FPB Bancorp (FPBI) 10QSB 2006 Q2 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2006

¨ Transition report under Section 13 or 15(d) of the Exchange Act

For the transition period from            to            

Commission File Number 000-33351

FPB BANCORP, INC.

(Exact Name of Small Business Issuer as Specified in Its Charter)

Florida	65-1147861
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1301 SE Port St. Lucie Boulevard

Port St. Lucie, Florida 34952

(Address of Principal Executive Offices)

(772) 398-1388

(Issuer’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    YES  x    NO  ¨

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).    YES  ¨    NO  x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

Common stock, par value $.01 per share	1,906,203 shares
(class)	Outstanding at July 21, 2006

Transitional Small Business Format (check one):    YES  ¨    NO  x

FPB BANCORP, INC. AND SUBSIDIARY

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 2006 (unaudited) and December 31, 2005	2
Condensed Consolidated Statements of Earnings - Three and Six Months ended June 30, 2006 and 2005 (unaudited)	3
Condensed Consolidated Statements of Stockholders’ Equity - Six Months ended June 30, 2006 and 2005 (unaudited)	4
Condensed Consolidated Statements of Cash Flows - Six Months ended June 30, 2006 and 2005 (unaudited)	5
Notes to Condensed Consolidated Financial Statements (unaudited)	6-10
Review By Independent Registered Public Accounting Firm	11
Report of Independent Registered Public Accounting Firm	12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-18
Item 3. Controls and Procedures	19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	19
Item 4. Submission of Matters to a Vote of Security Holders	19
Item 6. Exhibits	20
SIGNATURES	21

1

FPB BANCORP, INC. AND SUBSIDIARY

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)

	June 30, 2006			December 31, 2005
	(unaudited)
Assets
Cash and due from banks	$	3,121		2,869
Federal funds sold		18,028		9,268
Interest-bearing deposits with banks		206		229
Total cash and cash equivalents		21,355		12,366
Securities available for sale		8,008		9,229
Securities held to maturity (market value of $2,962 and $2,950)		3,011		3,015
Loans, net of allowance for loan losses of $1,565 and $1,383		109,558		95,666
Premises and equipment, net		3,856		3,699
Federal Home Loan Bank stock, at cost		371		306
Accrued interest receivable		620		558
Bank-owned life insurance		2,249		1,950
Other assets		931		520
Total assets	$	149,959		127,309
Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing demand deposits		23,751		20,374
Savings, NOW and money-market deposits		38,834		38,071
Time deposits		62,129		44,364
Total deposits		124,714		102,809
Official checks		1,408		938
Federal Home Loan Bank advances		2,600		2,600
Other liabilities		566		621
Total liabilities		129,288		106,968
Stockholders’ equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized, no shares issued or outstanding		—		—
Common stock, $.01 par value; 5,000,000 shares authorized, 1,906,203 and 1,810,588 shares issued and outstanding		19		18
Additional paid-in capital		21,725		20,136
(Accumulated deficit) retained earnings		(967	)	262
Accumulated other comprehensive loss		(106	)	(75	)
Total stockholders’ equity		20,671		20,341
Total liabilities and stockholders’ equity	$	149,959		127,309

See Accompanying Notes to Condensed Consolidated Financial Statements.

2

FPB BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Earnings (Unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended June 30,			Six Months Ended June 30,
	2006		2005	2006	2005
Interest income:
Loans	$	2,270	1,522	4,355	2,867
Securities		109	71	219	150
Other		167	88	280	136
Total interest income		2,546	1,681	4,854	3,153
Interest expense:
Deposits		901	401	1,634	761
Federal Home Loan Bank advances		35	23	64	36
Total interest expense		936	424	1,698	797
Net interest income		1,610	1,257	3,156	2,356
Provision for loan losses		70	92	177	162
Net interest income after provision for loan losses		1,540	1,165	2,979	2,194
Noninterest income:
Service charges and fees on deposit accounts		106	72	214	134
Loan brokerage fees		60	137	106	145
Income from bank-owned life insurance		27	—	49	—
Gain on sale of loans held for sale		—	124	—	265
Other fees		13	6	15	8
Total noninterest income		206	339	384	552
Noninterest expenses:
Salaries and employee benefits		783	538	1,496	1,017
Occupancy and equipment		215	142	395	287
Advertising		133	97	242	182
Professional fees		46	38	111	69
Data processing		105	75	194	143
Supplies		54	30	98	58
Other		190	175	372	354
Total noninterest expenses		1,526	1,095	2,908	2,110
Earnings before income taxes		220	409	455	636
Income taxes		78	156	157	243
Net earnings	$	142	253	298	393
Net earnings per share:
Basic	$	.07	.18	.16	.35
Diluted	$	.07	.17	.15	.35
Dividends per share	$	—	—	—	—

See Accompanying Notes to Condensed Consolidated Financial Statements.

3

FPB BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity

Six Months Ended June 30, 2006 and 2005

(Dollars in thousands)

	Common Stock			Additional Paid-In Capital	Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2004	819,120	$	8	7,927	(503	)	(12	)	7,420
Proceeds from sale of common stock (net of offering costs of $563) (unaudited)	960,000		10	11,907	—		—		11,917
Comprehensive income:
Net earnings for the six months ended June 30, 2005 (unaudited)	—		—	—	393		—		393
Net change in unrealized loss on securities available for sale, net of tax of $9 (unaudited)	—		—	—	—		(16	)	(16	)
Comprehensive income (unaudited)									377
Proceeds from exercise of common stock options (unaudited)	9,818		—	99	—		—		99
Tax benefit from common stock options exercised (unaudited)	—		—	11	—		—		11
Balance at June 30, 2005 (unaudited)	1,788,938	$	18	19,944	(110	)	(28	)	19,824
Balance at December 31, 2005	1,810,588	$	18	20,136	262		(75	)	20,341
Comprehensive income:
Net earnings for the six months ended June 30, 2006 (unaudited)	—		—	—	298		—		298
Net change in unrealized loss on securities available for sale, net of tax of $19 (unaudited)	—		—	—	—		(31	)	(31	)
Comprehensive income (unaudited)									267
5% stock dividend, fractional shares paid in cash of $2 (unaudited)	90,602		1	1,524	(1,527	)	—		(2	)
Shared-based compensation (unaudited)	—		—	4	—		—		4
Proceeds from exercise of common stock options (unaudited)	5,013		—	50	—		—		50
Tax benefit from common stock options exercised (unaudited)	—		—	11	—		—		11
Balance at June 30, 2006 (unaudited)	1,906,203	$	19	21,725	(967	)	(106	)	20,671

See Accompanying Notes to Condensed Consolidated Financial Statements.

4

FPB BANCORP, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Six Months Ended June 30,
	2006			2005
Cash flows from operating activities:
Net earnings	$	298		393
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		135		135
Provision for loan losses		177		162
Amortization of loan costs (fees), net		47		(21	)
Net amortization of premiums and discounts on securities		5		(20	)
Gain on sale of loans held for sale		—		(265	)
Proceeds from sale of loans held for sale		—		4,630
Originations of loans held for sale		—		(4,365	)
Increase in accrued interest receivable		(62	)	(130	)
(Increase) decrease in other assets		(392	)	46
Increase (decrease) in official checks and other liabilities		415		(245	)
Income from bank-owned life insurance		(49	)	—
Share-based compensation		4		—
Net cash provided by operating activities		578		320
Cash flows from investing activities:
Maturities of securities available for sale		1,000		3,500
Purchase of securities available for sale		—		(3,000	)
Principal payments on securities available for sale		165		262
Principal payments on securities held to maturity		5		13
Net increase in loans		(14,116	)	(18,793	)
Purchase of premises and equipment		(292	)	(196	)
Purchase of bank-owned life insurance		(250	)	—
Purchase of Federal Home Loan Bank stock		(65	)	(53	)
Net cash used in investing activities		(13,553	)	(18,267	)
Cash flows from financing activities:
Net increase in deposits		21,905		10,045
Proceeds from the exercise of common stock options		50		99
Net proceeds from the issuance of common stock		—		11,917
Tax benefit associated with exercise of common stock options		11		—
Proceeds from Federal Home Loan Bank advance		—		100
Fractional shares of stock dividend paid in cash		(2	)	—
Net cash provided by financing activities		21,964		22,161
Net increase in cash and cash equivalents		8,989		4,214
Cash and cash equivalents at beginning of period		12,366		9,759
Cash and cash equivalents at end of period	$	21,355		13,973
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	1,696		775
Income taxes	$	229		—
Noncash transactions:
Accumulated other comprehensive loss, net change in unrealized loss on securities available for sale, net of tax	$	(31	)	(16	)
Common stock dividend	$	1,525		—

See Accompanying Notes to Condensed Consolidated Financial Statements.

5

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited)

(1) General. FPB Bancorp, Inc. (the “Holding Company”) is a one-bank holding company and owns 100% of the outstanding common stock of First Peoples Bank (the “Bank”), a Florida-chartered commercial bank (collectively, the “Company”). The Holding Company’s only business activity is the operation of the Bank. The Bank’s deposits are insured, up to the limit of the law, by the Federal Deposit Insurance Corporation. The Bank offers a variety of community banking services to individual and corporate customers through its four banking offices located in Port St. Lucie, Fort Pierce, Stuart and Vero Beach, Florida.

In the opinion of management, the accompanying condensed consolidated financial statements of the Company contain all adjustments (consisting principally of normal recurring accruals) necessary to present fairly the financial position at June 30, 2006, and the results of operations for the three- and six-month periods ended June 30, 2006 and 2005, and cash flows for the six month periods ended June 30, 2006 and 2005. The results of operations for the three and six months ended June 30, 2006 are not necessarily indicative of the results to be expected for the full year.

(2) Loan Impairment and Credit Losses. The activity in the allowance for loan losses was as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2006		2005		2006	2005
Balance at beginning of period	$	1,487	1,168		1,383	1,097
Provision for loan losses		70	92		177	162
Recoveries (charge-offs), net		8	(5	)	5	(4	)
Balance at end of period	$	1,565	1,255		1,565	1,255

There were no impaired loans identified for the three months or six months ended June 30, 2006 or the three months ended June 30, 2005. The average net investment in impaired loans and interest income recognized and received on impaired loans for the six months ended June 30, 2005 was as follows (in thousands):

Average net investment in impaired loans	$	188
Interest income recognized on impaired loans	$	49
Interest income received on impaired loans	$	49

The Bank had no loans held for sale at June 30, 2006 or December 31, 2005.

(continued)

6

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(2) Loan Impairment and Credit Losses, Continued. Nonaccrual and past due loans were as follows (in thousands):

	At June 30, 2006		At December 31, 2005
Nonaccrual loans	$	277	—
Past due ninety days or more, but still accruing		—	—
	$	277	—

(3) Regulatory Capital.The Bank is required to maintain certain minimum regulatory capital requirements. The following is a summary at June 30, 2006 of the regulatory capital requirements and the Bank’s capital on a percentage basis:

	Percentage of the Bank		Regulatory Requirement
Tier I capital to total average assets	8.57	%	4.00	%
Tier I capital to risk-weighted assets	11.03	%	4.00	%
Total capital to risk-weighted assets	12.28	%	8.00	%

(4) Earnings Per Share. Basic earnings per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the period. 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. All per share amounts reflect the 5% stock dividend declared on April 26, 2006 and paid on May 17, 2006. Earnings per common share have been computed based on the following:

	Three Months Ended June 30,		Six Months Ended June 30,
	2006	2005	2006	2005
Weighted-average number of common shares outstanding used to calculate basic earnings per common share	1,904,499	1,434,860	1,902,608	1,107,885
Effect of dilutive stock options	30,524	13,305	82,472	7,147
Weighted-average number of common shares outstanding used to calculate diluted earnings per common share	1,935,023	1,448,165	1,985,080	1,115,032

(continued)

7

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(5) Stock-Based Compensation. Prior to January 1, 2006, the Company’s stock option plans were accounted for under the recognition and measurement provisions of APB Opinion No. 25 (Opinion 25),Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123,Accounting for Stock-Based Compensation (as amended by SFAS No. 148,Accounting for Stock-Based Compensation Transition and Disclosure) (collectively SFAS 123). No stock-based employee compensation cost was recognized in the Company’s consolidated statements of earnings through December 31, 2005, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R),Share-Based Payment(SFAS 123R), using the modified-prospective-transition method. Under that transition method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value calculated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). As of December 31, 2005, only 7,406 (adjusted) stock options were not fully vested and no stock options were granted during the six months ended June 30, 2006.

In addition, prior to the adoption of SFAS 123(R), the tax benefits of stock options exercised were classified as operating cash flows. Since the adoption of SFAS 123(R), tax benefits resulting from tax deductions in excess of the compensation cost recognized for options are classified as financing cash flows. As the Company adopted the modified-prospective- transition method, the prior period condensed consolidated cash flow statement was not adjusted to reflect current period presentation.

In 2005, the Company’s Board of Directors approved the acceleration of vesting of all outstanding stock options that existed as of December 31, 2004 (the “Acceleration”). In accordance with SFAS 123, in 2005 the Company expensed the remaining unrecognized compensation cost associated with the options with accelerated vesting in the pro forma disclosure. These actions were taken in order to avoid expense recognition in future financial statements upon adoption of SFAS 123(R).

As a result of adopting SFAS 123(R) on January 1, 2006, the total fair value of shares vested and recognized as compensation expense was $4,000 for the six months ended June 30, 2006. As of June 30, 2006, the Company had 7,406 (adjusted) stock options not fully vested and there was $19,515 of total unrecognized compensation cost related to these nonvested options. This cost is expected to be recognized monthly on a straight-line basis through December 31, 2008.

(continued)

8

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(5) Stock-Based Compensation, Continued. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to options granted under the Company’s stock option plan for the three and six months ended June 30, 2005. For purposes of this pro forma disclosure, the value of the options is estimated using the Black-Scholes option-pricing model and is being amortized to expense over the options’ vesting periods. All per share amounts reflect the 5% stock dividend declared on April 26, 2006 and paid on May 17, 2006 (in thousands, except per share data).

	Three Months Ended June 30, 2005			Six Months Ended June 30, 2005
Net earnings as reported	$	253		393
Deduct: Total stock-based employee compensation determined under the fair value based method for all awards, net of related tax effect		(4	)	(7	)
Proforma net earnings	$	249		386
Earnings per share:
As reported	$	.18		.35
Proforma	$	.17		.35
Diluted earnings per share:
As reported	$	.17		.35
Proforma	$	.17		.35

The Company established a Stock Option Plan in 1998 for directors, officers and employees of the Company. The Plan as amended provides for 127,027 shares (adjusted) of common stock to be available for grant. The exercise price of the stock options is the greater of $10 or the fair market value of the common stock on the date of grant. The options expire ten years from the date of grant. At June 30, 2006, 105 shares (adjusted) remain available for grant and all issued options are exercisable. All per share amounts reflect the 5% stock dividend declared on April 26, 2006 and paid on May 17, 2006. A summary of stock option information follows ($ in thousands, except share amounts):

	Number of Options		Weighted- Average Exercise Price			Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2005	95,547		$	10.66
Options exercised	(5,013	)		(9.97	)
Options forfeited	(105	)		(9.52	)
Options outstanding and exercisable at June 30, 2006	90,429		$	10.70		5.05years	$	481

(continued)

9

FPB BANCORP, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements (unaudited), Continued

(5) Stock-Based Compensation, Continued. The total intrinsic value of options exercised during the three and six months ended June 30, 2006 was $38,078 and the related tax benefit recognized was $11,000. No options were exercised during the three months ended March 31, 2006.

In 2005, the Company established a new option plan for directors, officers and employees of the Company. The Plan provides for 151,200 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 Plan allows for various vesting periods. All options granted in 2005 were vested immediately except for 7,406 (adjusted) options which vest 33.3% in the second and third year, respectively, after grant and are fully exercisable during the fourth year after grant. The options expire ten years from the date of grant. At June 30, 2006, 67,781 shares (adjusted) remain available for grant. All per share amounts reflect the 5% stock dividend declared April 26, 2006 and paid on May 17, 2006. A summary of stock option information follows ($ in thousands, except share amounts):

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding at December 31, 2005	84,994		$	16.19
Options forfeited	(1,575	)		16.19
Options outstanding at June 30, 2006	83,419		$	16.19	9.42 years	$	—
Options exercisable at June 30, 2006	76,013		$	16.19	9.42 years	$	—

All outstanding options in the 2005 plan have exercise prices in excess of the market value at June 30, 2006.

No stock options were granted during the six months ended June 30, 2006 or 2005.

(6) Commitments. The Company has entered into a seven-year lease for an Operations Center located in Jensen Beach, Florida, which is anticipated to open in late 2006. A fifty-year ground lease has also been signed on property located at the northwest corner of Savage Boulevard and Gatlin Boulevard in Port St. Lucie, Florida for a future branch location.

10

FPB BANCORP, INC. AND SUBSIDIARY

Review by Independent Registered Public Accounting Firm

Hacker, Johnson & Smith PA, the Company’s independent registered public accounting firm, have made a limited review of the financial data as of June 30, 2006, and for the three- and six-month periods ended June 30, 2006 and 2005 presented in this document, in accordance with the standards established by the Public Company Accounting Oversight Board.

Their report furnished pursuant to Article 10 of Regulation S-X is included herein.

11

Report of Independent Registered Public Accounting Firm

FPB Bancorp, Inc.

Port St. Lucie, Florida:

We have reviewed the accompanying condensed consolidated balance sheet of FPB Bancorp, Inc. and Subsidiary (the “Company”) as of June 30, 2006, and the related condensed consolidated statements of earnings for the three- and six-month periods ended June 30, 2006 and 2005 and the related condensed consolidated statements of stockholders’ equity and cash flows for the six-month periods ended June 30, 2006 and 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of the Company as of December 31, 2005, and the related consolidated statements of earnings, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 2, 2006, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2005, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Hacker, Johnson & Smith PA

HACKER, JOHNSON & SMITH PA

Fort Lauderdale, Florida

July 21, 2006

12

FPB BANCORP, INC. AND SUBSIDIARY

Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations

General

FPB Bancorp, Inc. (the “Holding Company”) is a one-bank holding company and owns 100% of the outstanding common stock of First Peoples Bank (the “Bank”), a Florida-chartered commercial bank (collectively, the “Company”). The Holding Company’s only business activity is the operation of the Bank. The Bank’s deposits are insured, up to the limit of the law, by the Federal Deposit Insurance Corporation. The Bank offers a variety of community banking services to individual and corporate customers through its four banking offices located in Port St. Lucie, Fort Pierce, Stuart and Vero Beach, Florida.

Liquidity and Capital Resources

The Company’s primary source of cash during the six months ended June 30, 2006 were from net deposit inflows of approximately $21.9 million. Cash was used primarily for net loan originations of approximately $14.1 million and the purchase of federal funds sold of approximately $8.8 million. At June 30, 2006, the Company had time deposits of $51.7 million that mature in one year or less. Management believes that, if so desired, it can adjust the rates on time deposits to retain or attract deposits in a changing interest-rate environment.

The following table shows selected information for the periods ended or at the dates indicated:

	Six Months Ended June 30, 2006		Year Ended December 31, 2005		Six Months Ended June 30, 2005
Average equity as a percentage of average assets	14.79	%	11.85	%	7.86	%
Equity to total assets at end of period	13.78	%	15.98	%	16.96	%
Return on average assets (1)	.43	%	.64	%	.75	%
Return on average equity (1)	2.91	%	5.42	%	9.51	%
Noninterest expenses to average assets (1)	4.20	%	3.89	%	4.01	%
Nonperforming loans to total assets at end of period	.18	%	—	%	.03	%

(1) Annualized for the six months ended June 30, 2006 and 2005.

13

FPB BANCORP, INC. AND SUBSIDIARY

Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations, Continued

Off-Balance Sheet Arrangements

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 unfunded loan commitments, available lines of credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the condensed consolidated balance sheet. The contract amounts of those instruments reflect the extent of the Company’s involvement in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unfunded loan commitments, available lines of credit and standby letters of 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. Since many of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter party.

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 involved 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.

A summary of the amounts of the Company’s financial instruments, with off-balance sheet risk at June 30, 2006, follows (in thousands):

	Contract Amount
Unfunded loan commitments	$	12,643
Available lines of credit	$	16,456
Standby letters of credit	$	206

Management believes that the Company has adequate resources to fund all of its commitments and that substantially all its existing commitments will be funded within the next twelve months.

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FPB BANCORP, INC. AND SUBSIDIARY

Results of Operations

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; (v) net interest margin; and (vi) ratio of average interest-earning assets to average interest-bearing liabilities.

	Three Months Ended June 30,
	2006						2005
	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends		Average Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	108,987		2,270	8.33	%	$	83,478		1,522	7.29	%
Securities		11,238		109	3.88			8,943		71	3.18
Other (1)		14,331		167	4.66			13,464		88	2.61
Total interest-earning assets		134,556		2,546	7.57			105,885		1,681	6.35
Noninterest-earning assets		8,821						4,694
Total assets	$	143,377					$	110,579
Interest-bearing liabilities:
Savings, NOW and money-market deposit accounts		36,756		248	2.70			35,395		155	1.75
Time deposits		60,466		653	4.32			33,894		246	2.90
Borrowings		2,600		35	5.38			2,509		23	3.67
Total interest-bearing liabilities		99,822		936	3.75			71,798		424	2.36
Demand deposits		21,315						29,126
Noninterest-bearing liabilities		1,668						655
Stockholders’ equity		20,572						9,000
Total liabilities and stockholders’ equity	$	143,377					$	110,579
Net interest income			$	1,610					$	1,257
Interest-rate spread (2)					3.82	%					3.99	%
Net interest margin (3)					4.79	%					4.75	%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.35						1.47

(1) Includes federal funds sold, dividends from Federal Home Loan Bank stock and interest-earning deposits with banks.

(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 average interest-earning assets.

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FPB BANCORP, INC. AND SUBSIDIARY

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average cost; (iii) net interest income; (iv) interest-rate spread; (v) net interest margin; and (vi) ratio of average interest-earning assets to average interest-bearing liabilities.

	Six Months Ended June 30,
	2006						2005
	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends		Average Yield/ Rate
	(Dollars in thousands)
Interest-earning assets:
Loans	$	105,880		4,355	8.23	%	$	79,434		2,867	7.22	%
Securities		11,426		219	3.83			9,640		150	3.11
Other (1)		12,525		280	4.47			10,922		136	2.49
Total interest-earning assets		129,831		4,854	7.48			99,996		3,153	6.31
Noninterest-earning assets		8,811						5,191
Total assets	$	138,642					$	105,187
Interest-bearing liabilities:
Savings, NOW and money-market deposit accounts		36,991		475	2.57			35,005		297	1.70
Time deposits		55,722		1,159	4.16			32,933		464	2.82
Borrowings		2,600		64	4.92			2,505		36	2.87
Total interest-bearing liabilities		95,313		1,698	3.56			70,443		797	2.26
Demand deposits		20,945						25,283
Noninterest-bearing liabilities		1,875						1,198
Stockholders’ equity		20,509						8,263
Total liabilities and stockholders’ equity	$	138,642					$	105,187
Net interest income			$	3,156					$	2,356
Interest-rate spread (2)					3.92	%					4.05	%
Net interest margin (3)					4.86	%					4.71	%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.36						1.42

(1) Includes federal funds sold, dividends from Federal Home Loan Bank stock and interest-earning deposits with banks.

(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 average interest-earning assets.

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FPB BANCORP, INC. AND SUBSIDIARY

Comparison of the Three-Month Periods Ended June 30, 2006 and 2005

General. Net earnings for the three months ended June 30, 2006, were $142,000 or $.07 per basic and diluted share compared to net earnings of $253,000 or $.18 per basic and $.17 per diluted share for the period ended June 30, 2005. This decrease in the Company’s net earnings was primarily due to an increase in interest expense and noninterest expense, which were partially offset by an increase in interest income.

Interest Income. Interest income increased to $2.5 million for the three months ended June 30, 2006 from $1.7 million for the three months ended June 30, 2005. Interest income on loans increased to $2.3 million due to an increase in the average loan portfolio balance for the three months ended June 30, 2006 and an increase in the average yield earned in 2006. Interest on securities increased to $109,000 due to an increase in the average security portfolio and an increase in the average yield earned during the three months ended June 30, 2006.

Interest Expense.Interest expense increased to $936,000 for the three months ended June 30, 2006, from $424,000 for the three months ended June 30, 2005. Interest expense increased due to an increase in the average rate paid on deposits during 2006 and an increase in the average balance of deposits during 2006.

Provision for Loan Losses. The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Company, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to the Company’s market areas, and other factors related to the estimated collectibility of the Company’s loan portfolio. The provision for the three months ended June 30, 2006, was $70,000 compared to $92,000 for the same period in 2005. Management believes the balance in the allowance for loan losses of $1.6 million at June 30, 2006, is adequate.

Noninterest Income. Total noninterest income decreased to $206,000 for the three months ended June 30, 2006, from $339,000 for the three months ended June 30, 2005 primarily as a result of a decrease in gains recognized on the sale of loans held for sale and a decrease in loan brokerage fees.

Noninterest Expenses. Total noninterest expenses increased to $1.5 million for the three months ended June 30, 2006 from $1.1 million for the three months ended June 30, 2005, primarily due to an increase in employee compensation and benefits of $245,000, an increase in occupancy and equipment of $73,000, and an increase in other expenses of $113,000, all due to the continued growth of the Company.

Income Taxes. Income taxes for the three months ended June 30, 2006, were $78,000 (an effective rate of 35.5%) compared to an income tax provision of $156,000 (an effective rate of 38.1%) for the three months ended June 30, 2005.

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FPB BANCORP, INC. AND SUBSIDIARY

Comparison of the Six-Month Periods Ended June 30, 2006 and 2005

General. Net earnings for the six months ended June 30, 2006, were $298,000 or $.16 per basic and $.15 per diluted share compared to net earnings of $393,000 or $.35 per basic and diluted share for the six month period ended June 30, 2005. This decrease in the Company’s net earnings was primarily due to an increase in interest expense and noninterest expense, which was partially offset by an increase in interest income.

Interest Income. Interest income increased to $4.9 million for the six months ended June 30, 2006 from $3.2 million for the six months ended June 30, 2005. Interest income on loans increased to $4.4 million due to an increase in the average loan portfolio balance for the six months ended June 30, 2006 and an increase in the average yield earned in 2006. Interest on securities increased to $219,000 due to an increase in the average security portfolio and an increase in the average yield earned in 2006.

Interest Expense.Interest expense increased to $1.7 million for the six months ended June 30, 2006, from $797,000 for the six months ended June 30, 2005. Interest expense increased due to an increase in the average balance of deposits during 2006 and an increase in the average rate paid on deposits in 2006.

Provision for Loan Losses. The provision for loan losses is charged to earnings to bring the total allowance to a level deemed appropriate by management and is based upon historical experience, the volume and type of lending conducted by the Company, industry standards, the amount of nonperforming loans, general economic conditions, particularly as they relate to the Company’s market areas, and other factors related to the estimated collectibility of the Company’s loan portfolio. The provision for the six months ended June 30, 2006, was $177,000 compared to $162,000 for the same period in 2005. Management believes the balance in the allowance for loan losses of $1.6 million at June 30, 2006, is adequate.

Noninterest Income. Total noninterest income decreased to $384,000 for the six months ended June 30, 2006, from $552,000 for the six months ended June 30, 2005 primarily as a result of a decrease in loan brokerage fees and gains recognized on sale of loans held for sale.

Noninterest Expenses. Total noninterest expenses increased to $2.9 million for the six months ended June 30, 2006 from $2.1 million for the six months ended June 30, 2005, primarily due to an increase in employee compensation and benefits of $479,000, an increase in occupancy and equipment of $108,000, and an increase in other expenses of $211,000, all due to continued growth of the Company.

Income Taxes. The income tax provision for the six months ended June 30, 2006, was $157,000 (an effective rate of 34.5%) compared to an income tax provision of $243,000 (an effective rate of 38.2%) for the six months ended June 30, 2005.

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FPB BANCORP, INC. AND SUBSIDIARY

Item 3. Controls and Procedures

a. Evaluation of Disclosure Controls and Procedures. The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the chief executive and chief financial officers of the Company concluded that the Company’s disclosure controls and procedures were adequate.

b. Changes in Internal Controls. The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Chief Executive and Chief Financial officers.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There are no material pending legal proceeding to which the Company is a party or to which any of their property is subject.

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

The Annual Meeting of Shareholders (the “Annual Meeting”) of FPB Bancorp, Inc. was held on April 26, 2006 to vote on the following proposals:

Proposal I:	Election of three directors
Proposal II:	Ratification of the appointment of Hacker, Johnson & Smith PA as independent auditors
Proposal III:	Adjournment of the meeting

At the Annual Meeting, 1,264,107 shares were present in person or by proxy. Listed below are the results of the matters subject to a vote of security holders:

	Term	For	Against	Abstain	Broker Nonvote
Proposal I
John R. Baker, Sr.	3 year	1,245,173	18,934	—	—
Donald J. Cuozzo	3 year	1,245,073	19,034	—	—
Paul A. Zinter	3 year	1,245,373	18,734	—	—
Proposal II	—	1,245,394	10,844	7,869	—
Proposal III	—	1,242,398	13,110	8,599	—

Following the Annual Meeting, Gary A. Berger, Ann L. Decker, Paul J. Miret, Robert L. Schweiger, Robert L. Seeley, and David W. Skiles also continued as directors of the Company.

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FPB BANCORP, INC. AND SUBSIDIARY

ITEM 6. EXHIBITS

Exhibits. The following exhibits are filed with or incorporated by reference into this report. The exhibits marked with an (a) were previously filed as a part of the Company’s Registration Statement on Form SB-1, filed with the Federal Deposit Insurance Corporation on April 30, 2000; those marked with a (b) were filed with the Company’s 2003 Proxy Statement filed with the Security and Exchange Commission (“SEC”) on March 28, 2003; those marked with a (c) were filed with the Company’s 2004 Form 10-QSB filed with the SEC on November 10, 2005; those marked with a (d) were filed with the Company’s Definitive Schedule 14A filed with the SEC on October 26, 2005.

Exhibit No.	Description of Exhibit
(a)4.1	Specimen copy of certificate evidencing shares of the Company’s common capital stock, $0.01 par value
(a)4.2	First Peoples Bank Stock Option Plan dated January 14, 1999
(a)4.4	Non-Qualified Stock Option Agreement
(b)4.5	Amendment to First Peoples Bank Stock Option Plan
(d)4.6	2005 Stock Compensation Plan
(a)10.1	First Peoples Bank Qualified 401(k) Profit Sharing Plan, dated May 1, 1999
(a)10.2	Employment Agreement for David W. Skiles
(c)10.3	Change in Control Agreement for Nancy E. Aumack
(c)10.4	Change in Control Agreement for Stephen J. Krumfolz
(c)10.5	Change in Control Agreement for Marge Riley
31.1	Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
31.2	Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

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FPB BANCORP, INC. AND SUBSIDIARY

SIGNATURES

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

	FPB BANCORP, INC.     (Registrant)
Date: July 28, 2006	By:	/s/ David W. Skiles
		David W. Skiles, President and Chief Executive Officer
Date: July 28, 2006	By:	/s/ Nancy E. Aumack
		Nancy E. Aumack, Senior Vice President and Chief Financial Officer

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