FPB FINANCIAL CORP. AND SUBSIDIARIES FINANCIAL STATEMENTS DECEMBER 31, 2017

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1 FINANCIAL STATEMENTS DECEMBER 31, 2017 Postlethwaite & Netterville A Professional Accounting Corporation

2 FINANCIAL STATEMENTS DECEMBER 31, 2017

3 TABLE OF CONTENTS Page Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements

4 8550 United Plaza Blvd, Ste Baton Rouge, LA Phone Fax pncpa.com Postlethwaite & Netterville A Professional Accountmg Corporation INDEPENDENT AUDITORS' REPORT To the Board of Directors FPB Financial Corp. and Subsidiaries Report on the Financial Statements We have audited the accompanying consolidated financial statements of FPB Financial Corp. and Subsidiaries (the Company) which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for the years then ended and the related notes to the consolidated financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. - I -

5 Postlethwaite & Netterville Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FPB Financial Corp. and Subsidiaries as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America. Baton Rouge, Louisiana April 2,

6 HAMMOND, LOUISIANA CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2017 AND 2016 ASSETS ASSETS Cash and due from banks, non-interest bearing Interest bearing deposits in other banks $ 9,538,780 1,794,887 11,333,667 $ 12,620,237 21,147,712 33,767,949 Certificate of Deposit 498, ,000 Investment Securities Available for Sale, at Fair Value Held to Maturity, at Amortized Cost Trading Securities, at Fair Value Federal Home Loan Bank Stock, at Cost First National Bankers Bank, at Cost Loans Held for Sale Loans, Net of Allowance for Loan Losses of$4,376,125 at December 31, 2017 and $3,340,404 at December 31, 2016 Accrued Interest Receivable Premises and Equipment, Net of Accumulated Depreciation Foreclosed Assets Deferred Tax Asset Investment in Bank Owned Life Insurance Other Assets 88,344,159 5,405, , , , , ,248, 726 1,362,179 11,488,714 1,345, ,753 7,104, ,941 79,602,325 2,922, , , ,000 1,830, ,764,382 1, 141,311 11,648, , ,761 6,419, ,159 TOT AL ASSETS $ 346,160,966 $ 299,5 16,361 The accompanying notes are an integral part of these consolidated financial statements

7 L I A B I L I T I E S A N D S T 0 C K H 0 L D E R S' E Q U I T Y LIABILITIES Deposits: Non-interest bearing Interest bearing Total deposits $ 76,322, ,240, ,562,950 $ 67,565, ,832, ,398,716 Advances from Federal Home Loan Bank 8,800,000 10,700,000 Subordinated Debentures/Trust Preferred Securities Accrued Interest Payable Accrued Expenses and Other Liabilities Total liabilities 3,093,000 39,643 1,553, ,048,995 3,093,000 53,834 1,148, ,393,976 STOCKHOLDERS' EQUITY Common stock - $.01 par value, 5,000,000 shares authorized, 2,705,732 and 2,062,426 Shares Issued and 2,654,060 and 2,057,943 Shares Outstanding at December 31, 2017 and 2016, respectively Additional paid-in-capital Unearned MRP Trust stock- 51,672 and 4,483 shares at December 31, 2017 and 2016, respectively Retained Earnings Accumulated Other Comprehensive Loss, net of tax Total Stockholders' Equity 26,541 22,083,327 (900,818) 20,923,185 (20,264) 42,111,971 20,107 12,175,214 (32,946) 19,319,874 (359,864) 31,122,385 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 346,160,966 $ 299,516,

8 HAMMOND, LOUISIANA CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2017 AND INTEREST INCOME Interest and fees on loans $ 12,437,826 Interest and dividends on investment securities and other 1,986,300 Total interest and dividend income 14,424,126 INTEREST EXPENSE Interest on deposits 1,265,150 Interest on borrowings 75,841 Interest on subordinated debt 135,098 Total interest expense 1,476,089 NET INTEREST INCOME 12,948,037 Provision for loan losses 1,522,000 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 11,426,037 NON-INTEREST INCOME (Loss) Gain on Sale of Investments (34,967) Loss on Trading Securities (8,646) Service Charges on Deposits 916,486 Mortgage Banking Fees 1,239,980 Other Income 1,382,875 Total non-interest income 3,495,728 NON-INTEREST EXPENSES Compensation and employee benefits 7,499,832 Occupancy and equipment 1,343,236 Gain on Sale of Fixed Assets 6,349 Technology and Information Processing 717,493 Professional Fees 388,942 Regulatory Fees 611,652 Other General and Administrative 2,200,472 Total non-interest expenses $ 12,767, $ 10,404,993 1,545,525 11,950, , , ,038 1,079,339 10,871, ,000 10,655, ,565 (4,992) 855,350 1,296,793 1,306,444 3,564,160 6,174,112 1,099,304 16, , , ,137 1,677,305 $ 10,445,301 The accompanying notes are an integral part of these consolidated financial statements

9 HAMMOND, LOUISIANA CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2017 AND INCOME BEFORE INCOME TAX EXPENSE $ 2,153,789 Income tax expense 872,072 NET INCOME $ 1,281,717 Earnings Per Share - Basic $ 0.51 Earnings Per Share - Diluted $ 0.48 $ 3,774,038 1,132,206 $ 2,641,832 $ 1.36 $ 1.36 The accompanying notes are an integral part of these consolidated financial statements

10 HAMMOND, LOUISIANA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2017 AND NET INCOME $ 1,281,717 OTHER COMPREHENSIVE INCOME (LOSS) Unrealized Holding (Losses) Gains Arising During the Period, 357,096 Net of Tax of ($183,959) and $342,583, respectively Reclassification Adjustment for Gains (Loss) Included in Net income, net of tax of ($9,013) and $37,592, respectively (17,496) Total other income comprehensive income (loss) 339,600 COMPREHENSIVE INCOME $ 1,621,31 7 $ 2,641,832 (665,015) 72,973 (592,042) $ 2,049,790 The accompanying notes are an integral part of these consolidated financial statements

11 HAMMOND, LOUISIANA CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EOUITY YEARS ENDED DECEMBER 31, 2017 AND 2016 Shares Common Stock Additional Paid-in Capital Unearned MRP Trust Stock Balance at December 31, ,865,056 $ 19,680 $ 8,967,238 $ (67,596) Net Income Dividends Paid on Common Stock Stock Offering 197, ,207,976 Distributions of Stock for Management Management Retention Plan Expense 4,253 30,397 Other comprehensive income, Net of Tax Balance at December 31, ,062,426 20,107 12,175,214 (32,946) Net Income Dividends Paid on Common Stock Stock Offering 643,306 5,939 9,908,113 Issuance of Stock for Management 495 Management Retention Plan Expense (881,100) 13,228 Premium amortization accounting change (Note 1) Other comprehensive income, Net of Tax Balance at December 31, ,705,732 $ 26,541 $ 22,083,327 $ {900,8 182 The accompanying notes are an integral part of these consolidated financial statements

12 Accumulated Other Total Retained Comprehensive Stockholders' Earnings Income (Loss) Equity $ 17,068,113 $ 232,178 $ 26,219,613 2,641,832 2,641,832 (385, 153) (385,153) 3,208,403 (4,918) (665) 30,397 {592,042} {592,042} 19,319,874 (359,864) 31,122,385 1,281,717 1,281,717 (499,390) (499,390) 9,914, ,605 13,228 (59,621) (59,621) 339, ,600 $ 20,923,185 $ {20,264} $ 42,111,

13 HAMMOND, LOUISIANA CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2017 AND CASH FLOWS FROM OPERA TING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Net Gain on Sale of Foreclosed Assets Writedown on Foreclosed Assets Provision for Loan Losses Amortization of Investment Security Premiums Loss (Gain) on Sale oflnvestments Loss on Sale of Bank Premises and Equipment Deferred Tax Benefit Increase in Cash Surrender Value of Bank Owned Life Insurance Management Recognition and Retention Plan Expense Stock Dividends on Federal Home Loan Bank Stock Changes in Operating Assets and Liabilities Accrued Interest Receivable Trading Securities Loans Held for Sale Other Assets Accrued Interest Payable Other Liabilities Deferred Loan Origination and Commitment Costs Net cash provided by operating activities $ 1,281, ,343 (41,892) 46,100 1,522, ,908 26,509 6,349 (215,654) (184,876) 12,733 (220,868) 8,645 1,078,901 (96,782) (14,191) 404, ,051 5,305,969 $ 2,641, ,865 2,785 28, , ,368 (110,565) 16,374 (78,383) (139,966) (665) (6,900) (152,274) 4, ,100 (1,793) 25, , ,284 4,329,755 CASH FLOWS FROM INVESTING ACTIVITIES Loan Originations and Principal Collections, Net Purchase of Bank Premise and Equipment Proceeds from Sale and Recoveries of Foreclosed Assets Proceeds from Sale of Federal Home Loan Bank Stock Purchase of Life Insurance Contracts Purchase of Held-to-Maturity Securities Maturities of Investment Securities - Held-to-Maturity Purchase of Investment Securities - Available-for-Sale Proceeds from Sale of Investments - Available-for-Sale Maturities oflnvestment Securities - Available-for-Sale Principal Payments from Investment Securities - Available-for-Sale Net cash used in investing activities (60,509,979) (406,378) 453, ,400 (500,000) (3,006,250) 500,000 (21,849,252) 654, ,000 11,704,601 (72,419,642) (19,606,325) (3,353,308) 478,277 (2,000,000) (2,479,352) 4,013,369 (32,994,878) 7,451,374 50,500 8,741,427 (39,698,916) The accompanying notes are an integral part of these consolidated financial statements

14 HAMMOND, LOUISIANA CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2017 AND 2016 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Stock Offering $ 9,914,547 $ Net Increase in Deposits Repayment of Federal Home Loan Bank Advances, net Dividends Paid on Common Stock Net cash provided by financing activities 37,164,234 (1,900,000) (499,390) 44,679, ,238,800 58,983,266 (5,378,000) (385,153) 56,458,913 Net (decrease) increase in cash and cash equivalents (22,434,282) 21,089,752 Cash and cash equivalents - beginning of year 33,767,949 12,678,197 Cash and cash equivalents - end of year $ 11,333,667 $ 33,767,949 Supplemental disclosures of cash flow information: Cash paid for interest $ 1,490,280 $ 1,053,976 Cash paid for income taxes $ 888,208 $ 835,000 Transfer of Loans to Foreclosed Assets $ 1,271,584 $ 400,163 The accompanying notes are an integral part of these consolidated financial statements

15 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of FPB Financial Corp. and Subsidiaries conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. A summary of significant accounting policies is as follows: Nature of Operations FPB Financial Corp. (the Company) is a Louisiana thrift holding company in Hammond, Louisiana. The Company's subsidiary is Florida Parishes Bank (the Bank), which has been in continuous operation since 1922, and represents virtually all of the operations and net income of the Company. The Bank established and incorporated FPB Insurance and Investments, Inc. (FPBII), which is wholly-owned by the Bank. The Bank provides a variety of deposit products and a mixture of fixed and adjustable rate mortgages, with the largest loan category being first mortgages on single-family residences, various types of consumer loans, and lines of credit. It operates from locations in Hammond, Ponchatoula, Covington, Mandeville, Metairie and Amite, Louisiana, and all of its mortgages are secured by properties located primarily in Tangipahoa, St. Tammany, and Jefferson Parishes and the surrounding areas. FPBII was created to conduct securities brokerage and investment advisor activities and insurance activities through a contractual agreement with a third-party financial services corporation. On June 28, 2003, FPB Financial Statutory Trust I was formed as a subsidiary of the Company to issue mandatorily redeemable capital securities to the public (see Note 2). The Company applies the provisions of U.S. Generally Accepted Accounting Principles (GAAP) requiring the deconsolidation of certain entities. In accordance with these provisions, the consolidated financial statements do not include the accounts of FPB Financial Statutory Trust I. Basis of Presentation and Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Florida Parishes Bank. All significant intercompany balances and transactions have been eliminated. Certain prior year amounts have been reclassified to conform to presentation in the current year. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for loan losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. In connection with the determination of estimated losses on loans, management obtains independent appraisals for significant collateral

16 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Use of Estimates (continued) The Bank's loans are generally secured by specific items of collateral including real property, consumer assets, and business assets. Although the Bank has a diversified loan portfolio, a substantial portion of its debtors' ability to honor their contracts is dependent on local economic conditions. While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated. Other estimates that are susceptible to significant change in the near term relate to the determination of the valuation of deferred tax assets, foreclosed real estate, other-than-temporary impairments of securities, and the fair value of financial instruments. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, federal funds sold and securities purchased under agreements to resell, all of which have an original maturity within ninety days. Investment Securities Securities are being accounted for in accordance with the Financial Accounting Standards Board (F ASB) Accounting Standards Codification (ASC) Investments - Debt and Equity Securities. Standards require the classification of securities into one of three categories: trading, available-for-sale, or held-to-maturity. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates this classification periodically. Available-for-Sale securities are stated at fair value, with unrealized gains and losses, net of income taxes, reported as a separate component of accumulated other comprehensive income (loss) until realized. The amortized cost of available-for-sale debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Securities designated as held-to-maturity are stated at cost adjusted for amortization of the related premiums and accretion of discounts, using the interest method. The Company has the positive intent and ability to hold these securities to maturity. Securities designated as trading securities are recorded at fair value, with unrealized gains and losses included in earnings

17 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Investment Securities (continued) The F ASB issued accounting guidance related to the recognition and presentation of other-than-temporary impairment (OTTI). The guidance specifies that (a) if a company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not, the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an otherthan-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. The Company, through its subsidiary bank, grants mortgage, commercial, and consumer loans, and lines of credit to customers. A substantial portion of the loan portfolio is represented by mortgage loans throughout Tangipahoa, St. Tammany, and Jefferson Parishes. The ability of the Company's debtors to honor their contracts is dependent upon the real estate and general economic conditions in this area. Loans are reported at their outstanding unpaid principal balances adjusted for charge-offs and the allowance for loan losses. Any deferred fees or costs on origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the level yield method. Amortization of net deferred loan fees or costs is discontinued when a loan is placed on nonaccrual status. Unless there are specific circumstances evaluated by management, the accrual of interest income on loans is discontinued at the time the loan becomes 90 days past due. At that time, uncollected interest previously recorded is reversed. If the delinquent interest is subsequently collected, it is credited to income in the period collected. futerest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loans Held for Sale Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value. Mortgage loans held for sale are sold with the mortgage servicing rights released by the Company. Gains and losses on the sale of loans are accounted for by imputing gain or loss by charging a varying premium and servicing fee to the buyer. The gain or loss is increased or reduced by the amount of fees carried on the loan. Such gains and losses are recognized as loan fees in the consolidated financial statements for the year of sale

18 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 earnings. 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. Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful, at which time payments received are recorded as reductions of principal. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to pay, the 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. A loan is considered impaired when, based on current information and events, it is probable the Bank will be unable to collect the scheduled payment 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 delays and payment shortfalls generally are not classified as impaired. The Bank's impaired loans include troubled debt restructurings and performing and nonperforming major loans for which full payment of principal and interest is not expected. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. hnpairment is measured on a loan by loan basis 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. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance is required as a component of the allowance for loan losses. Changes to the valuation allowance are recorded as a component of the provision for loan losses. Troubled Debt Restructurings In situations where, for economic or legal reasons related to a borrower's financial difficulties, the Bank grants a concession for other than an insignificant period of time to the borrower that the Bank would not otherwise consider, the related loan is classified as a troubled debt restructuring (TDR). Premises and Equipment Land is carried at cost. Buildings and equipment are carried at cost, less accumulated depreciation computed on the straight-line and accelerated methods over the estimated useful lives of the assets. The estimated useful lives of office buildings are 30 years, and furniture and equipment ranges from five to ten years. Maintenance and repairs are expensed as incurred while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations

19 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Foreclosed Assets Assets acquired through, or in lieu of, loan foreclosure are initially recorded at the lower of the related loan balance or fair value less estimated cost to sell at the date of foreclosure, establishing a new cost basis. Management periodically performs valuations, and the assets are carried at the lower of carrying amount or fair value less cost to sell. Costs related to improvement of the property are capitalized, whereas costs related to holding the property are charged to operations. Bank Owned Life Insurance The Bank purchased single-premium life insurance on certain employees of the Bank. Appreciation in value of the insurance policies is classified as noninterest income. Revenue Recognition Interest on loans is recognized over the terms of the loans and is calculated on the effective interest method. Income Taxes The Company and its wholly-owned subsidiary, Florida Parishes Bank, file a consolidated Federal income tax return. Each entity pays its pro rata share of income taxes in accordance with a written tax-sharing agreement. Income taxes are accounted for under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income as part of income tax expense or benefit for the period that includes the enactment date. As a result of the enactment in 2017 of the Tax Cuts and Jobs Act ("Act"), deferred tax assets and liabilities have been measured as of December 31, 2017 using the 21 % corporate rate set forth in the Act. The impact on net income is set forth in Note 10, Income Taxes. In accordance with current accounting guidance contained in ASC 740, the impact of the remeasurement of the deferred tax effects of items reported in accumulated other comprehensive income ("AOCI") is recorded through income tax expense, not through other comprehensive income ("OCI"). This creates a disproportionate tax effect in AOCI as the recorded deferred tax assets or liabilities related to an item reported in AOCI no longer equals the tax effect included in AOCI for that item. Accordingly, in February of 2018, the F ASB issued a narrow-scope amendment to the F ASB Codification that eliminates the disproportionate tax effect by permitting such effect to be reclassified from AOCI to retained earnings in financial statements that have not yet been issued. The amount of the reclassification is the difference between the amount initially charged or credited directly to OCI at the previously enacted federal corporate rate and the amount that would have been charged or credited using the newly enacted 21 % rate. The Company has chosen to reflect this amount as tax expense in the accompanying December 31, 2017 financial statements as the amount was less than $4,

20 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Income Taxes (continued) Accounting principles generally accepted in the United States of America provide accounting and disclosure guidance about positions taken by an entity in its tax returns that might be uncertain. The Company believes that it has appropriate support for any tax positions taken, and management has determined that there are no uncertain tax positions that are material to the financial statements. The Company had no amount of interest and/or penalties recognized in the consolidated statements of income for neither the years ended December 31, 2017 and 2016, respectively, nor any amount of interest and/or penalties payable that were recognized in the consolidated balance sheets as of December 31, 2017 or 2016, in relation to its income tax returns. Any penalties or interest would be recognized in income tax expense. Off-Balance Sheet Financial Statements In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters-of-credit and standby letters-of-credit. Such financial instruments are recorded in the financial statements when they become payable. Stock Compensation Plans ASC 718 Stock Compensation requires the Company to recognize in the income statement the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. Advertising Costs Advertising costs are charged to operations as incurred. Advertising costs were $368,236 and $166,175 for the years ended December 31, 2017 and 2016, respectively. Comprehensive Income Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. 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 income, are components of comprehensive income. Reclassification Certain amounts in the prior year consolidated financial statements have been reclassified to conform with the current year presentation

21 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) New Accounting Pronouncement In March 2017, the FASB issued ASU No , "Premium Amortization on Purchased Callable Debt Securities" which is included in the Accounting Standards Codification as topic ASC The ASU amended the amortization period for certain purchased callable debt securities held at a premium. The amortization period is shortened to the earliest call date. The ASU was early adopted by the Company and applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings of$59, SUBORDINATED DEBENTURES/TRUST PREFERRED SECURITIES In June 2003, the Company, through its wholly-owned subsidiary FPB Financial Statutory Trust I, issued mandatorily redeemable capital securities to the public. The capital securities consisted of 3,000 capital securities with a $1,000 liquidation amount for each capital security, for total gross proceeds of $3,000,000. The capital securities are fully guaranteed by the Company. Through June 26, 2008, each capital security paid a quarterly interest payment at the annual rate of 5.55%. Subsequent to June 26, 2008, each capital security pays a quarterly interest payment at a rate equal to the three-month LIBOR plus 3.10%. At December 31, 2017, the rate was 5.21 %. Each capital security represents an undivided preferred beneficial interest in the assets of FPB Financial Statutory Trust I. FPB Financial Statutory Trust I used the proceeds of the above sale and the proceeds of its issuance of common securities to the Company to buy $3,093,000 of subordinated debentures issued by the Company. These subordinated debentures have the same interest rate structure as do the capital securities. The subordinated debentures have a stated term of 30 years and have the same financial terms as the capital securities. The Company's obligations under the subordinated debentures are unsecured and rank junior to all of the Company's other borrowings, except borrowings that by their terms rank equal or junior to the subordinated debentures. The Company has guaranteed the payment by FPB Financial Statutory Trust I of the amounts that are required to be paid on the capital securities, to the extent that FPB Financial Statutory Trust I has funds available for such payments. 3. INVESTMENT SECURITIES The amortized costs and fair values of securities available-for-sale and held-to-maturity, with gross unrealized gains and losses, follow: December Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value Securities Available-for-Sale U.S. Government Agency Mortgage - Backed Securities $ 17,135,778 $ 139,218 $ 125,815 $ 17,149,181 U.S. Government Agency Notes 358, ,895 State and Municipal Obligations 13,747, ,598 86,946 13,808,808 U.S. Agency- SBA Loan Pool 57,128, ,248 57,027,275 Total Securities Available-for-Sale $ 88, $ 512,360 $ 605,002 $ 88,344,

22 3. INVESTMENT SECURITIES (continued) December Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value Securities Held-to-Maturity U.S. Agency - SBA Loan Pool $ 2,937,494 $ 15,286 $ 4,449 $ 2,948,331 U.S. Government Agency Notes 2,468, ,423,677 Total Securities Held-to-Maturity $ $ $ $ December Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value Securities Available-for-Sale U.S. Government Agency Mortgage - Backed Securities $ 19,413,033 $ 153,623 $ 153,399 $ 19,413,257 U.S. Government Agency Notes 378,704 9, ,298 State and Municipal Obligations 14,587,923 46, ,435 14,274,310 U.S. Agency - SBA Loan Pool 45,767, , ,830 45,545,460 Total Securities Available-for-Sale $ $ $ $ Securities Held-to-Maturity U.S. Agency - SBA Loan Pool $ 955,915 $ $ 11,240 $ 944,675 U.S. Government Agency Notes 1,966, ,222 1,908,430 Total Securities Held-to-Maturity $ $ $ $ At December 31, 2017 and 2016, investments with a total fair value of $16,338,310 and $17,107,520, respectively, were pledged to secure public deposits

23 3. INVESTMENT SECURITIES (continued) FPB FINANCIAL CORP. AND SUBSIDIARIES The amortized cost and fair value of investment securities available-for-sale and held-to-maturity by contractual maturity at December 31, 2017, follows: Amounts Maturing in: Within One Year $ One to Five Years Five to Ten Years Over Ten Years Available -For - Sale Fair Value Amortized Cost 18,561 11,348,728 17,275,060 59,727,459 $ 18,927 11,302,015 17,299,237 59,723,980 Held - to - Maturity Amortized Fair Cost Value $ $ 3,504,629 3,485,194 1,901,265 1,886,814 $ 88,362,808 $ 88,344,152 $ 5,405,824 $ 5,312,008 The following is a summary of securities which were in an unrealized loss position and the length of time that individual securities have been in a continuous loss position at December 31, 2017 and Management is continually monitoring the securities portfolio. These unrealized losses on the Company's investments were caused by interest rate increases. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company's investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, management is able to effectively measure and monitor the unrealized loss position on these securities, and the Bank does not intend to sell the investments before recovery of their amortized cost bases; the Bank does not consider these securities to be other-than-temporarily impaired at December 31, 2017 or December 31, 2017 Less Than Twelve Months Over Twelve Months Estimated Gross Estimated Gross Market Unrealized Market Unrealized Value Losses Value Losses Securities Available-for-Sale U.S Government Agency Mortgage-Backed Securities $ $ $ $ U.S. Government Agency Notes 3,320,569 18,996 7,670, ,818 State and Municipal Obligations 320,340 1,308 6,067,280 85,638 U.S. Agency - SBA Loan Pool 15,863, ,867, ,935 Total Available-for-Sale $ 19,504,311 $ 99,618 $ 34,604,474 $ 505,

24 3. INVESTMENT SECURITIES (continued) FPB FINANCIAL CORP. AND SUBSIDIARIES Less Than Twelve Months Over Twelve Months Estimated Gross Estimated Gross Market Unrealized Market Unrealized Value Losses Value Losses Securities Held-to-Maturi!l'. U.S. Government Agency Notes $ 994,357 $ 5,643 $ 957,641 $ 40,972 U.S. Agency - SBA Loan Pool 2,001, Total Held-to-Maturity 2,995,925 10, Total Securities $ $ $ $ December 31, 2016 Less Than Twelve Months Over Twelve Months Estimated Gross Estimated Gross Market Unrealized Market Unrealized Value Losses Value Losses Securities Available-for-Sale U.S Government Agency Mortgage-Backed Securities $ 11,189,697 $ 141,079 $ 751,989 $ 12,318 U.S. Government Agency Notes 1,776,635 68,629 State and Municipal Obligations 10,203, , ,831 1,794 U.S. Agency- SBA Loan Pool 29,785, ,548 1,237, Total Available-for-Sale $ 52,955,189 $ 931,897 $ 2,095,645 $ 30,173 Securities Held-to-Maturitt U.S. Government Agency Notes $ 1,407,337 $ 59,222 $ $ U.S. Agency- SBA Loan Pool Total Held-to-Maturity , Total Securities $ 54,362,526 $ 221,112 $ 3,040,320 $ 41,

25 4. LOANS AND ALLOWANCES FOR LOAN LOSSES The components of loans in the statements of financial condition are as follows: Real Estate Loans - Family Residential $ 105,445,226 $ 82,793,266 Real Estate Loans - Commercial 72,998,856 44,094,160 Real Estate Loans - Other 15,928,371 15,179,638 Commercial Loans 19,501,959 12,505,113 Consumer Loans 7,121, Total Loans 220,995, ,243,876 Less: Allowance for Loan Losses (4,376,125) (3,340,404) Net Deferred Loan Origination Fees (371,143} (139,090} Loans, Net $ 216,248,126 $ 158,164,382 The following table details the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2017: Real Estate Real Estate Real Estate Loans - Loans - Loans - Commercial Consumer Residential Commercial Other Loans Loans Total Allowance for Loan Losses: Beginning Balance $ l,251,662 $ 692,387 $ 613,907 $ 738,153 $ 44,295 $ 3,340,404 Charge-Offs (292,584) (47,142) (7,048) (34,793) (175,014) (556,581) Recoveries 24,154 2,164 15,297 28,687 70,302 Current Provision 653, , ,125 1,522,000 Ending Balances $ 1, $ l $ $ $ 144,093 $ Ending Balance Allocated to: Loans Individually Evaluated for Impairment $ $ $ $ 94,443 $ 19,522 $ 113,965 Loans Collectively Evaluated for Impairment 1, l,166, , ,571 4,262,160 $ 1, $ l $ $ $ $ Ending Loan Balance Loans Individually Evaluated for Impairment $ 3,158,396 $ 414,639 $ 874,906 $ 120,500 $ 19,522 $ 4,587,963 Loans Collectively Evaluated for Impairment 102,286,830 72,584,217 15,053,465 19,381,459 7,102, ,408,031 $1 Q5,445,226 $ $ $12 5Ql,252 $ 1, $ 22Q

26 4. LOANS AND ALLOWANCES FOR LOAN LOSSES (continued) The following table details the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2016: Allowance for Loan Losses: Beginning Balance Charge-Offs Recoveries Current Provision Ending Balances Real Estate Loans - Residential $ 1,260, 793 $ (153,974) 63, $ $ Real Estate Loans - Commercial 632,016 $ 15, $ Real Estate Loans - Commercial Consumer Other Loans Loans 574,410 $ (2,364) 2, $ 689,408 $ (4,249) 5, $ 84,323 $ (89,186) 46, $ Total 3,240,950 (249,773) 133, Ending Balance Allocated to: Loans Individually Evaluated for Impairment $ 95,056 $ $ 32,082 $ $ $ 127,138 Loans Collectively Evaluated for Impairment 1.156, ,213,266 $ $ $ $ $ $ Ending Loan Balance Loans Individually Evaluated for Impairment Loans Collectively Evaluated for Impairment $ 2,619,419 $ 734,217 $ 640,862 $ 24,439 $ 904 $ 4,019,841 80,173,847 43,359,943 14,538, , ,224,035 $ $ $ $ $ $ Credit Quality The Bank uses several credit quality indicators to manage credit risk in an ongoing manner. The Bank's primary credit quality indicators are to use an internal credit risk rating system that categorizes loans into pass, special mention, substandard, or doubtful categories. Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation. Groups of loans and leases that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk rated and monitored collectively. The following are the definitions of the Bank's credit quality indicators: Pass: Loans that comply in all material respects with the Bank's loan policies are adequately secured with conforming collateral and are extended to borrowers with documented cash flow and/or liquidity to safely cover their total debt service requirements

27 4. LOANS AND ALLOWANCES FOR LOAN LOSSES (continued) Credit Quality (continued) Pass/Watch: Loans that represent an acceptable level of loss exposure to the Bank. A definite possibility of rapid financial deterioration exists if adverse factors prevail. The Bank remains protected by sound, but less liquid net worth of the borrower. Unsecured loans lacking definite and specific repayment plans, but with identified sources of repayment, may also fall into this category. Special Mention: Loans that have potential weaknesses that, if left uncorrected, may result in deterioration of repayment prospects for the asset or in the Bank's credit position at some future date. These assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. Performing loans with a collateral agreement not properly executed may also fall into this category. Substandard: Loans that are inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged. These assets have a well-defined weakness or weaknesses. The Bank has a distinct possibility to sustain some loss if the deficiencies are not corrected. Doubtful: Loans that have the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The likelihood of a loss on an asset is high. The table below presents classes of outstanding loans by risk category as of December 31, 2017: Special Pass Pass/Watch Mention Substandard Total Real Estate Loans - Family Residential $ 99,462,958 $ 3,011,257 $ 614,055 $ 2,356,956 $ 105,445,226 Real Estate Loans - Commercial 72,378, ,415 77,420 72,998,856 Real Estate Loans - Other 14,876, , , ,746 15,928,371 Commercial Loans 19,267,017 43,182 86, ,706 19,501,959 Consumer Loans , ,121,582 Total $ $ $ $ $ The table below presents classes of outstanding loans by risk category as of December 31, 2016: Special Pass Pass/Watch Mention Substandard Total Real Estate Loans - Family Residential $ 76,704,735 $ 2,191,264 $ 1,361,989 $ 2,535,278 $ 82,793,266 Real Estate Loans - Commercial 40,897,072 2,940,206 40, ,957 44,094,160 Real Estate Loans - Other 13,891, , , ,959 15,179,638 Commercial Loans 12,395,563 72,699 25,676 11,175 12,505,113 Consumer Loans Total $ 15Q 54 :Z,544 $ 6,222,282 $ 2,123,811 $ 3,272,532 $ 162,243,816 As of December 31, 2017 and 2016, the Bank had no loans classified as Doubtful

28 4. LOANS AND ALLOWANCES FOR LOAN LOSSES (continued) Impaired Loans The following table provides additional information with respect to impaired loans by portfolio segment and the impairment methodology used to analyze the credit. The recorded investment is presented gross of any specific valuation allowance. December 31, 2017: Recorded Recorded Unpaid Investment Investment Average Principal With No With Related Recorded Balance Allowance Allowance Allowance Investment Real Estate Loans - Family Residential $ 3,158,396 $ 3,158,396 $ $ $ 3,068,237 Real Estate Loans - Commercial 414, , ,374 Real Estate Loans - Other 874, , ,288 Commercial Loans 120,500 14, ,706 94,443 84,059 Consumer Loans 19,522 19,522 19, Total $ $ $ $ $ December 31, 2016: Recorded Recorded Unpaid Investment Investment Average Principal With No With Related Recorded Balance Allowance Allowance Allowance Investment Real Estate Loans - Family Residential $ 2,619,419 $ 2,144,258 $ 475,161 $ 95,056 $ 2,098,310 Real Estate Loans - Commercial 734, , ,756 Real Estate Loans - Other 640, , ,665 32, ,249 Commercial Loans 24,439 24,439 48,900 Consumer Loans Total $ $ $ $ $ The amount of interest income that would have been recorded on impaired loans was $70,892 and $66,442 for the years ended December 31, 2017 and 2016, respectively

29 4. LOANS AND ALLOWANCES FOR LOAN LOSSES (continued) Past Due and Non-Accrual A summary of our current, past due and non-accrual loans at December 31, 2017, are as follows: Recorded Investment Days Days >90 Days Total Total Loans Past Due Past Due And Accruing Non Accrual Past Due Current Receivable Real Estate Loans - Family Residential $ 476,460 $ 39,533 $ $1,292,914 $ 1,808,907 $103,636,319 $ 105,445,226 Real Estate Loans - Commercial 65,754 77, ,174 72,855,682 72,998,856 Real Estate Loans - Other 36, , ,504 15,479,867 15,928,371 Commercial Loans 8,078 9,782 17,860 19,484,099 19,501,959 Consumer Loans 25,542 16,823 19, ,059,695 7,121,582 Total $ 612,621 $ $ 12,522 $1,181,281 $ 2,48Q 332 $218,515,662 $22Q A summary of our current, past due and non-accrual loans at December 31, 2016, are as follows: Recorded Investment Days Days >90 Days Total Total Loans Past Due Past Due And Accruing Non Accrual Past Due Current Receivable Real Estate Loans - Family Residential $ 566,594 $ $ $1,133,948 $ 1,700,542 $ 81,092,724 $ 82,793,266 Real Estate Loans - Commercial 40,925 84, , ,889 43,753,271 44,094,160 Real Estate Loans - Other 138,695 22, , ,485 14,684,153 15,179,638 Commercial Loans 49,821 3,613 53,434 12,451,679 12,505, 113 Consumer Loans 80,397 55, ,535, Total $ 876,432 $ 166,011 $ $L683,782 $ $152, $ Troubled Debt Restructuring The Bank strives to identify borrowers in financial difficulty early and work with them to modify the loan to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where the Bank grants the borrower new terms that provide for a reduction of either interest or principal, the Bank measures any impairment on the restructuring as previously noted for impaired loans

30 4. LOANS AND ALLOWANCES FOR LOAN LOSSES (continued) Troubled Debt Restructuring (continued) Each potential loan modification is reviewed individually and the terms of the loan are modified to meet a borrower's specific circumstances at a point in time. The types of concessions provided to borrowers include interest rate adjustments or an extension of the maturity date. A summary of the loans that were modified during the year ended December 31, 2017 is as follows: Real Estate Loans - Family Residential Real Estate Loans - Commercial Real Estate Loans - Other Commercial Loans Consumer Loans Total Number of Contracts 2 3 Pre- Modification Recorded Investment $ 25, ,419 $ Post- Modification Recorded Investment $ 25, ,419 $ A summary of the loans that were modified during the year ended December 31, 2016 is as follows: Real Estate Loans - Family Residential Real Estate Loans - Commercial Real Estate Loans - Other Commercial Loans Consumer Loans Total Number of Contracts 4 Pre- Modification Recorded Investment $ 948,900 85,500 $ Post- Modification Recorded Investment $ 948,900 85,500 $ There was one TDR modified within the previous twelve months that subsequently redefaulted during the year ended December 31, 2017 with a balance of $216,541. The remaining loans are performing in accordance with the modified terms. At December 31, 2017, there are no commitments to lend additional funds to any borrower whose loan terms have been modified in a troubled debt restructuring

31 5. RELATED PARTY TRANSACTIONS FPB FINANCIAL CORP. AND SUBSIDIARIES In the ordinary course of business, the Bank has granted loans to directors, executive officers and their affiliates. In the opinion of management, such transactions were on substantially the same terms, including interest rates and collateral, as those prevailing at the time of comparable transactions with other persons and did not involve more than a normal risk of collectability or present any other unfavorable features to the Bank. Aggregate loans to these related parties totaled $603,774 at December 31, 2017, and $661,425 at December 31, During 2017 and 2016, new loans to such related parties amounted to $123,610 and $57,232, and repayments amounted to $181,261 and $626,425, respectively. The Bank held deposits of $9,975,918 and $5,043,691 for officers, directors, and entities for which they have significant ownership or management position at December 31, 2017 and 2016, respectively. 6. PREMISES AND EQUIPMENT A summary of the cost and accumulated depreciation of premises and equipment follows: Land Buildings Leasehold Improvements Furniture and Equipment Construction Work in Process Less: Accumulated Depreciation Net Book Value Year Ended December 31, $ 3,495,303 $ 3,495,303 8,618,497 8,618,497 8,095 3,321,879 3,045, ,467,839 15,159,428 (3,979,125) (3,511,400) $ $ Depreciation expense for the years ended December 31, 2017 and 2016 was $559,343 and $507,865, respectively. 7. DEPOSITS Interest-bearing demand deposits were as follows: NOW Accounts Savings Accounts Money Market Accounts Certificate of Deposit Accounts Total Year Ended December 31, $ 95,019,815 $ 97,734,318 15,587,114 14,130,018 54,606,844 27,972,265 49,026,697 45,996,208 $ $ Time deposits with a minimum denomination of $100,000 were $34,140,870 and $32,423,611 at December 31, 2017 and 2016, respectively

32 7. DEPOSITS (continued) FPB FINANCIAL CORP. AND SUBSIDIARIES Included in deposits is $17,663,903 of certificate of deposit accounts greater than or equal to $250,000 at December 31, Interest expense on certificates of deposit accounts totaled $461,404 and $417,914 and interest expense on NOW accounts totaled $434,625 and $328,028 at December 31, 2017 and 2016, respectively. At December 31, 2017, scheduled maturities of time deposits are as follows: Year Ended December 31, Amount 2018 $ 26,731, ,359, ,810, ,117, ,008,411 Thereafter Total $ 42,026,621 At December 31, 2017 and 2016, the Bank had deposit accounts in an overdraft position totaling $266,5 5 5 and $88,791, respectively. For financial reporting purposes, these amounts were reclassified as loans receivable. 8. ADVANCES FROM FEDERAL HOME LOAN BANK Pursuant to collateral agreements with the Federal Home Loan Bank (FHLB), advances are secured by a blanket floating lien on first mortgage loans. Total interest expense recognized in 2017 and 2016, was $75,841 and $118,549, respectively. Advances consisted of the following at December 31, 2017 and 2016, respectively: Contract Rate 0.00% to 1.99% 2.00% to 2.99% 3.00% to 3.99% 4.00% to 4.99% Total $ $ Advance Total ,800,000 $ 9,200,000 1,000,000 1,500,000 8,800,000 $ 10,100,000 Contractual maturities of advances at December 31, 2017, are as follows: Year Ended December 31, Total Amount 7,300, ,000 1,250,000 $ 8,800,

33 9. OTHER BORROWED FUNDS AND LINES OF CREDIT The Bank has established lines of credit with multiple banks to provide additional sources of operating funds. The Bank can borrow the amounts listed with the institutions below as of December 31, 2017: Financial Institution Federal Home Loan Bank First National Bankers Bank Compass Bank The Independent Bankers Bank Credit Limit $ 149,240,181 10,000,000 5,000,000 2,000,000 As of December 31, 2017, only the Federal Home Loan Bank line had funds drawn against it. See note INCOME TAXES The provision for income taxes for 2017 and 2016 consists of the following: Current Deferred, including $270,371 expense in 2017 from enacted rate reduction $ ,087,726 1,210,589 (215,654) (78,383) "" $===='=' 1.""'13"""2""'.2"""0"""6 The components of the net deferred tax asset at December 31, 2017 and 2016 are as follows: Deferred Tax Assets: Allowance for Loan Losses Deferred Income Deferred Loan Costs/Fees Other Real Estate Net Unrealized Loss on Securities Available-for-Sale Other Total Deferred Tax Assets $ ,986 $ 14,887 96,399 9,681 5, , ,135,737 6,887 71,680 9, , ,467, Deferred Tax Liabilities: FHLB Stock Dividends Fixed Assets Prepaid Expenses Total Deferred Tax Liabilities $ 1, , $ 2,550 1,037, Net Deferred Tax Asset $ 436,753 $ 321,

34 10. INCOME TAXES (continued) FPB FINANCIAL CORP. AND SUBSIDIARIES The provision for Federal income taxes differs from that computed at the statutory 34% corporate tax rate, as follows: Tax at Statutory Rate Enacted rate reduction Other Years Ended December Effective Amount Rate % $ 731, $ 270, (129,453) ("--"-6~.0=---2) $ $ Amount 1,283,173 Effective Rate% (150,967) (4~.0-"+0) Included in retained earnings at December 31, 2017 and 2016, is $502,946 in bad debt reserves for which no deferred Federal income tax liability has been recorded. These amounts represent allocations of income to bad debt deductions for tax purposes only. Reduction of these reserves for purposes other than tax bad debt losses or adjustments arising from carryback of net operating losses would create income for tax purposes, which would be subject to the then-current income tax rate. The unrecorded deferred liability on these amounts was approximately $105,619 (21% rate) and $171,000 (34% rate) at December 31, 2017 and 2016, respectively. 11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit, standby letters-of-credit, and undisbursed lines-of-credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Company's balance sheets. The Company's exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments. At December 31, 2017 and 2016, the following financial instruments were outstanding whose contract amounts represent credit risk: December (in thousands) Commitments to Extend Credit $ 45,196 $ 40,456 Standby Letters of Credit 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, and include amounts available to be drawn down against construction loans and unfunded commitments under lines-of-credit. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management' s credit evaluation of the customer

35 11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (continued) Standby letters-of-credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters-of-credit are primarily issued to support private borrowing arrangements. The majority of the letters-of-credit issued have expiration dates within one year. The credit risk involved in issuing letters-of-credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments if deemed necessary. 12. REGULATORY MATTERS The Bank is subject to various regulatory capital requirements administered by the federal 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 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 the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), Tier I capital (as defined) to average assets (as defined), and common equity Tier 1 capital (as defined) to risk-weighted assets (as defined). Management believes, as of December 31, 2017 and 2016, that the Bank meets all capital adequacy requirements to which it is subject. In 2014, FDIC adopted final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Bank. The rules include a new common equity Tier 1 capital to riskweighted assets minimum ratio of 4.5%; raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0%; require a minimum ratio of Total capital to risk-weighted assets of 8.0%; and require a minimum Tier 1 leverage ratio of 4.0%. A new capital conservation buffer, comprised of common equity Tier 1 capital, is also established above the minimum regulatory capital requirements. This capital conservation buffer will be phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increases each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. The phase-in period for the final rules began for the Bank on January 1, 201 5, with full compliance with all of the final rule's requirements phased in over a multi-year schedule and should be fully phased-in by January 1, Management believes that the Bank's capital levels will remain characterized as "wellcapitalized" under the new rules

36 12. REGULATORY MATTERS (continued) The Bank's actual capital amounts and ratios are presented in the following table: As of December 31, 2017 Actual Amount Ratio Minimum Capital Requirement Amount Ratio Minimum To be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Common Equity Tier 1 Capital $ 33, % Tier 1 Leverage Capital 33, % Tier 1 Risk Based Capital 33, % Total Risk Based Capital 35, % $ 10, % 13, % 13, % 18, % $ 18, % 17, % 18, % 23, % As of December 31, 2016 Actual Amount Ratio Minimum Capital Requirement Amount Ratio Minimum To be Well Capitalized Under Prompt Corrective Action Provisions Amount Ratio Common Equity Tier 1 Capital $ 28, % Tier 1 Leverage Capital 28, % Tier 1 Risk Based Capital 28, % Total Risk Based Capital 30, % $ 8, % 11, % 10, % 14, % $ 12, % 13, % 14, % 17, % Applicable Federal and State statutes and regulations impose restrictions on the amounts of dividends that may be declared by the Bank. 13. MANAGEMENT RECOGNITION AND RETENTION PLAN On April 25, 2000, the shareholders of the Company approved the establishment of the Management Recognition and Retention Plan (the "2000 Plan") as an incentive to retain personnel of experience and ability in key positions. As shares were acquired for the 2000 Plan, the purchase price of these shares was recorded as a contra equity account. As the shares are distributed, the contra equity account is reduced

37 13. MANAGEMENT RECOGNITION AND RETENTION PLAN (continued) 2000 Plan shares are earned by recipients at a rate of 20% of the aggregate number of shares granted under the 2000 Plan, with the first 20% to be vested on the one-year anniversary of the date of the grant. If the employment of an employee or service as a non-employee director is terminated prior to the fifth anniversary of the date of the grant of the 2000 Plan share award for any reason, the recipient shall forfeit the right to any shares subject to the award that have not been earned. The cost associated with the 2000 Plan is based on the market price of the stock as of the date on which the 2000 Plan shares were granted. This cost is being recognized over the five-year vesting schedule. As of April 2010, no further shares can be granted to employees or non-employee directors from the 2000 Plan. A summary of the changes in stock pertaining to the 2000 Plan follows: Balance at December 31, 2015 Transfer Out Balance at December 31, 2016 Unawarded Shares 1,098 (l,098) Awarded Shares On April 23, 2008, the shareholders of the Company approved the establishment of a new Management Recognition and Retention Plan (the "2008 Plan") as an incentive to retain personnel of experience and ability in key positions. The 2008 Plan is substantially similar to the Company's 2000 Management and Retention Plan previously approved by stockholders, except the 2008 Plan-provides for accelerated vesting of all outstanding awards upon a change in control of the Company or the Bank. Under the terms of the 2008 Plan, the Company may purchase shares as they are issued to recipients. The cost associated with the 2008 Plan is based on the market price of the stock as of the date on which the 2008 Plan shares were granted. A summary of the changes in stock pertaining to the 2008 Plan follows: Balance at December 31, 2015 Adjusted Balance - March 31, Stock Split Forfeited Earned and issued Balance at December 31, 2016 Earned and issued Granted Balance at December 31, Unawarded Shares 799 1, ,289 (l,000) 289 Awarded-Not Vested Shares 4,625 6,938 (90) (3,653) 3,195 (1,312) For the years ended December 31, 2017 and 2016, compensation expense pertaining to the 2008 Plan totaled $13,225 and $30,397, respectively

38 13. MANAGEMENT RECOGNITION AND RETENTION PLAN (continued) On May 12, 2016, the shareholders of the Company approved the establishment of a new Management Recognition and Retention Plan (the "2016 Plan") as an incentive to retain personnel of experience and ability in key positions. The 2016 Plan provides for the grant of stock options, restricted stock awards, restricted stock units and performance awards for up to 184,000 shares of common stock to directors, officers, and employees. During the year ended December 31, 2017, 48,500 shares were granted with vesting periods ranging from 2 to 5 years beginning in 2018 through The cost associated with the 2016 Plan is based on the market price of the stock as of the date on which the 2016 Plan shares will be granted. A summary of the changes in stock pertaining to the 2016 Plan follows: Balance at December 31, 2016 Granted Balance at December 31, COMMITMENTS AND CONTINGENCIES Employment and Retirement Contracts Unawarded Shares 184,000 (48,500) Awarded-Not Vested Shares Two employees of the Company serve under an employment contract that is due to expire on September 30, The contract covers compensation and termination. Change in Control Severance Agreements The Company and the Bank have entered into agreements with certain key employees which provide for severance benefits to the employees if they were to terminate their employment as a result of the Company or the Bank experiencing a "change in control" event, as defined within the agreements. Since the change of control severance agreements contain a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employees' control, recognition of liability within the consolidated financial statements would occur when it becomes probable that the event will occur. Other Matters As part of its operations, the Bank sells to third-party investors certain mortgage loans it initially underwrites and funds. Under arrangements with these third-party investors, the Bank may be required to indemnify and possibly repurchase loans that were sold if certain criteria are met. These criteria include, but are not limited to, the following: A material breach of representation or warranty to a particular loan A material breach of terms or conditions of the agreement between the Bank and the third-party investor Improper or incomplete documentation Fraud on the part of the Bank, or of the borrower for which the loan was sold

39 15. DISCLOSURES ABOUT FAIR VALUE FPB FINANCIAL CORP. AND SUBSIDIARIES In accordance with the Fair Value Measurements and Disclosure topic of F ASB ASC, disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, is required. Fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Bank groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Level 1: Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 2: Valuation is based on inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. Level 3: Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation