What changed in this filing

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Item 1. Financial Statements

2021-11-09 compared with 2021-08-09 · 200 added, 199 removed, 1100 unchanged (27% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

($ in thousands) June 30,

($ in thousands) September 30,

2021 (unaudited) December 31,

52 unchanged sentences

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

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

13 unchanged sentences

Net interest income 58,553 54,733 172,550 162,116

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

Provision (reversal) for loan losses ( 1,400 ) 6,120 ( 1,400 ) 31,008

Provision for unfunded commitments 1,049 — 2,988 —

20 unchanged sentences

Intangibles amortization expense 695 928 2,437 2,961

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

Foreclosed property losses, net 23 90 7 284

Other operating expenses 11,004 9,471 32,271 29,264

14 unchanged sentences

($ in thousands-unaudited) Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

6 unchanged sentences

— — — ( 8,024 )

Tax expense (benefit) — 1,844 — 1,844

Tax expense — — — 1,844

Postretirement Plans:

Amortization of unrecognized net actuarial loss 109 153 485 511

Tax benefit ( 77 ) ( 42 ) ( 117 ) ( 83 )

Tax expense (benefit) 5 ( 35 ) ( 112 ) ( 118 )

Other comprehensive income (loss) 2,943 133 ( 12,132 ) 12,356

10 unchanged sentences

Shares Amount

Three Months Ended June 30, 2020

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

Three Months Ended September 30, 2020

Balances, July 1, 2020 28,977 $ 408,699 441,846 ( 2,217 ) 2,217 17,346 867,891

Net income 23,297 23,297

2 unchanged sentences

Change in Rabbi Trust obligation ( 13 ) 13 —

Equity issued related to acquisition earnout 24 494 494

Stock repurchases ( 306 ) ( 6,269 ) ( 6,269 )

Stock withheld for payment of taxes ( 7 ) ( 178 ) ( 178 )

Stock-based compensation — 605 605

Other comprehensive income (loss) 133 133

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

Balances, September 30, 2020 28,688 $ 403,351 459,988 ( 2,230 ) 2,230 17,479 880,818

Three Months Ended September 30, 2021

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

Net income 27,643 27,643

5 unchanged sentences

Other comprehensive income (loss) 2,943 2,943

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

Balances, September 30, 2021 28,524 $ 398,058 529,474 ( 1,791 ) 1,791 2,218 929,750

See accompanying notes to unaudited consolidated financial statements.

6 unchanged sentences

Shares Amount

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

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

3 unchanged sentences

Change in Rabbi Trust Obligation 357 ( 357 ) —

Equity issued related to acquisition earnout 24 494 494

Stock repurchases ( 986 ) ( 28,701 ) ( 28,701 )

Stock withheld for payment of taxes ( 7 ) ( 178 ) ( 178 )

Stock-based compensation 56 2,222 2,222

Other comprehensive income (loss) 12,356 12,356

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, September 30, 2020 28,688 $ 403,351 459,988 ( 2,230 ) 2,230 17,479 880,818

Nine Months Ended September 30, 2021

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

8 unchanged sentences

Other comprehensive income (loss) ( 12,132 ) ( 12,132 )

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

Balances, September 30, 2021 28,524 $ 398,058 529,474 ( 1,791 ) 1,791 2,218 929,750

See accompanying notes to unaudited consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

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

($ in thousands-unaudited) Nine Months Ended September 30,

Cash Flows From Operating Activities

1 unchanged sentence

Reconciliation of net income to net cash provided by operating activities:

Provision for credit losses 1,939 24,888

Provision (reversal) for credit losses 1,588 31,008

Net security premium amortization 9,930 2,832

4 unchanged sentences

Other (gains) losses ( 1,533 ) 157

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

(Decrease) increase in net deferred loan fees ( 309 ) 7,380

Bank-owned life insurance income ( 1,945 ) ( 1,904 )

10 unchanged sentences

Proceeds from sales of SBA loans 72,219 82,998

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

Decrease (increase) in accrued interest receivable 850 ( 2,998 )

Decrease (increase) in other assets 596 ( 5,550 )

10 unchanged sentences

Redemptions of FRB and FHLB stock, net 1,792 9,853

Purchases of bank owned life insurance ( 25,000 ) —

Net increase in loans ( 125,083 ) ( 327,496 )

2 unchanged sentences

Proceeds from sales of premises and equipment 218 189

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

Net cash received (paid) from sale/(purchase) of business 11,314 ( 9,559 )

Net cash used by investing activities ( 1,221,210 ) ( 702,422 )

17 unchanged sentences

Initial recognition of operating lease right-of-use assets and operating lease liabilities 2,191 253

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

Equity issued related to acquisitions — 494

Loans acquired — 14,633

Other assets acquired — 451

Borrowings assumed — 11,671

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

2 unchanged sentences

Notes to Consolidated Financial Statements

(unaudited) For the Period Ended June 30, 2021

(unaudited) For the Period Ended September 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 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.

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 September 30, 2021, the consolidated results of operations for the three and nine months ended September 30, 2021 and 2020, and the consolidated cash flows for the nine months ended September 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 June 30, 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 September 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 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.

COVID-19 - Our market areas have generally been recovering from the pandemic during 2021.

However, as noted below, the ongoing impact on the Company of the continuing pandemic, including the spread of new strains of COVID-19 is uncertain.

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

Small Business Administration ("SBA").

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

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.

During the first nine months of 2021, the Company funded $ 112 million in PPP loans, while also processing $ 286 million in forgiveness payments related to both 2020 and 2021 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 June 30, 2021, the Company had remaining pandemic-related loan deferrals of $ 2.1 million.

Since that time, most of our borrowers have resumed payments and as of September 30, 2021, the Company had remaining pandemic-related loan deferrals of $ 1.8 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.

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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.

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

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

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The Company did not elect the option.

The Company adopted CECL using the prospective transition approach for PCD assets that were previously classified as PCI under ASC 310-30.

The Company adopted CECL using the prospective transition approach for purchased credit deteriorated ("PCD") assets that were previously classified as purchased credit impaired ("PCI") under ASC 310-30.

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

1 unchanged sentence

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 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.

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 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 TDRs 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.

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Debt securities not classified as held to maturity are classified as “available for sale” and carried at fair value, with unrealized holding gains and losses being reported as other comprehensive income or loss and reported as a separate component of shareholders’ equity.

Interest income includes amortization or purchase premiums or discounts.

Interest income includes amortization of purchase premiums or discounts.

Premiums and discounts are generally amortized into income on a level yield basis, with premiums being amortized to the earliest call date and discounts being accreted to the stated maturity date.

3 unchanged sentences

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.

Accrued interest receivable on held to maturity debt securities totaled $ 2.0 million at September 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.

The Company then multiplies those loss rates, as adjusted for any modifications to reflect current conditions and reasonable and supportable forecasts as considered necessary, by the remaining lives of each individual security to arrive at a lifetime expected loss amount.

Virtually all of the mortgage-backed securities held by the Company are issued by government-sponsored corporations.

Virtually all of the mortgage-backed securities held by the Company are issued by government-sponsored enterprises.

These securities are either explicitly or implicitly guaranteed by the U.S.

1 unchanged sentence

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 June 30, 2021.

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

At September 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 $ 4.0 million at September 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 $ 14.3 million at June 30, 2021 and was reported in accrued interest receivable on the consolidated balance sheets.

Accrued interest receivable related to loans totaled $ 13.4 million at September 30, 2021 and was reported in accrued interest receivable on the consolidated balance sheets.

Interest income is accrued on the unpaid principal balance.

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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.

Purchased Credit Deteriorated (PCD) Loans - Upon adoption of CECL, loans that were designated as purchased credit impaired (PCI) loans under the previous accounting guidance were classified as PCD loans without reassessment.

The amount of PCD loans was immaterial at each period end.

Purchased Credit Deteriorated (PCD) Loans - Upon adoption of CECL, loans that were designated as PCI loans under the previous accounting guidance were classified as PCD loans without reassessment.

In future acquisitions, the Company may purchase loans, some of which have experienced more than insignificant credit deterioration since origination.

6 unchanged sentences

Subsequent to initial recognition, PCD loans are subject to the same interest income recognition and impairment model as non-PCD loans, with changes to the allowance for loan losses recorded through provision expense.

Allowance for Credit Losses - Loans - The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans.

Allowance for Credit Losses - Loans - The allowance for credit losses (ACL) is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans.

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

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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.

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 each of the 2021 quarter-end 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 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.

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.

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

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Note 3 – Stock-Based Compensation

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 Company recorded total stock-based compensation expense of $ 536,000 and $ 605,000 for the three months ended September 30, 2021 and 2020, respectively, and $ 1,764,000 and $ 2,013,000 for the nine months ended September 30, 2021 and 2020, respectively, which includes the value of the stock grants to directors as discussed below.

The Company recognized $ 123,000 and $ 139,000 of income tax benefits related to stock-based compensation expense in the income statement for the three months ended September 30, 2021 and 2020, respectively, and $ 405,000 and $ 463,000 for the nine months ended September 30, 2021 and 2020, respectively.

At September 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 September 30, 2021, the Equity Plan had 485,695 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.

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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 restricted stock is granted.

The Company issues new shares of common stock when 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.

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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:

The following table presents information regarding the activity for the first nine 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 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.

Nonvested at September 30, 2021 184,878 $ 33.08

Total unrecognized compensation expense as of September 30, 2021 amounted to $ 2,986,000 with a weighted-average remaining term of 2.1 years.

For the nonvested awards that are outstanding at September 30, 2021, the Company expects to record $ 1,550,000 in compensation expense in the next twelve months, $ 504,000 of which is expected to be recorded in the fourth quarter 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 June 30,

For the Three Months Ended September 30,

($ in thousands except per

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Diluted EPS per common share $ 27,643 28,515,328 $ 0.97 $ 23,297 28,940,018 $ 0.81

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

($ in thousands except per

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Note 5 – Securities

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

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

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

Value Unrealized Amortized

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Total held to maturity $ 367,893 369,953 3,632 ( 1,572 ) 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 June 30, 2021 and December 31, 2020, respectively.

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

All of the Company’s mortgage-backed securities were issued by government-sponsored enterprises, except for private mortgage-backed securities with a fair value of $ 0.9 million and $ 1.0 million as of September 30, 2021 and December 31, 2020, respectively.

The following table presents information regarding securities with unrealized losses at September 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 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.

As of September 30, 2021 and December 31, 2020, the Company's security portfolio held 171 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 September 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 amount 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 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.

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

At adoption of CECL on January 1, 2021 and at September 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 June 30, 2021, by contractual maturity, are summarized in the table below.

The book values and approximate fair values of investment securities at September 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.

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Total securities $ 2,300,863 2,305,075 367,893 369,953

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.

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 June 30, 2021 and December 31, 2020, respectively.

At September 30, 2021 and December 31, 2020, investment securities with carrying values of $ 861,827,000 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 $ 21,735,000 and $ 23,526,000 at September 30, 2021 and December 31, 2020, respectively.

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 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.

The FHLB stock had a cost and fair value of $ 3,970,000 and $ 5,855,000 at September 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 $ 17,765,000 and $ 17,671,000 at September 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.

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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 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.

The conversion rate at September 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 .

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

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

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

Amount Percentage Amount Percentage

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Total loans $ 4,869,841 $ 4,731,315

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.

Included in the line item "Commercial, financial, and agricultural" in the table above are PPP loans totaling $ 66.9 million and $ 240.5 million at September 30, 2021 and December 31, 2020, respectively.

PPP loans are fully guaranteed by the SBA.

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.

Included in unamortized net deferred loan fees are approximately $ 4.3 million and $ 6.0 million at September 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.

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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) June 30, 2021 December 31, 2020

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

Guaranteed portions of non-PPP SBA loans included in table above $ 27,542 33,959

1 unchanged sentence

Total non-PPP SBA loans included in the table above $ 151,060 169,662

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

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.

Sold portions of non-PPP SBA loans with servicing retained - not included in tables above $ 424,662 395,398

At September 30, 2021 and December 31, 2020, there was a remaining unaccreted discount on the retained portion of sold non-PPP SBA loans amounting to $ 6.6 million and $ 7.3 million, respectively.

As of September 30, 2021, unamortized discounts on acquired loans totaled $ 4.8 million.

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

The discounts are amortized as yield adjustments over the respective lives of the loans, so long as the loans perform.

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 six months ended June 30, 2020.

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

At December 31, 2020, the carrying value of PCI loans was $ 8.6 million.

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

Accretable Yield for PCI loans For the Nine Months Ended September 30, 2020

Balance at beginning of period $ 4,149

3 unchanged sentences

Balance at end of period 3,141

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.

During the first nine 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, $ 80,000 was recorded as additional loan interest income, and $ 14,000 was recorded as a recovery.

Nonperforming assets are defined as nonaccrual 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) June 30,

($ in thousands) September 30,

2021 December 31,

6 unchanged sentences

Total nonperforming assets $ 40,687 46,997

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.

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

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

CECL Incurred Loss

($ in thousands) June 30,

($ in thousands) September 30,

2021 December 31,

8 unchanged sentences

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 six months ended June 30, 2021.

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

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

($ in thousands) For the Nine Months Ended September 30, 2021

Commercial, financial, and agricultural $ 160

4 unchanged sentences

Consumer loans —

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

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

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty.

The Company reviews individually evaluated loans on nonaccrual with a net book balance of $250,000 or greater for designation as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk.

These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses.

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

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

6 unchanged sentences

Total $ 735 4,663 — 13,848 — 19,246

The Company designates individually evaluated loans on nonaccrual with a net book balance of $250,000 or greater as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk.

These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses.

Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral.

7 unchanged sentences

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 and six months ended June 30, 2021 (under the CECL methodology).

The following table presents the activity in the allowance for loan losses for all loans for the three and nine months ended September 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 June 30, 2021

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

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

1 unchanged sentence

Recoveries 398 98 176 311 79 49 — 1,111

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

Provisions/(Reversals) ( 808 ) 2,187 ( 1,032 ) ( 546 ) ( 1,336 ) 135 — ( 1,400 )

Ending balance $ 13,500 12,389 7,771 3,502 24,097 2,369 — 63,628

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

As of and for the nine months ended September 30, 2021

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

2 unchanged sentences

Recoveries 1,065 784 499 540 419 311 — 3,618

Provisions 1,747 ( 2,011 ) ( 2,190 ) ( 1,308 ) 3,506 256 — —

Provisions/(Reversals) 939 176 ( 3,222 ) ( 1,854 ) 2,170 391 — ( 1,400 )

Ending balance $ 13,500 12,389 7,771 3,502 24,097 2,369 — 63,628

26 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 and six months ended June 30, 2020 (under the Incurred Loss methodology).

The following table presents the activity in the allowance for loan losses for the three and nine months ended September 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 June 30, 2020

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

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

3 unchanged sentences

Ending balance $ 8,776 6,272 8,696 2,460 21,606 1,346 70 49,226

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

As of and for the nine months ended September 30, 2020

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

3 unchanged sentences

Ending balance $ 8,776 6,272 8,696 2,460 21,606 1,346 70 49,226

Ending balance as of June 30, 2020:

Ending balance as of September 30, 2020:

Allowance for loan losses

2 unchanged sentences

Purchased credit impaired $ 41 — 116 — — 4 — 161

Loans receivable as of June 30, 2020

Loans receivable as of September 30, 2020

Ending balance – total $ 804,831 653,120 1,017,087 310,326 1,983,622 50,189 — 4,819,175

1 unchanged sentence

Total loans $ 4,813,736

Ending balances as of June 30, 2020:

Ending balances as of September 30, 2020:

Individually evaluated for impairment $ 7,001 853 9,657 319 16,349 — — 34,179

22 unchanged sentences

Total impaired loans with allowance $ 16,142 17,442 6,551 16,634

Interest income recorded on impaired loans during the year ended December 31, 2020 was $ 1.1 million, and reflects interest income recorded on nonaccrual loans prior to them being placed on nonaccrual status and interest income recorded on accruing TDRs.

Interest income recorded on impaired loans during the year ended December 31, 2020 was $ 1.1 million, and reflects interest income collected on nonaccrual loans prior to them being placed on nonaccrual status and interest income recorded on accruing TDRs.

The Company tracks credit quality based on its internal risk ratings.

17 unchanged sentences

(Pass) Consumer loans (<$500,000) that are of satisfactory credit quality with borrowers who exhibit good personal credit history, average personal financial strength and moderate debt levels.

These loans generally conform to Bank policy, but may include approved mitigated exceptions to the guidelines.

These loans generally conform to Company policy, but may include approved mitigated exceptions to the guidelines.

Special Mention:

6 Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank.

6 Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Company.

7 An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any.

5 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 June 30, 2021.

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

Term Loans by Year of Origination

33 unchanged sentences

Total loans 4,869,841

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.

At September 30, 2021, as derived from the table above, the Company had $ 40.7 million in loans graded as Special Mention and $ 53.3 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 June 30, 2021 and June 30, 2020 related to interest rate reductions combined with extension of terms.

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

The Company does not generally grant principal forgiveness.

The Company’s TDR's can be classified as either nonaccrual or accruing based on the loan’s payment status.

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

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.

The Company’s TDRs can be classified as either nonaccrual or accruing based on the loan’s payment status.

The TDRs that are nonaccrual are reported within the nonaccrual loan totals presented previously.

As of September 30, 2021, the Company had granted short-term deferrals related to the COVID-19 pandemic for $1.8 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

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

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

Contracts Pre-

18 unchanged sentences

Total TDRs arising during period — $ — $ — 1 $ 2,344 $ 2,344

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

The following table presents information related to loans that were modified in a TDR during the nine months ended September 30, 2021 and 2020.

($ in thousands) For the nine months ended September 30, 2021 For the nine months ended September 30, 2020

Contracts Pre-

18 unchanged sentences

Total TDRs arising during period 10 $ 2,926 $ 2,923 6 $ 2,629 $ 2,632

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.

Accruing TDRs that were modified in the previous twelve months and that defaulted during the three months ended September 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.

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

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

Contracts Recorded

5 unchanged sentences

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

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

Accruing TDRs that were modified in the previous twelve months and that defaulted during the nine months ended September 30, 2021 and 2020 are presented in the table below.

($ in thousands) For the Nine Months Ended September 30, 2021 For the Nine Months Ended September 30, 2020

Contracts Recorded

10 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 $ 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.

The allowance for credit losses for unfunded loan commitments of $ 11.1 million and $ 0.6 million at September 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 nine months ended September 30, 2021.

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

3 unchanged sentences

Provisions for credit losses on unfunded commitments 2,988

Ending balance at June 30, 2021 $ 10,025

Ending balance at September 30, 2021 $ 11,074

Allowance for Credit Losses - Securities Held to Maturity

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

As previously discussed, the allowance for credit losses for securities held to maturity was immaterial at September 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 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

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

September 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 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.

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 September 30, 2021 with a remaining book value of $ 5,895,000 .

The Company recorded $ 1,711,000 and $ 1,492,000 in servicing assets associated with the guaranteed portion of SBA loans sold during the first nine months of 2021 and 2020, respectively.

During the first nine months of 2021 and 2020, the Company recorded $ 1,605,000 and $ 1,231,000 , respectively, in related amortization expense.

Included in the amortization expense for the first nine 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 September 30, 2021 and December 31, 2020, the Company serviced for others SBA loans totaling $ 424.7 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.

Amortization expense of all other intangible assets, excluding the SBA servicing asset, totaled $ 695,000 and $ 928,000 for the three months ended September 30, 2021 and 2020, respectively, and $ 2,437,000 and $ 2,961,000 for the nine months ended September 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.

In addition to 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.

1 unchanged sentence

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.

income within the line item "Other service charges, commissions and fees" 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.

($ in thousands) Estimated Amortization

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

October 1, 2021 to December 31, 2021 $ 642

Total $ 4,278

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 $ 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 Company recorded periodic pension cost totaling $ 158,000 and $ 186,000 for the three months ended September 30, 2021 and 2020, respectively, and $ 475,000 and $ 617,000 for the nine months ended September 30, 2021 and 2020.

The following table contains the components of the pension cost.

For the Three Months Ended June 30,

For the Three Months Ended September 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 $ 125 172 33 14 158 186

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

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

6 unchanged sentences

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 six 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 nine 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) June 30, 2021 December 31, 2020

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

Unrealized gain (loss) on securities available for sale $ 4,212 20,448

5 unchanged sentences

Total accumulated other comprehensive income (loss) $ 2,218 14,350

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).

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

($ in thousands) Unrealized Gain

5 unchanged sentences

Net current-period other comprehensive income (loss) ( 12,505 ) 373 ( 12,132 )

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).

Ending balance at September 30, 2021 $ 3,244 ( 1,026 ) 2,218

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

($ in thousands) Unrealized Gain

6 unchanged sentences

Net current-period other comprehensive income (loss) 11,963 393 12,356

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

Ending balance at September 30, 2020 $ 19,467 ( 1,988 ) 17,479

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 June 30, 2021.

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

($ in thousands)

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

Description of Financial Assets Fair Value at September 30, 2021 Quoted Prices in

Active Markets for

10 unchanged sentences

Presold mortgages in process of settlement $ 16,746 16,746 — —

Collateral-dependent loans $ 13,963 — — 13,963

Individually evaluated loans $ 12,279 — — 12,279

Foreclosed real estate 462 — — 462

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2020.

The following table summarizes the Company’s financial assets that were measured at fair value on a recurring and nonrecurring basis at December 31, 2020.

($ in thousands)

Description of Financial Instruments Fair Value at December 31, 2020 Quoted Prices in

Description of Financial Assets Fair Value at December 31, 2020 Quoted Prices in

Active Markets

11 unchanged sentences

Foreclosed real estate 1,484 — — 1,484

The following is a description of the valuation methodologies used for instruments measured at fair value.

The following is a description of the valuation methodologies used for assets measured at fair value.

Presold Mortgages in Process of Settlement - The fair value is based on the committed price that an investor has agreed to pay for the loan and is considered a Level 1 input.

19 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 June 30, 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 September 30, 2021, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands)

Description Fair Value at June 30, 2021 Valuation

Description Fair Value at September 30, 2021 Valuation

Technique Significant Unobservable

11 unchanged sentences

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 June 30, 2021 and December 31, 2020 are as follows:

June 30, 2021 December 31, 2020

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

September 30, 2021 December 31, 2020

($ in thousands) Level in Fair

25 unchanged sentences

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 and six months ended June 30, 2021 and 2020.

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

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

$ in thousands September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Noninterest Income

3 unchanged sentences

Other service charges, commissions, and fees:

Interchange income

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

Interchange income (net) 4,405 3,608 12,338 9,580

Other service charges and fees

29 unchanged sentences

Commissions from the sale of insurance and financial products:

The Company earns commissions from the sale of insurance policies and wealth management products.

Insurance income generally consists of commissions from the sale of insurance policies and performance-based commissions from insurance companies.

The Company recognizes commission income from the sale of insurance policies when it acts as an agent between the insurance company and the policyholder.

The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy.

Shortly after the policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue.

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.

The Company earns commissions from the sale of wealth management products and also earned commissions from the sale of insurance policies until the sale of its insurance subsidiary on June 30, 2021.

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

2 unchanged sentences

The Company also earns some fees from asset management, which is billed quarterly for services rendered in the most recent period, for which the performance obligation has been satisfied.

Insurance income, which was earned by the Company until the sale of its insurance agency on June 30, 2021, generally consisted of commissions from the sale of insurance policies and performance-based commissions from insurance companies.

The Company recognized commission income from the sale of insurance policies when it acted as an agent between the insurance company and the policyholder.

The Company’s performance obligation was generally satisfied upon the issuance of the insurance policy.

Shortly after the policy was issued, the carrier remitted the commission payment to the Company, and the Company recognized the revenue.

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

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

SBA consulting fees:

4 unchanged sentences

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.

During the first nine months of 2021, the Company realized approximately $ 1.2 million of this deferred revenue related to fulfilling a portion of the forgiveness services.

At September 30, 2021, the remaining amount of deferred revenue was $ 0.2 million.

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

2 unchanged sentences

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

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.

As of September 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 2022 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 19.1 years as of June 30, 2021.

The weighted average remaining life of the lease term for these leases was 21.2 years as of September 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.

5 unchanged sentences

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 3.33 % 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.

The weighted average discount rate for leases was 3.12 % as of September 30, 2021.

Total operating lease expense was $ 1.9 million and $ 2.2 million for the nine months ended September 30, 2021 and 2020, respectively.

The right-of-use assets and lease liabilities were $ 16.9 million and $ 17.3 million as of September 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 September 30, 2021 are as follows.

($ in thousands)

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

October 1, 2021 to December 31, 2021 $ 421

Thereafter 19,051

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Stock Repurchases

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.

During the first nine 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 nine months of 2020, the Company repurchased approximately 985,795 shares of the Company's common stock at an average stock price of $ 29.11 per share, which totaled $ 28.7 million.

Note 14 - Borrowings

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

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

Description Due date Call Feature September 30, 2021 Interest Rate

FHLB Principal Reducing Credit 7/24/2023 None $ 91 1.00 % fixed

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3 month LIBOR + 2.00 %

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

Total borrowings/ weighted average rate as of September 30, 2021 $ 63,210 2.14 %

Unamortized discount on acquired borrowings ( 2,446 )

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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.

Note 16 - Subsequent Event

On October 15, 2021, the Company completed its acquisition of Select Bancorp, Inc.

(“Select”), the parent company of Select Bank and Trust Company ("Select Bank"), pursuant to an Agreement and Plan of Merger and Reorganization dated June 1, 2021.

Based on the exchange ratio in that Agreement of 0.408 shares of Company common stock for each share of Select common stock, the Company issued 7,070,371 shares in the acquisition, with total merger consideration amounting to approximately $325.8 million.

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

As of the acquisition date, Select had assets of $ 1.8 billion, gross loans of $ 1.3 billion and deposits of $ 1.6 billion.

As of the filing of this report, the Company has not completed the fair value measurements of the assets, liabilities, and identifiable intangible assets of Select.

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