krumfolz, Senior Vice President, SBA Commercial Lender

Philip Lee Brown, Senior Vice President and Area Executive – St. Lucie County

Melissa M. Favorite, Senior Vice President, BSA/Compliance Officer

Randy J. Riley, Senior Vice President and Area Executive – Indian River County

Craig C.  Dietz, Senior Vice President, Credit Administration

David P. Hoffman, Vice President, Senior Consumer Lender

Brenda K. Parmelee, Vice President, Branch Manager (Fort Pierce)

Amy M. Sowerby, Vice President, Deposit Operations

Jill E. Knapp, Vice President, Commercial Lender

Jillian A. Lopez, Assistant Vice President, Human Resource Officer

Christina M. Saltos, Assistant Vice President, Branch Manager (Port St. Lucie)

Sarah C. Baker, Assistant Vice President, Branch Manager (Stuart)

Peter G. Ferlatte, Assistant Vice President, Network Administration Officer

Rebekah A. Witt, Assistant Vice President, Loan Operations

Kim Prado, Assistant Vice President, Branch Manager (Vero Beach)

55

FIRST PEOPLES BANK

COMMUNITY LIAISON BOARDS

Fort Pierce

Barbara S. Allen, Associated Coastal Ear/Nose/Throat

Judy Culpepper, Retired

Dr. Kenneth Langley, St. Lucie Eye Associates

Stefan K. Matthes, Sr., Culpepper & Terpening, Inc.

Erik Melville, Raymond James

Michelle R. Miller-Morris, Miller Insurance Agency

John A. Schwerer, DMD

Babu Thomas, IRCC Regional Crime Lab

Port St. Lucie

Meredith C. Breault, Management Recruiters

Shirley Cherveny, Palm Realty

Gardner S. Foote, Retired

Al Soricelli, AXA Advisors

Jack Wilson, Florida Tire Recycling

Ernesto Velasco, Velcon Group

Greg Wyatt, Port St. Lucie Broadcasters

Stuart

Linda B. Braswell, Braswell Bail Bonds and Braswell Surety Services

Mark E. Brechbill, Mark Brechbill CPA

Lee Carroll, Deakins Carroll Insurance

Vicki Davis, Supervisor of Elections for Martin County, FL

Philip T. Faherty, Stuart Business Systems

Howard Shields, Organizing Board Chairman & Director Emeritus

Gene R. Zweben, Schwartz Zweben, LLC - Attorney

Vero Beach

Joe Coakley, Market Rite, Inc.

Lynn Hall, Northwestern Mutual

Steve Henderson, Collins, Brown & Caldwell (of counsel)

James Kretsch, James Kretsch & Associates, LLC - Attorney

Catherine McKenzie, BellSouth

John Michael Matthews, John Michael Matthews Fine Jewelry

Mahendra Patel, Patel & Associates

56

GENERAL INFORMATION

Annual Meeting	The Annual Meeting of the Stockholders will be held at The Hilton Garden Inn – PGA Village, 8540 NW Commerce Centre Drive, Port St. Lucie, Florida 34986 at 5:30 P.M., Wednesday, April 29th, 2009.  A social hour will begin at 4:30 p.m.
Transfer Agent and	Registrar and Transfer Co.
Registrar	10 Commerce Drive
	Cranford, NJ  07016
	(800) 368-5948
Corporate Counsel	Igler & Dougherty, P.A.
	2457 Care Drive
	Tallahassee,  Florida  32308
Independent	Hacker, Johnson & Smith PA
Auditors	Independent Registered Public Accountants
	500 West Cypress Creek Road, Suite 450
	Fort Lauderdale, Florida  33309
Form 10-K	A copy of the Form 10-K as filed with the Securities and Exchange Commission may be obtained by stockholders without charge upon written request to Nancy E. Aumack, Senior Vice President and Chief Financial Officer, 1792 NE Jensen Beach Blvd., Jensen Beach, Florida  34957.

COMMON STOCK PRICES AND DIVIDENDS

The common stock of FPB Bancorp, Inc. is listed on the Nasdaq Capital Market, under the symbol "FPBI".  The Company did not declare a dividend for the year ended December 31, 2008.  Future dividends, if any, will be determined by the Board of Directors.  As of December 31, 2008, FPB Bancorp, Inc. had approximately 1,400 holders of record of common stock.

57