What changed in this filing

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Item 1. Financial Statements

2021-08-09 compared with 2021-05-10 · 322 added, 177 removed, 977 unchanged (34% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

($ in thousands) March 31,

($ in thousands) June 30,

2021 (unaudited) December 31,

4 unchanged sentences

Securities held to maturity (fair values of $ 292,774 and $ 170,734 )

291,728 167,551

Presold mortgages in process of settlement at fair value 13,762 42,271

34 unchanged sentences

28,491,633 and 28,579,335 shares

397,704 400,582

Retained earnings 507,531 478,489

8 unchanged sentences

($ in thousands, except share data-unaudited) Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

INTEREST INCOME

12 unchanged sentences

Net interest income 58,759 52,624 113,997 107,383

Provision for credit losses — 5,590

Provision for loan losses — 19,298 — 24,888

Provision for unfunded commitments 1,939 — 1,939 —

Total provision for credit losses 1,939 19,298 1,939 24,888

Net interest income after provision for credit losses 56,820 33,326 112,058 82,495

7 unchanged sentences

Bank-owned life insurance income 614 629 1,234 1,271

Securities gains (losses), net — 8,024 — 8,024

Other gains (losses), net 1,517 ( 187 ) 1,483 ( 113 )

6 unchanged sentences

Equipment related expenses 1,053 1,020 2,098 2,165

Merger and acquisition expenses 411 — 411 —

Intangibles amortization expense 845 978 1,742 2,033

Foreclosed property losses, net 157 159

Foreclosed property (gains) losses, net ( 173 ) 35 ( 16 ) 194

Other operating expenses 10,910 9,691 21,267 19,793

14 unchanged sentences

($ in thousands-unaudited) Three Months Ended

June 30, Six Months Ended

2021 2020 2021 2020

Net income $ 29,285 16,352 57,479 34,532

3 unchanged sentences

Tax (expense) benefit ( 994 ) ( 637 ) 4,575 ( 5,409 )

Reclassification to realized (gains) losses

— ( 8,024 ) — ( 8,024 )

Tax expense (benefit) — 1,844 — 1,844

Postretirement Plans:

13 unchanged sentences

Shares Amount

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Balances, April 1, 2020 29,041 $ 410,236 430,709 ( 2,602 ) 2,602 21,253 862,198

Net income 16,352 16,352

Cash dividends declared ($ 0.18 per common share)

( 5,215 ) ( 5,215 )

Change in Rabbi Trust obligation 385 ( 385 ) —

Stock repurchases ( 104 ) ( 2,432 ) ( 2,432 )

Stock-based compensation 40 895 895

Other comprehensive income (loss) ( 3,907 ) ( 3,907 )

Balances, June 30, 2020 28,977 $ 408,699 441,846 ( 2,217 ) 2,217 17,346 867,891

Three Months Ended June 30, 2021

Balances, April 1, 2021 28,489 $ 397,094 483,944 ( 2,256 ) 2,256 ( 4,185 ) 876,853

Net income 29,285 29,285

Cash dividends declared ($ 0.20 per common share)

( 5,698 ) ( 5,698 )

Change in Rabbi Trust obligation 328 ( 328 ) —

Stock withheld for payment of taxes ( 4 ) ( 221 ) ( 221 )

Stock-based compensation 7 831 831

Other comprehensive income (loss) 3,460 3,460

Balances, June 30, 2021 28,492 $ 397,704 507,531 ( 1,928 ) 1,928 ( 725 ) 904,510

See accompanying notes to unaudited consolidated financial statements.

($ in thousands, except share data - unaudited) Common Stock Retained

Earnings Stock in

Acquisition Rabbi

Obligation Accumulated

Comprehensive

Shareholders’

Shares Amount

Six Months Ended June 30, 2020

Balances, January 1, 2020 29,601 $ 429,514 417,764 ( 2,587 ) 2,587 5,123 852,401

1 unchanged sentence

Cash dividends declared ($ 0.36 per common share)

( 10,450 ) ( 10,450 )

Change in Rabbi Trust Obligation 370 ( 370 ) —

2 unchanged sentences

Other comprehensive income (loss) 12,223 12,223

Balances, March 31, 2020 29,041 $ 410,236 430,709 ( 2,602 ) 2,602 21,253 862,198

Three Months Ended March 31, 2021

Balances, June 30, 2020 28,977 $ 408,699 441,846 ( 2,217 ) 2,217 17,346 867,891

Six Months Ended June 30, 2021

Balances, January 1, 2021 28,579 400,582 478,489 ( 2,243 ) 2,243 14,350 893,421

2 unchanged sentences

Cash dividends declared $ 0.40 per common share)

( 11,386 ) ( 11,386 )

Change in Rabbi Trust Obligation 315 ( 315 ) —

3 unchanged sentences

Other comprehensive income (loss) ( 15,075 ) ( 15,075 )

Balances, March 31, 2021 28,489 $ 397,094 483,944 ( 2,256 ) 2,256 ( 4,185 ) 876,853

Balances, June 30, 2021 28,492 $ 397,704 507,531 ( 1,928 ) 1,928 ( 725 ) 904,510

See accompanying notes to unaudited consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

($ in thousands-unaudited) Three Months Ended March 31,

($ in thousands-unaudited) Six Months Ended June 30,

Cash Flows From Operating Activities

5 unchanged sentences

Other purchase accounting accretion and amortization, net 61 32

Foreclosed property losses and write-downs, net 157 159

Other losses 34 ( 74 )

Foreclosed property (gains) losses and write-downs, net ( 16 ) 194

Gains on securities available for sale — ( 8,024 )

Other (gains) losses ( 1,483 ) 113

Increase in net deferred loan fees 1,084 8,789

11 unchanged sentences

Proceeds from sales of SBA loans 55,380 45,306

Decrease in accrued interest receivable 1,620 881

Increase in other assets ( 5,242 ) ( 1,096 )

Increase in accrued interest receivable ( 85 ) ( 3,295 )

Decrease (increase) in other assets 2,467 ( 6,935 )

Increase in net deferred income tax asset ( 44 ) ( 7,661 )

Decrease in accrued interest payable ( 194 ) ( 629 )

Increase in other liabilities 639 3,318

(Decrease) increase in other liabilities ( 4,826 ) 23,784

Net cash provided by operating activities 81,098 44,497

4 unchanged sentences

Proceeds from maturities/issuer calls of securities held to maturity 8,718 22,907

Redemptions (purchases) of FRB and FHLB stock, net 1,836 ( 4,572 )

Net decrease (increase) in loans 110,212 ( 95,680 )

Proceeds from sales of securities available for sale — 219,697

Redemptions of FRB and FHLB stock, net 1,836 7,754

Net increase in loans ( 40,288 ) ( 311,493 )

Proceeds from sales of foreclosed properties 2,462 1,354

1 unchanged sentence

Proceeds from sales of premises and equipment 218 192

Net cash paid from sale of insurance operations ( 555 ) —

Net cash used by investing activities ( 855,093 ) ( 274,569 )

17 unchanged sentences

Initial recognition of operating lease right-of-use assets and operating lease liabilities 444 —

Receivable recorded related to sale of insurance operations 12,955 —

Derecognition of intangible assets related to sale of insurance operations ( 10,229 ) —

See accompanying notes to consolidated financial statements.

1 unchanged sentence

Notes to Consolidated Financial Statements

(unaudited) For the Period Ended March 31, 2021

(unaudited) For the Period Ended June 30, 2021

Note 1 - Basis of Presentation

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of March 31, 2021, the consolidated results of operations for the three months ended March 31, 2021 and 2020, and the consolidated cash flows for the three months ended March 31, 2021 and 2020.

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly in all material respects the consolidated financial position of the Company as of June 30, 2021, the consolidated results of operations for the three and six months ended June 30, 2021 and 2020, and the consolidated cash flows for the six months ended June 30, 2021 and 2020.

Any such adjustments were of a normal, recurring nature.

Reference is made to the 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for a discussion of accounting policies and other relevant information with respect to the financial statements.

The results of operations for the periods ended March 31, 2021 and 2020 are not necessarily indicative of the results to be expected for the full year.

The results of operations for the periods ended June 30, 2021 and 2020 are not necessarily indicative of the results to be expected for the full year.

The Company has evaluated all subsequent events through the date the financial statements were issued.

Recent Developments:

COVID-19 - The COVID-19 pandemic has continued to impact our operations in 2021.

We remain committed and focused on the health and safety of our team members, customers, and communities, and we continue to have a many employees working remotely.

The most significant effects of the pandemic that we have continued to experience in 2021 have been lower loan demand (excluding PPP loans) and high deposit growth, which has likely been impacted by stimulus payments and higher savings rates by our customers.

Low interest rates have also resulted in high levels of mortgage loan refinancings, which have increased our mortgage loan sales income, but have reduced our level of mortgage loans outstanding.

Thus far, we have not experienced a meaningful increase in problem loans or charge-offs.

COVID-19 - The impact of the COVID-19 pandemic has continued to lessen in 2021 in our market areas.

Recently however, there has been an emergence of new, more virulent strains of COVID-19 that are now spreading at higher transmission rates than prior strains.

We are uncertain what impact this will have on the Company and its market areas.

On December 27, 2020, the Economic Aid Act was signed into law, which included another round of Paycheck Protection Program (PPP) funding.

The Company began originating the new round of PPP loans in January 2021.

During the first quarter of 2021, the Company funded $ 111 million in PPP loans, while also processing $ 111 million in forgiveness payments related to 2020 PPP loan originations.

During the first six months of 2021, the Company funded $ 112 million in PPP loans, while also processing $ 198 million in forgiveness payments related to 2020 PPP loan originations.

In response to the pandemic onset in 2020, the Company generally offered impacted borrowers loan payment deferrals of 90 days in duration.

Since that time, most of our borrowers have resumed payments and as of March 31, 2021, the Company had remaining pandemic-related loan deferrals of $ 5.9 million.

The extent to which the COVID-19 pandemic has a further impact on our business, results of operations, and

financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which

are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and

actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.

Since that time, most of our borrowers have resumed payments and as of June 30, 2021, the Company had remaining pandemic-related loan deferrals of $ 2.1 million.

The extent to which the COVID-19 pandemic has a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.

Note 2 – Accounting Policies

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Accounting Standards Adopted in 2021

On January 1, 2021, the Company adopted Accounting Standards Codification ("ASC") 326 ("CECL"), which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology.

In August 2018, the FASB amended the Compensation - Retirement Benefits – Defined Benefit Plans Topic of the Accounting Standards Codification to improve disclosure requirements for employers that sponsor defined benefit pension and other postretirement plans.

The guidance removed disclosures that were no longer considered cost-beneficial, clarified the specific requirements of disclosures, and added disclosure requirements identified as relevant.

The amendments were effective for the Company on January 1, 2021 and the adoption of this amendment did not have a material effect on its financial statements.

On January 1, 2021, the Company adopted the current expected credit loss (CECL) guidance in accordance with Accounting Standards Codification ("ASC") 326.

CECL replaced the prior incurred-loss methodology for recognizing credit losses with a methodology that is based on estimating future expected lifetime credit losses.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held to maturity debt securities.

3 unchanged sentences

The Company adopted CECL as of January 1, 2021 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Results for reporting periods beginning after

January 1, 2021 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).

Results for reporting periods beginning after January 1, 2021 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).

The transition adjustment of the adoption of CECL included an increase in the allowance for credit losses on loans of $ 14.6 million, which is presented as a reduction to loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $ 7.5 million, which is recorded within Other Liabilities.

5 unchanged sentences

In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption.

The amortized cost basis of the PCD assets was adjusted to reflect the addition of $ 0.1 million of the allowance for credit losses.

The amortized cost basis of the PCD assets was adjusted to reflect the addition of $ 0.1 million to the allowance for credit losses.

The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at a rate that approximates the effective interest rate as of January 1, 2021.

With regard to PCD assets, because the Company elected to disaggregate the former PCI pools and no longer considers these pools to be the unit of account, contractually delinquent PCD loans will be reported as nonaccrual loans using the same criteria as other loans.

Similarly, although management did not reassess whether modifications to individual acquired financial assets accounted for in pools were TDRs as of the date of adoption, PCD loans that are restructured and meet the definition of troubled debt restructurings after the adoption of CECL will be reported as such.

With regard to purchased credit deteriorated (PCD) assets, because the Company elected to disaggregate the former purchased credit impaired (PCI) pools and no longer considers these pools to be the unit of account, contractually delinquent PCD loans are now reported as nonaccrual loans using the same criteria as other loans.

Similarly, although management did not reassess whether modifications to individual acquired financial assets accounted for in pools were troubled debt restructurings (TDRs) as of the date of adoption, PCD loans that are restructured and meet the definition of troubled debt restructurings after the adoption of CECL will be reported as such.

Accrued interest for all financial instruments is included in a separate line on the face of the Consolidated Balance Sheets.

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful.

The Company has concluded that this policy results in the timely reversal of uncollectable interest.

The Company has concluded that this policy results in the timely reversal of uncollectible interest.

The allowance for credit losses for the majority of loans was calculated using a discounted cash flow methodology applied at a loan level with a one-year reasonable and supportable forecast period and a three-year straight-line reversion period.

1 unchanged sentence

The Company's CECL allowances will fluctuate over time due to macroeconomic conditions and forecasts as well as the size and composition of the loan portfolios.

The guidance removed disclosures that were no longer considered cost-beneficial, clarified the specific requirements of disclosures, and added disclosure requirements identified as relevant.

The amendments were effective for the Company on January 1, 2021 and the adoption of this amendment did not have a material effect on its financial statements.

Accounting Policy Updates

Securities - Debt securities that the Company has the positive intent and ability to hold to maturity are classified as “held to maturity” and carried at amortized cost.

5 unchanged sentences

Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.

Allowance for Credit Losses - Securities Held to Maturity - Since the adoption of ASC 326 (CECL), the Company measures expected credit losses on held to maturity debt securities on an individual security basis.

Accrued interest receivable on held to maturity debt securities totaled $ 1.12 million at March 31, 2021 and was excluded from the estimate of credit losses.

Allowance for Credit Losses - Securities Held to Maturity - Since its adoption of CECL, the Company measures expected credit losses on held to maturity debt securities on an individual security basis.

Accrued interest receivable on held to maturity debt securities totaled $ 1.94 million at June 30, 2021 and was excluded from the estimate of credit losses.

The estimate of expected credit losses is primarily based on the ratings assigned to the securities by debt rating agencies and the average of the annual historical loss rates associated with those ratings.

4 unchanged sentences

The state and local governments securities held by the Company are highly rating by major rating agencies.

As a result, the allowance for credit losses on held to maturity securities was immaterial at March 31, 2021.

As a result, the allowance for credit losses on held to maturity securities was immaterial at June 30, 2021.

Allowance for Credit Losses - Securities Available for Sale - For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell the security before recovery of the amortized cost basis.

7 unchanged sentences

Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

At March 31, 2021, there was no allowance for credit losses related to the available-for-sale portfolio.

Accrued interest receivable on available for sale debt securities totaled $ 3.34 million at March 31, 2021 and was excluded from the estimate of credit losses.

At June 30, 2021, there was no allowance for credit losses related to the available-for-sale portfolio.

Accrued interest receivable on available for sale debt securities totaled $ 4.11 million at June 30, 2021 and was excluded from the estimate of credit losses.

Loans - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost.

Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred fees and costs.

Accrued interest receivable related to loans totaled $ 14.2 million at March 31, 2021 and was reported in accrued interest receivable on the consolidated balance sheets.

Accrued interest receivable related to loans totaled $ 14.3 million at June 30, 2021 and was reported in accrued interest receivable on the consolidated balance sheets.

Interest income is accrued on the unpaid principal balance.

5 unchanged sentences

Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual.

the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero.

Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero.

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.

11 unchanged sentences

Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Estimated recoveries are considered for post-CECL adoption date charge-offs to the extend that they do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Estimated recoveries are considered for post-CECL adoption date charge-offs to the extent that they do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Accrued interest receivable is excluded from the estimate of credit losses.

9 unchanged sentences

For substantially all segments of collectively evaluated loans, the Company incorporates two or more macroeconomic drivers using a statistical regression modeling methodology.

The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline outlook and alternative scenarios for the United States economy.

The baseline, along with the evaluation of alternative scenarios, is evaluated by management to determine the best estimate within the range of expected credit losses.

The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline forecast and alternative scenarios for the United States economy.

The baseline forecast, along with the alternative scenarios, are evaluated by management to determine the best estimate within the range of expected credit losses.

The baseline forecast incorporates an equal probability of the United States economy performing better or worse than this projection.

With the ongoing pandemic, along with periodic starts and stops to reopening the economy and the impact of government stimulus, the baseline and alternative scenarios have reflected a high degree of volatility in economic forecasts from month-to-month.

The Company based it's adoption date allowance for credit loss adjustment primarily on the baseline forecast, which reflected ongoing threats to the economy, primarily arising from the pandemic.

In reviewing the March 2021 forecasts, management noted the continued high degree of volatility of the forecasts.

Given the uncertainty that the volatility is indicative of and the inherent imprecision of a forecast accurately projecting economic statistics during these unprecedented times, management elected to base its March 31, 2021 computation of the allowance for credit losses primarily on an alternative, more negative forecast, that management judged to more appropriately reflect the inherent risks to its loan portfolio.

This more negative forecast's projections were materially consistent with the adoption-date forecast's projections under the baseline scenario.

The Company based its adoption date allowance for credit loss adjustment primarily on the baseline forecast, which reflected ongoing threats to the economy, primarily arising from the pandemic.

In reviewing forecasts during 2021, management noted high degrees of volatility in the monthly forecasts.

Given the uncertainty that the volatility is indicative of and the inherent imprecision of a forecast accurately projecting economic statistics during these unprecedented times, management elected to base both its March 31, 2021 and June 30, 2021 computations of the allowance for credit losses primarily on an alternative, more negative forecast, that management judged to more appropriately reflect the inherent risks to its loan portfolio.

Management has also evaluated the appropriateness of the reasonable and supportable forecast scenarios utilized for each period and has made adjustments as needed.

1 unchanged sentence

The Company generally utilizes a four-quarter forecast and a twelve-quarter reversion period to the long-term average, which is then held static for the remainder of the forecast period.

Included in its systematic methodology to determine its ACL, Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process.

Included in its systematic methodology to determine its allowance for credit losses (ACL), Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process.

These qualitative adjustments either increase or decrease the quantitative model estimation (i.e., formulaic model results).

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The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies:

management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or

renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.

Troubled Debt Restructurings (TDRs) - A loan for which the terms have been modified resulting in a more than insignificant concession, and for which the borrower is experiencing financial difficulties, is generally considered to be a TDR.

The allowance for credit loss on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.

Allowance for Credit Losses - Unfunded Loan Commitments - Effective with the adoption of CECL, the Company estimates expected credit losses on commitments to extend credit over the contractual period in which the Company is exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancelable by the Company.

The allowance for credit loss on a TDR is measured using the same method as all other loans held for

investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.

The allowance for off-balance sheet credit exposures, which is reflected within "Other Liabilities," is adjusted for as an increase or decrease to the provision for credit losses.

2 unchanged sentences

Note 3 – Stock-Based Compensation

The Company recorded total stock-based compensation expense of $ 397,000 and $ 513,000 for the three months ended March 31, 2021 and 2020, respectively.

The Company recognized $ 91,000 and $ 118,000 of income tax benefits related to stock-based compensation expense in the income statement for the three months ended March 31, 2021 and 2020, respectively.

At March 31, 2021, the sole equity-based compensation plan for the Company is the First Bancorp 2014 Equity Plan (the "Equity Plan"), which was approved by shareholders on May 8, 2014.

As of March 31, 2021, the Equity Plan had 530,345 shares remaining available for grant.

The Company recorded total stock-based compensation expense of $ 831,000 and $ 895,000 for the three months ended June 30, 2021 and 2020, respectively, and $ 1,228,000 and $ 1,408,000 for the six months ended June 30, 2021 and 2020, respectively, which includes the value of the stock grants to directors as discussed below.

The Company recognized $ 191,000 and $ 206,000 of income tax benefits related to stock-based compensation expense in the income statement for the three months ended June 30, 2021 and 2020, respectively, and $ 282,000 and $ 324,000 for the six months ended June 30, 2021 and 2020, respectively.

At June 30, 2021, the sole equity-based compensation plan for the Company is the First Bancorp 2014 Equity Plan (the "Equity Plan"), which was approved by shareholders on May 8, 2014.

As of June 30, 2021, the Equity Plan had 523,295 shares remaining available for grant.

The Equity Plan is intended to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the plans' participants with those of the Company and its shareholders.

The Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted stock, restricted performance stock, unrestricted stock, and performance units.

Recent equity awards to employees have been made in the form of shares of restricted stock with service vesting conditions only.

The Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted and unrestricted stock, restricted performance stock, unrestricted stock, and performance units.

For the last several years, the only equity-based compensation granted by the Company has been shares of restricted stock, as it relates to employees, and unrestricted stock as it relates to non-employee directors.

Recent restricted stock awards to employees typically include service-related vesting conditions only.

Compensation expense for these awards is recorded over the requisite service periods.

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Over the past five years, there have been insignificant amounts of forfeitures, and therefore the Company assumes that all awards granted with service conditions only will vest.

The Company issues new shares of common stock when options are exercised.

In addition to employee equity awards, the Company's practice is to grant common shares, valued at approximately $ 32,000 , to each non-employee director (currently 10 in total) in June of each year.

The Company issues new shares of common stock when restricted stock is granted.

In addition to employee equity awards, the Company's practice is to grant unrestricted common shares, valued at approximately $ 32,000 , to each non-employee director (currently 10 in total) in June of each year.

Compensation expense associated with these director awards is recognized on the date of award since there are no vesting conditions.

The following table presents information regarding the activity for the first three months of 2021 related to the Company’s outstanding restricted stock:

On June 1, 2021, the Company granted 7,050 shares of common stock to non-employee directors ( 705 shares per director), at a fair market value of $ 45.41 per share, which was the closing price of the Company's common stock on that date, and resulted in $ 320,000 in expense.

On June 1, 2020, the Company granted 14,146 shares of common stock to non-employee directors ( 1,286 shares per director), at a fair market value of $ 24.87 per share, which was the closing price of the Company's common stock on that date, and resulted in $ 352,000 in expense.

The expense associated with director grants is classified as "other operating expense" in the Consolidated Statements of Income.

The following table presents information regarding the activity for the first six months of 2021 related to the Company’s outstanding restricted stock:

Long-Term Restricted Stock

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Forfeited or expired during the period ( 8,011 ) 38.00

Nonvested at March 31, 2021 185,579 $ 33.79

Total unrecognized compensation expense as of March 31, 2021 amounted to $ 2,576,000 with a weighted-average remaining term of 2.0 years.

For the nonvested awards that are outstanding at March 31, 2021, the Company expects to record $ 1,542,000 in compensation expense in the next twelve months, $ 1,308,000 of which is expected to be recorded in the remaining quarters of 2021.

Nonvested at June 30, 2021 171,029 $ 33.00

Total unrecognized compensation expense as of June 30, 2021 amounted to $ 2,065,000 with a weighted-average remaining term of 1.8 years.

For the nonvested awards that are outstanding at June 30, 2021, the Company expects to record $ 1,255,000 in compensation expense in the next twelve months, $ 797,000 of which is expected to be recorded in the remaining quarters of 2021.

Note 4 – Earnings Per Common Share

The following is a reconciliation of the numerators and denominators used in computing Basic and Diluted Earnings Per Common Share:

For the Three Months Ended March 31,

For the Three Months Ended June 30,

($ in thousands except per

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Diluted EPS per common share $ 29,285 28,490,031 $ 1.03 $ 16,352 28,969,728 $ 0.56

For the Six Months Ended June 30,

($ in thousands except per

share amounts) Income

(Numerator) Shares

(Denominator) Per Share

Amount Income

(Numerator) Shares

(Denominator) Per Share

Net income $ 57,479 $ 34,532

income allocated to participating securities $ ( 341 ) $ ( 200 )

Basic EPS per common share $ 57,138 28,344,633 $ 2.02 $ 34,332 29,015,308 $ 1.18

Net income $ 57,479 28,344,633 $ 34,532 29,015,308

Effect of Dilutive Securities — 169,309 — 169,113

Diluted EPS per common share $ 57,479 28,513,942 $ 2.02 $ 34,532 29,184,421 $ 1.18

There were no options outstanding for any of the periods presented.

Note 5 – Securities

The book values and approximate fair values of investment securities at March 31, 2021 and December 31, 2020 are summarized as follows:

($ in thousands) March 31, 2021 December 31, 2020

The book values and approximate fair values of investment securities at June 30, 2021 and December 31, 2020 are summarized as follows:

($ in thousands) June 30, 2021 December 31, 2020

Value Unrealized Amortized

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Total held to maturity $ 291,728 292,774 3,247 ( 2,201 ) 167,551 170,734 3,348 ( 165 )

All of the Company’s mortgage-backed securities were issued by government-sponsored corporations, except for private mortgage-backed securities with a fair value of $ 0.9 million and $ 1.0 million as of March 31, 2021 and December 31, 2020, respectively.

The following table presents information regarding securities with unrealized losses at March 31, 2021:

The following table presents information regarding securities with unrealized losses at June 30, 2021:

($ in thousands) Securities in an Unrealized

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Total unrealized loss position $ 555,070 2,348 7,003 332 562,073 2,680

As of March 31, 2021 and December 31, 2020, the Company's security portfolio held 161 securities and 69 securities that were in an unrealized loss position, respectively.

In the above tables, all of the securities that were in an unrealized loss position at March 31, 2021 and December 31, 2020 are bonds that the Company has determined

are in a loss position due primarily to interest rate factors and not credit quality concerns.

As of June 30, 2021 and December 31, 2020, the Company's security portfolio held 155 securities and 69 securities that were in an unrealized loss position, respectively.

In the above tables, all of the securities that were in an unrealized loss position at June 30, 2021 and December 31, 2020 are bonds that the Company has determined are in a loss position due primarily to interest rate factors and not credit quality concerns.

In arriving at this conclusion, the Company reviewed third-party credit ratings and considered the severity of the impairment.

The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost.

No impairment charges were recognized for any securities during the three months ended March 31, 2020.

At adoption of CECL on January 1, 2021 and at March 31, 2021, the Company determined that expected credit losses associated with held to maturity debt securities was insignificant.

No impairment charges were recognized for any securities during the six months ended June 30, 2020.

At adoption of CECL on January 1, 2021 and at June 30, 2021, the Company determined that expected credit losses associated with held to maturity debt securities were insignificant.

See Note 2 for additional details on the adoption of CECL as it relates to the securities portfolio.

The book values and approximate fair values of investment securities at March 31, 2021, by contractual maturity, are summarized in the table below.

The book values and approximate fair values of investment securities at June 30, 2021, by contractual maturity, are summarized in the table below.

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

8 unchanged sentences

Total securities $ 2,114,614 2,115,153 291,728 292,774

At March 31, 2021 and December 31, 2020 investment securities with carrying values of $ 718,340,000 and $ 630,303,000 , respectively, were pledged as collateral for public deposits.

Included in “other assets” in the Consolidated Balance Sheets are investments in Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank of Richmond (“FRB”) stock totaling $ 21,690,000 and $ 23,526,000 at March 31, 2021 and December 31, 2020, respectively.

At June 30, 2021 and December 31, 2020 investment securities with carrying values of $ 812,763,000 and $ 630,303,000 , respectively, were pledged as collateral for public deposits.

These investments do not have readily determinable fair values.

The FHLB stock had a cost and fair value of $ 3,970,000 and $ 5,855,000 at March 31, 2021 and December 31, 2020, respectively, and serves as part of the collateral for the Company’s line of credit with the FHLB and is also a requirement for membership in the FHLB system.

The FRB stock had a cost and fair value of $ 17,720,000 and $ 17,671,000 at March 31, 2021 and December 31, 2020, respectively, and is a requirement for FRB member bank qualification.

The FHLB stock had a cost and fair value of $ 3,970,000 and $ 5,855,000 at June 30, 2021 and December 31, 2020, respectively, and serves as part of the collateral for the Company’s line of credit with the FHLB and is also a requirement for membership in the FHLB system.

The FRB stock had a cost and fair value of $ 17,720,000 and $ 17,671,000 at June 30, 2021 and December 31, 2020, respectively, and is a requirement for FRB member bank qualification.

Periodically, both the FHLB and FRB recalculate the Company’s required level of holdings, and the Company either buys more stock or redeems a portion of the stock at cost.

4 unchanged sentences

The Class B shares have transfer restrictions, and the conversion rate into Class A shares is periodically adjusted as Visa settles litigation.

The conversion rate at March 31, 2021 was approximately 1.62 , which means the Company would receive approximately 20,051 Class A shares if the stock had converted on that date.

The conversion rate at June 30, 2021 was approximately 1.62 , which means the Company would receive approximately 20,051 Class A shares if the stock had converted on that date.

This Class B stock does not have a readily determinable fair value and is carried at zero .

2 unchanged sentences

The following is a summary of the major categories of total loans outstanding:

($ in thousands) March 31, 2021 December 31, 2020

($ in thousands) June 30, 2021 December 31, 2020

Amount Percentage Amount Percentage

6 unchanged sentences

Subtotal 4,786,846 100 % 4,735,013 100 %

Unamortized net deferred loan costs (fees) ( 6,543 ) ( 3,698 )

Unamortized net deferred loan fees ( 4,782 ) ( 3,698 )

Total loans $ 4,782,064 $ 4,731,315

Included in the line item "Commercial, financial, and agricultural" in the table above are Paycheck Protection Program ("PPP") loans totaling $ 241.4 million and $ 240.5 million at March 31, 2021 and December 31, 2020, respectively.

Included in the line item "Commercial, financial, and agricultural" in the table above are PPP loans totaling $ 155.5 million and $ 240.5 million at June 30, 2021 and December 31, 2020, respectively.

PPP loans are fully guaranteed by the SBA.

Included in unamortized net deferred loan fees are approximately $ 9.0 million and $ 6.0 million at March 31, 2021 and December 31, 2020, respectively, in unamortized net deferred loan fees associated with PPP loans.

Included in unamortized net deferred loan fees are approximately $ 6.2 million and $ 6.0 million at June 30, 2021 and December 31, 2020, respectively, in unamortized net deferred loan fees associated with PPP loans.

These fees are being amortized under the effective interest method over the terms of the loans.

1 unchanged sentence

Also included in the table above are various non-PPP SBA loans, with additional information on these loans presented in the table below.

($ in thousands) March 31, 2021 December 31, 2020

($ in thousands) June 30, 2021 December 31, 2020

Guaranteed portions of non-PPP SBA loans included in table above $ 32,315 33,959

2 unchanged sentences

Sold portions of SBA loans with servicing retained - not included in tables above $ 426,940 395,398

At both March 31, 2021 and December 31, 2020, there was a remaining unaccreted discount on the retained portion of sold SBA loans amounting to $ 7.3 million.

As of March 31, 2021, unamortized discounts on acquired loans totaled $ 8.2 million.

At June 30, 2021 and December 31, 2020, there was a remaining unaccreted discount on the retained portion of sold SBA loans amounting to $ 7.0 million and $ 7.3 million, respectively.

As of June 30, 2021, unamortized discounts on acquired loans totaled $ 5.3 million.

At December 31, 2020, there were remaining accretable discounts of $ 7.9 million, related to purchased non-impaired loans.

1 unchanged sentence

At December 31, 2020, the carrying value of purchased credit impaired (PCI) loans were $8.6 million.

The following table presents changes in the accretable yield for PCI loans for the three months ended March 31, 2020.

Accretable Yield for PCI loans For the Three Months Ended March 31, 2020

The following table presents changes in the accretable yield for PCI loans for the six months ended June 30, 2020.

Accretable Yield for PCI loans For the Six Months Ended June 30, 2020

Balance at beginning of period $ 4,149

3 unchanged sentences

Balance at end of period 3,263

During the first three months of 2020, the Company received $ 446,000 in payments that exceeded the carrying amount of the related PCI loans, of which $ 352,000 was recognized as loan discount accretion income and $ 80,000 was recorded as additional loan interest income.

During the first six months of 2020, the Company received $ 414,000 in payments that exceeded the carrying amount of the related PCI loans, of which $ 341,000 was recognized as loan discount accretion income, $ 59,000 was recorded as additional loan interest income, and $ 14,000 was recorded as a recovery.

Nonperforming assets are defined as nonaccrual loans, troubled debt restructured loans (TDRs), loans past due 90 or more days and still accruing interest, and foreclosed real estate.

Nonperforming assets are summarized as follows.

($ in thousands) March 31,

($ in thousands) June 30,

2021 December 31,

6 unchanged sentences

Total nonperforming assets $ 41,845 46,997

At both March 31, 2021 and December 31, 2020, the Company had $ 1.9 million in residential mortgage loans in process of foreclosure, respectively.

At June 30, 2021 and December 31, 2020, the Company had $ 2.6 million and $ 1.9 million in residential mortgage loans in process of foreclosure, respectively.

The following table is a summary of the Company’s nonaccrual loans by major categories for the periods indicated.

CECL Incurred Loss

($ in thousands) March 31,

($ in thousands) June 30,

2021 December 31,

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Interest income recognized during the period on nonaccrual loans was immaterial.

The following table represents the accrued interest receivables written off by reversing interest income during the three months ended March 31, 2021.

($ in thousands) For the Three Months Ended March 31, 2021

The following table represents the accrued interest receivables written off by reversing interest income during the six months ended June 30, 2021.

($ in thousands) For the Six Months Ended June 30, 2021

Commercial, financial, and agricultural $ 156

4 unchanged sentences

Consumer loans —

The following table presents an analysis of the payment status of the Company’s loans as of March 31, 2021.

The following table presents an analysis of the payment status of the Company’s loans as of June 30, 2021.

($ in thousands) Accruing

26 unchanged sentences

Total loans $ 4,731,315

The following table presents an analysis of collateral-dependent loans of the Company as of March 31, 2021.

The following table presents an analysis of collateral-dependent loans of the Company as of June 30, 2021.

($ in thousands) Residential Property Business Assets Land Commercial Property Other Total Collateral-Dependent Loans

14 unchanged sentences

For loans secured by real estate, the Company's policy is to write nonaccrual loans down to 90 % of the appraised value, which considers estimated selling costs.

For real estate collateral that is in industries that are undergoing heightened stress, such as hotel loans in the current environment, the Company often discounts the collateral values by an additional 10 - 25 % due to additional discounts that are estimated to be incurred in a near-term sale.

For real estate collateral that is in industries that are undergoing heightened stress, the Company often discounts the collateral values by an additional 10 - 25 % due to additional discounts that are estimated to be incurred in a near-term sale.

For non real-estate collateral secured loans, the Company generally writes nonaccrual loans down to 75 % of the appraised value, which provides for selling costs and liquidity discounts that are usually incurred when disposing of non real-estate collateral.

1 unchanged sentence

The Company does not believe that there is significant over-coverage of collateral for any of the loan types noted above.

The following table presents the activity in the allowance for loan losses for all loans for the three months ended March 31, 2021 (under the CECL methodology).

The following table presents the activity in the allowance for loan losses for all loans for the three and six months ended June 30, 2021 (under the CECL methodology).

($ in thousands) Commercial,

5 unchanged sentences

and Other Consumer Loans Unallocated Total

As of and for the three months ended March 31, 2021

As of and for the three months ended June 30, 2021

Beginning balance $ 13,606 10,134 8,996 4,309 26,507 2,297 — 65,849

Charge-offs ( 550 ) — ( 76 ) ( 8 ) ( 1,324 ) ( 173 ) — ( 2,131 )

Recoveries 153 392 236 218 78 227 — 1,304

Provisions 1,600 ( 422 ) ( 505 ) ( 782 ) 97 12 — —

Ending balance $ 14,809 10,104 8,651 3,737 25,358 2,363 — 65,022

As of and for the six months ended June 30, 2021

Beginning balance $ 11,316 5,355 8,048 2,375 23,603 1,478 213 52,388

Adjustment for implementation of CECL 3,067 6,140 2,584 2,580 ( 257 ) 674 ( 213 ) 14,575

30 unchanged sentences

Purchased credit impaired $ 137 150 4,227 100 3,939 38 — 8,591

The following table presents the activity in the allowance for loan losses for the three months ended March 31, 2020 (under the Incurred Loss methodology).

The following table presents the activity in the allowance for loan losses for the three and six months ended June 30, 2020 (under the Incurred Loss methodology).

($ in thousands) Commercial,

5 unchanged sentences

and Other Consumer Loans Unallocated Total

As of and for the three months ended March 31, 2020

As of and for the three months ended June 30, 2020

Beginning balance $ 4,204 2,599 4,373 1,394 10,913 1,015 — 24,498

3 unchanged sentences

Ending balance $ 5,989 5,677 8,339 2,359 18,755 1,223 — 42,342

Ending balances as of March 31, 2020:

As of and for the six months ended June 30, 2020

Beginning balance $ 4,553 1,976 3,832 1,127 8,938 972 — 21,398

Charge-offs ( 3,931 ) ( 45 ) ( 474 ) ( 381 ) ( 545 ) ( 397 ) — ( 5,773 )

Recoveries 477 643 315 166 102 126 — 1,829

Provisions 4,890 3,103 4,666 1,447 10,260 522 — 24,888

Ending balance $ 5,989 5,677 8,339 2,359 18,755 1,223 — 42,342

Ending balance as of June 30, 2020:

Allowance for loan losses

2 unchanged sentences

Purchased credit impaired $ 42 — 110 — 4 8 — 164

Loans receivable as of March 31, 2020:

Loans receivable as of June 30, 2020

Ending balance – total $ 723,053 648,590 1,076,411 318,618 1,959,078 51,161 — 4,776,911

Unamortized net deferred loan costs 1,712

Unamortized net deferred loan fees ( 6,848 )

Total loans $ 4,770,063

Ending balances as of March 31, 2020:

Ending balances as of June 30, 2020:

Individually evaluated for impairment $ 6,736 965 9,743 325 17,697 — — 35,466

52 unchanged sentences

(Fail) Consumer loans (<$500,000) with a well-defined weakness, such as exceptions of any kind with no mitigating factors, history of paying outside the terms of the note, insufficient income to support the current level of debt, etc.

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of March 31, 2021.

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of June 30, 2021.

Term Loans by Year of Origination

33 unchanged sentences

Total loans 4,782,064

At June 30, 2021, as derived from the table above, the Company had $ 39.6 million in loans graded as Special Mention and $ 56.2 million in loans graded as Classified, which includes all nonaccrual loans.

In the table above, substantially all of the "Classified Loans" have grades of 7 or Fail, with those categories having similar levels of risk.

17 unchanged sentences

Concessions may include interest rate reductions or below market interest rates, principal forgiveness, extension of terms and other actions intended to minimize potential losses.

The vast majority of the Company’s TDR's modified during the periods ended March 31, 2021 and March 31, 2020 related to interest rate reductions combined with extension of terms.

The vast majority of the Company’s TDR's modified during the periods ended June 30, 2021 and June 30, 2020 related to interest rate reductions combined with extension of terms.

The Company does not generally grant principal forgiveness.

1 unchanged sentence

The TDR's that are nonaccrual are reported within the nonaccrual loan totals presented previously.

As of March 31, 2021, the Company had granted short-term deferrals related to the COVID-19 pandemic for $5.9 million of loans that were otherwise performing prior to modification.

Pursuant to the CARES Act and banking regulator guidance, these loans were not considered TDRs.

The following table presents information related to loans modified in a TDR during the three months ended March 31, 2021 and 2020.

($ in thousands) For the three months ended March 31, 2021 For the three months ended March 31, 2020

As of June 30, 2021, the Company had granted short-term deferrals related to the COVID-19 pandemic for $2.1 million of loans that were otherwise performing prior to modification.

Pursuant to the CARES Act and banking regulator guidance, these loans are not considered TDRs.

The following table presents information related to loans modified in a TDR during the three months ended June 30, 2021 and 2020.

($ in thousands) For the three months ended June 30, 2021 For the three months ended June 30, 2020

Contracts Pre-

18 unchanged sentences

Total TDRs arising during period 8 $ 2,655 $ 2,655 3 $ 142 $ 145

The following table presents information related to loans modified in a TDR during the six months ended June 30, 2021 and 2020.

($ in thousands) For the six months ended June 30, 2021 For the six months ended June 30, 2020

Contracts Pre-

Balances Post-

Balances Number of

Contracts Pre-

Balances Post-

TDRs – Accruing

Commercial, financial, and agricultural — $ — $ — 2 $ 143 $ 143

Real estate – construction, land development & other land loans — — — 1 67 67

Real estate – mortgage – residential (1-4 family) first mortgages 1 33 33 2 75 78

Real estate – mortgage – home equity loans / lines of credit — — — — — —

Real estate – mortgage – commercial and other 1 160 160 — — —

Consumer loans — — — — — —

TDRs – Nonaccrual

Commercial, financial, and agricultural 3 826 823 — — —

Real estate – construction, land development & other land loans 1 75 75 — — —

Real estate – mortgage – residential (1-4 family) first mortgages 1 263 263 — — —

Real estate – mortgage – home equity loans / lines of credit — — — — — —

Real estate – mortgage – commercial and other 3 1,569 1,569 — — —

Consumer loans — — — — — —

Total TDRs arising during period 10 $ 2,926 $ 2,923 5 $ 285 $ 288

Accruing restructured loans that were modified in the previous twelve months and that defaulted during the three months ended June 30, 2021 and 2020 are presented in the table below.

The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to foreclosed real estate.

There were no accruing TDR's that were modified in the previous twelve months and that defaulted during the three months ended March 31, 2021 or 2020.

($ in thousands) For the Three Months Ended June 30, 2021 For the Three Months Ended June 30, 2020

Contracts Recorded

Investment Number of

Contracts Recorded

Accruing TDRs that subsequently defaulted

Real estate – mortgage – residential (1-4 family first mortgages) — $ — — $ —

Real estate – mortgage – commercial and other — — 1 274

Total accruing TDRs that subsequently defaulted — $ — 1 $ 274

Accruing restructured loans that were modified in the previous twelve months and that defaulted during the six months ended June 30, 2021 and 2020 are presented in the table below.

($ in thousands) For the Six Months Ended June 30, 2021 For the Six Months Ended June 30, 2020

Contracts Recorded

Investment Number of

Contracts Recorded

Accruing TDRs that subsequently defaulted

Real estate – mortgage – residential (1-4 family first mortgages) — $ — — $ —

Real estate – mortgage – commercial and other — — 1 274

Total accruing TDRs that subsequently defaulted — $ — 1 $ 274

Allowance for Credit Losses - Unfunded Loan Commitments

3 unchanged sentences

The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans, and are discussed in Note 2.

The allowance for credit losses for unfunded loan commitments of $ 8.1 million and $ 0.6 million at March 31, 2021 and December 31, 2020, respectively, is separately classified on the balance sheet within Other Liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2021.

The allowance for credit losses for unfunded loan commitments of $ 10.0 million and $ 0.6 million at June 30, 2021 and December 31, 2020, respectively, is separately classified on the balance sheet within the line items "Other Liabilities".

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the six months ended June 30, 2021.

($ in thousands) Total Allowance for Credit Losses - Unfunded Loan Commitments

3 unchanged sentences

Provisions for credit losses on unfunded commitments 1,939

Ending balance at March 31, 2021 $ 8,086

Ending balance at June 30, 2021 $ 10,025

Allowance for Credit Losses - Securities Held to Maturity

As previously discussed, the allowance for credit losses for securities held to maturity was immaterial at March 31, 2021.

As previously discussed, the allowance for credit losses for securities held to maturity was immaterial at June 30, 2021.

Note 7 – Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of March 31, 2021 and December 31, 2020, and the carrying amount of unamortized intangible assets as of those same dates.

March 31, 2021 December 31, 2020

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of June 30, 2021 and December 31, 2020, and the carrying amount of unamortized intangible assets as of those same dates.

June 30, 2021 December 31, 2020

($ in thousands) Gross Carrying

12 unchanged sentences

Servicing assets are initially recorded at fair value and amortized over the expected lives of the related loans and are tested for impairment on a quarterly basis.

SBA servicing asset amortization expense is recorded within noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions, and fees." As derived from the table above, the Company had a SBA servicing asset at March 31, 2021 with a remaining book value of $ 5,925,000 .

The Company recorded $ 607,000 and $ 217,000 in servicing assets associated with the guaranteed portion of SBA loans sold during the first three months of 2021 and 2020, respectively.

During the first three months of 2021 and 2020, the Company recorded $ 470,000 and $ 918,000 , respectively, in related amortization expense.

Included in the amortization expense for the first three months of 2020 was an impairment charge of approximately $ 500,000 due to a decrease in the fair value of the asset resulting from deterioration in market conditions at March 31, 2020.

At March 31, 2021 and December 31, 2020, the Company serviced for others SBA loans totaling $ 412.5 million and $ 395.4 million, respectively.

Amortization expense of all other intangible assets, excluding the SBA servicing asset, totaled $ 897,000 and $ 1,055,000 for the three months ended March 31, 2021 and 2020, respectively.

Goodwill is evaluated for impairment on at least an annual basis, with the annual evaluation occurring on October 31 of each year.

During the period ended March 31, 2020, the economic turmoil and market volatility resulting from the COVID-19 crisis resulted in a substantial decrease in the Company's stock price and market capitalization.

Management believed such decrease was a triggering indicator requiring an interim goodwill impairment quantitative analysis.

In this analysis, the Company determined that no ne of its goodwill was impaired as of March 31, 2020.

Due to improving economic conditions and increases in the Company's stock price and market capitalization at year end 2020 and the first quarter of 2021, no triggering events were identified and therefore, the Company did not perform an interim impairment evaluation at December 31, 2020 or March 31, 2021.

SBA servicing asset amortization expense is recorded within noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions, and fees." As derived from the table above, the Company had a SBA servicing asset at June 30, 2021 with a remaining book value of $ 6,089,000 .

The Company recorded $ 1,315,000 and $ 704,000 in servicing assets associated with the guaranteed portion of SBA loans sold during the first six months of 2021 and 2020, respectively.

During the first six months of 2021 and 2020, the Company recorded $ 1,014,000 and $ 1,416,000 , respectively, in related amortization expense.

Included in the amortization expense for the first six months of 2020 was an impairment charge of approximately $ 500,000 due to a decrease in the fair value of the asset resulting from deterioration in market conditions at March 31, 2020.

At June 30, 2021 and December 31, 2020, the Company serviced for others SBA loans totaling $ 426.9 million and $ 395.4 million, respectively.

In the second quarter of 2021, the Company completed the sale of the operations and substantially all of the operating assets of its property and casualty insurance agency subsidiary, First Bank Insurance Services.

In the transaction, intangible assets totaling $ 10.2 million were derecognized from the Company's balance sheet, including goodwill of $ 7.4 million and customer lists with a carrying value of $ 2.8 million.

Amortization expense of all other intangible assets, excluding the SBA servicing asset, totaled $ 845,000 and $ 978,000 for the three months ended June 30, 2021 and 2020, respectively, and $ 1,742,000 and $ 2,033,000 for the six months ended June 30, 2021 and 2020, respectively.

Goodwill is evaluated for impairment on at least an annual basis, with the annual evaluation occurring on October 31st of each year.

Goodwill is also evaluated for impairment any time there is a triggering event indicating that impairment may have occurred.

In addition the 2020 annual impairment evaluation, due to the COVID-19 pandemic, the Company evaluated its goodwill for impairment at each of the first three quarter ends of 2020, with each evaluation indicating that there was no impairment.

Due to improving economic conditions and increases in the Company's stock price and market capitalization at year end 2020 and throughout 2021, no triggering events were identified and therefore, the Company has not performed interim impairment evaluations since the third quarter of 2020.

The following table presents the estimated amortization expense schedule related to acquisition-related amortizable intangible assets.

These amounts will be recorded as "Intangibles amortization expense" within the noninterest expense section of the Consolidated Statements of Income.

These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortized intangible assets.

These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or

estimated useful lives of amortized intangible assets.

income within the line item "Other service charges, commissions and fees" of the Consolidated Statements of Income.

($ in thousands) Estimated Amortization

April 1, 2021 to December 31, 2021 $ 2,375

Thereafter 1,250

July 1, 2021 to December 31, 2021 $ 1,337

Total $ 4,973

3 unchanged sentences

Although no previously accrued benefits were lost, employees no longer accrue benefits for service subsequent to 2012.

The Company recorded periodic pension cost totaling $ 191,000 and $ 216,000 for the three months ended March 31, 2021 and 2020, respectively.

The Company recorded periodic pension cost totaling $ 126,000 and $ 215,000 for the three months ended June 30, 2021 and 2020, respectively, and $ 317,000 and $ 431,000 for the six months ended June 30, 2021 and 2020.

The following table contains the components of the pension cost.

For the Three Months Ended March 31,

For the Three Months Ended June 30,

($ in thousands) 2021 Pension Plan 2020 Pension Plan 2021 SERP 2020 SERP 2021 Total Both Plans 2020 Total Both Plans

4 unchanged sentences

Net periodic pension cost $ 59 201 67 14 126 215

Six Months Ended June 30, 2021

($ in thousands) 2021 Pension Plan 2020 Pension Plan 2021 SERP 2020 SERP 2021 Total Both Plans 2020 Total Both Plans

Service cost $ — — — — — —

Interest cost 410 613 59 110 469 723

Expected return on plan assets ( 528 ) ( 650 ) — — ( 528 ) ( 650 )

Amortization of net (gain)/loss 368 440 8 ( 82 ) 376 358

Net periodic pension cost $ 250 403 67 28 317 431

The service cost component of net periodic pension cost is included in salaries and benefits expense and all other components of net periodic pension cost are included in other noninterest expense.

The Company’s contributions to the Pension Plan are based on computations by independent actuarial consultants and are intended to be deductible for income tax purposes.

The Company did no t contribute to the Pension Plan in the first three months of 2021 and does no t expect to contribute to the Pension Plan in the remainder of 2021.

The Company did no t contribute to the Pension Plan in the first six months of 2021 and does no t expect to contribute to the Pension Plan in the remainder of 2021.

The Company’s funding policy with respect to the SERP is to fund the related benefits from the operating cash flow of the Company.

1 unchanged sentence

The components of accumulated other comprehensive income (loss) for the Company are as follows:

($ in thousands) March 31, 2021 December 31, 2020

($ in thousands) June 30, 2021 December 31, 2020

Unrealized gain (loss) on securities available for sale $ 539 20,448

5 unchanged sentences

Total accumulated other comprehensive income (loss) $ ( 725 ) 14,350

The following table discloses the changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2021 (all amounts are net of tax).

The following table discloses the changes in accumulated other comprehensive income (loss) for the six months ended June 30, 2021 (all amounts are net of tax).

($ in thousands) Unrealized Gain

5 unchanged sentences

Net current-period other comprehensive income (loss) ( 15,334 ) 259 ( 15,075 )

Ending balance at March 31, 2021 $ ( 2,917 ) ( 1,268 ) ( 4,185 )

The following table discloses the changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2020 (all amounts are net of tax).

Ending balance at June 30, 2021 $ 415 ( 1,140 ) ( 725 )

The following table discloses the changes in accumulated other comprehensive income (loss) for the six months ended June 30, 2020 (all amounts are net of tax).

($ in thousands) Unrealized Gain

4 unchanged sentences

Amounts reclassified from accumulated other comprehensive income

( 6,180 ) 275 ( 5,905 )

Net current-period other comprehensive income (loss) 11,948 275 12,223

Ending balance at March 31, 2020 $ 23,497 ( 2,244 ) 21,253

Ending balance at June 30, 2020 $ 19,452 ( 2,106 ) 17,346

Amounts reclassified from accumulated other comprehensive income for Unrealized Gain (Loss) on Securities Available for Sale represent realized securities gains or losses, net of tax effects.

7 unchanged sentences

Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at March 31, 2021.

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at June 30, 2021.

($ in thousands)

Description of Financial Instruments Fair Value at March 31, 2021 Quoted Prices in

Description of Financial Instruments Fair Value at June 30, 2021 Quoted Prices in

Active Markets for

37 unchanged sentences

The Company reviews the pricing methodologies utilized by the bond accounting provider to ensure the fair value determination is consistent with the applicable accounting guidance and that the investments are properly classified in the fair value hierarchy.

Collateral-dependent loans — Fair values for collateral-dependent loans are measured on a non-recurring basis and are based on the underlying collateral values securing the loans, adjusted for estimated selling costs, or the net present value of the cash flows expected to be received for such loans.

Individually evaluated loans — Fair values for individually evaluated loans are measured on a non-recurring basis and are based on the underlying collateral values securing the loans, adjusted for estimated selling costs, or the net present value of the cash flows expected to be received for such loans.

Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable.

10 unchanged sentences

For any real estate valuations subsequent to foreclosure, any excess of the real estate recorded value over the fair value of the real estate is treated as a foreclosed real estate write-down on the Consolidated Statements of Income.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of June 30, 2021, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands)

Description Fair Value at March 31, 2021 Valuation

Description Fair Value at June 30, 2021 Valuation

Technique Significant Unobservable

Inputs Range (Weighted Average)

Nonaccrual loans - valued at collateral value $ 22,176 Appraised value Discounts applied for estimated costs to sell 10 %

Nonaccrual loans - valued at PV of expected cash flows 5,906 PV of expected cash flows Discount rates used in the calculation of the present value ("PV") of expected cash flows 4-11% (6.18%)

Individually evaluated loans - collateral-dependent $ 9,203 Appraised value Discounts applied for estimated costs to sell 10 %

Individually evaluated loans - cash flow dependent 4,760 PV of expected cash flows Discount rates used in the calculation of the present value ("PV") of expected cash flows 4 %- 11 % ( 6.12 %)

Foreclosed real estate 378 Appraised value Discounts for estimated costs to sell 10 %

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Foreclosed real estate 1,484 Appraised value Discounts for estimated costs to sell 10 %

The carrying amounts and estimated fair values of financial instruments not carried at fair value at March 31, 2021 and December 31, 2020 are as follows:

March 31, 2021 December 31, 2020

The carrying amounts and estimated fair values of financial instruments not carried at fair value at June 30, 2021 and December 31, 2020 are as follows:

June 30, 2021 December 31, 2020

($ in thousands) Level in Fair

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All of the Company’s revenues that are in the scope of the “ Revenue from Contracts with Customers ” accounting standard (“ASC 606”) are recognized within noninterest income.

The following table presents the Company’s sources of noninterest income for the three months ended March 31, 2021 and 2020.

The following table presents the Company’s sources of noninterest income for the three and six months ended June 30, 2021 and 2020.

Items outside the scope of ASC 606 are noted as such.

For the Three Months Ended

$ in thousands March 31, 2021 March 31, 2020

For the Three Months Ended For the Six Months Ended

$ in thousands June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Noninterest Income

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Interchange income

4,409 3,086 7,933 5,972

Other service charges and fees

2,087 1,538 4,085 2,721

Commissions from sales of insurance and financial products:

Insurance income

1,393 1,363 2,719 2,561

Wealth management income

1,073 727 1,937 1,597

SBA consulting fees

2,187 3,739 4,951 4,766

Noninterest income (in-scope of ASC 606)

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Noninterest income (out-of-scope of ASC 606)

7,401 13,451 14,861 16,655

Total noninterest income $ 21,374 26,193 42,043 39,898

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Performance-based commissions from insurance companies are recognized at a point in time as policies are sold.

See Note 15 regarding the Company's sale of its insurance agency operations.

Wealth Management Income primarily consists of commissions received on financial product sales, such as annuities.

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During 2020, the Company's SBA subsidiary assisted its third-party clients in the origination of PPP loans and charged and received fees for doing so.

For several clients, the forgiveness piece of the PPP process, which will occur at a future time, was included in the fees charged.

Accordingly, the Company recorded deferred revenue, which amounted to $ 1.4 million at December 31, 2020.

During the first three months of 2021, the Company realized approximately $ 0.8 million of this deferred revenue related to fulfilling a portion of the forgiveness services.

At March 31, 2021, the remaining amount of deferred revenue was $ 0.6 million.

For several clients, the forgiveness piece of the PPP process, which will occur at a future time, was included in the up-front fees charged.

Accordingly, the Company recorded deferred revenue in these cases, with a deferred revenue liability of $ 1.4 million at December 31, 2020.

During the first six months of 2021, the Company realized approximately $ 1.0 million of this deferred revenue related to fulfilling a portion of the forgiveness services.

At June 30, 2021, the remaining amount of deferred revenue was $ 0.4 million.

These fees will be recorded as income in the period in which the services associated with the forgiveness process are rendered.

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The Company enters into leases in the normal course of business.

As of March 31, 2021, the Company leased seven branch offices for which the land and buildings are leased and eight branch offices for which the land is leased but the building is owned.

As of June 30, 2021, the Company leased seven branch offices for which the land and buildings are leased and eight branch offices for which the land is leased but the building is owned.

The Company also leases office space for several operational departments.

All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from May 2021 through May 2076, some of which include options for multiple five - and ten-year extensions.

The weighted average remaining life of the lease term for these leases was 18.2 years as of March 31, 2021.

The weighted average remaining life of the lease term for these leases was 19.1 years as of June 30, 2021.

The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option.

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The Company uses its incremental borrowing rate, on a collateralized basis, at lease commencement to calculate the present value of lease payments when the rate implicit in the lease is not known.

The weighted average discount rate for leases was 3.01 % as of March 31, 2021.

Total operating lease expense was $ 0.7 million and $ 0.7 million for the three months ended March 31, 2021 and 2020, respectively.

The right-of-use assets and lease liabilities were $ 16.9 million and $ 17.4 million as of March 31, 2021, respectively, and were $ 17.5 million and $ 17.9 million as of December 31, 2020, respectively.

Future undiscounted lease payments for operating leases with initial terms of one year or more as of March 31, 2021 are as follows.

The weighted average discount rate for leases was 3.33 % as of June 30, 2021.

Total operating lease expense was $ 1.3 million and $ 1.4 million for the six months ended June 30, 2021 and 2020, respectively.

The right-of-use assets and lease liabilities were $ 16.4 million and $ 16.9 million as of June 30, 2021, respectively, and were $ 17.5 million and $ 17.9 million as of December 31, 2020, respectively.

Future undiscounted lease payments for operating leases with initial terms of one year or more as of June 30, 2021 are as follows.

($ in thousands)

April 1, 2021 to December 31, 2021 $ 1,492

July 1, 2021 to December 31, 2021 $ 1,028

Thereafter 18,380

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Stock Repurchases

During the first three months months of 2021, the Company repurchased approximately 106,744 shares of the Company's common stock at an average stock price of $ 37.81 per share, which totaled $ 4 million, under a $ 20 million repurchase authorization publicly announced in January 2021.

During the first three months months of 2020, the Company repurchased approximately 576,406 shares of the Company's common stock at an average stock price of $ 34.70 per share, which totaled $ 20 million.

During the first six months of 2021, the Company repurchased approximately 106,744 shares of the Company's common stock at an average stock price of $ 37.81 per share, which totaled $ 4 million, under a $ 20 million repurchase authorization publicly announced in January 2021.

During the first six months of 2020, the Company repurchased approximately 680,695 shares of the Company's common stock at an average stock price of $ 32.96 per share, which totaled $ 22 million.

Note 14 - Borrowings

The following tables present information regarding the Company’s outstanding borrowings at March 31, 2021 and December 31, 2020 - dollars are in thousands:

Description Due date Call Feature March 31, 2021 Interest Rate

The following tables present information regarding the Company’s outstanding borrowings at June 30, 2021 and December 31, 2020 - dollars are in thousands:

Description Due date Call Feature June 30, 2021 Interest Rate

FHLB Principal Reducing Credit 7/24/2023 None $ 102 1.00 % fixed

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FHLB Principal Reducing Credit 12/20/2028 None 348 0.50 % fixed

Other Borrowing 4/7/2022 None 103 1.00% fixed

Trust Preferred Securities 1/23/2034 Quarterly by Company

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3 month LIBOR + 2.00 %

Total borrowings/ weighted average rate as of March 31, 2021 $ 63,878 2.21 %

Total borrowings/ weighted average rate as of June 30, 2021 $ 63,743 2.17 %

Unamortized discount on acquired borrowings ( 2,491 )

1 unchanged sentence

Description Due date Call Feature December 31, 2020 Interest Rate

FHLB Term Note 7/24/2023 None 124 1.00% fixed

FHLB Principal Reducing Credit 7/24/2023 None 124 1.00 % fixed

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FHLB Principal Reducing Credit 12/20/2028 None 355 0.50 % fixed

Other Borrowing 4/7/2022 None 103 1.00 % fixed

Trust Preferred Securities 1/23/2034 Quarterly by Company

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Total borrowings $ 61,829

Note 15 - Disposition

On June 30, 2021, the Company completed the sale of the operations and substantially all of the operating assets of its property and casualty insurance agency subsidiary, First Bank Insurance Services, to Bankers Insurance, LLC for an initial purchase price valued at $ 13.0 million and a future earn-out payment of up to $ 1.0 million.

The Company recorded a gain of $ 1.7 million related to the sale.

Approximately $ 10.2 million of intangible assets were derecognized from the Company's balance sheet as a result of this transaction, including $ 7.4 million in goodwill and $ 2.8 million in other intangibles.

At June 30, 2021 the $ 13.0 million purchase price was recorded as a receivable within "Other assets" on the consolidated balance sheet.

Of that receivable amount, on July 1, 2021 the Company received $ 11.9 million in cash and one share of Bankers Insurance, LLC with a value of $ 0.6 million.

The remaining $ 0.5 million in cash is due to be received in the fourth quarter of 2021.

Effective with the close of the sale on June 30, 2021, Bankers Insurance, LLC assumed $ 555,000 in cash that was held at First Bank Insurance Services, which is reflected as cash paid related to the sale in the Consolidated Statement of Cash Flows for the six month period ended June 30, 2021.

Note 16 - Pending Acquisition

On June 1, 2021, the Company announced the signing of a definitive merger agreement to acquire Select Bancorp, Inc.

(“Select”), the parent company of Select Bank and Trust Company ("Select Bank"), in an all-stock transaction with a total value of approximately $ 314.3 million, or $ 18.10 per share, based on the Company’s closing stock price on May 28, 2021.

Subject to the terms of the merger agreement, Select shareholders will receive 0.408 shares of First Bancorp's common stock for each share of Select common stock.

Select Bank currently operates 22 banking locations in North Carolina, South Carolina, and Virginia.

Select reported assets of $ 1.8 billion, gross loans of $ 1.3 billion and deposits of $ 1.6 billion as of March 31, 2021.

The acquisition would increase the Company's market share in several existing markets, including the Triad, Triangle and Charlotte markets of North Carolina, as well as provide entry into several new markets, including Dunn, Goldsboro and Elizabeth City, North Carolina.

The merger agreement was unanimously approved by the boards of directors of each company.

The transaction is expected to close in the fourth quarter of 2021 and is subject to customary conditions, including regulatory approvals and approval by both the Company's and Select’s shareholders.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements