FIRST BANCORP /NC/ 10-Q

Item 1 - Financial Statements First Bancorp and Subsidiaries Consolidated Balance Sheets ($ in thousands) September 30, 2021 (unaudited) December 31, 2020 ASSETS Cash and due from banks, noninterest-bearing $ 80,090 93,724 Due from banks, interest-bearing 314,103 273,566 Total cash and cash equivalents 394,193 367,290 Securities available for sale 2,305,075 1,453,132 Securities held to maturity (fair values of $ 369,953 and $ 170,734 ) 367,893 167,551 Presold mortgages in process of settlement at fair value 16,746 42,271 SBA loans held for sale 1,518 6,077 Loans 4,869,841 4,731,315 Allowance for credit losses on loans ( 63,628 ) ( 52,388 ) Net loans 4,806,213 4,678,927 Premises and equipment 124,391 120,502 Operating right-of-use lease assets 16,900 17,514 Accrued interest receivable 19,422 20,272 Goodwill 231,906 239,272 Other intangible assets 10,173 15,366 Foreclosed properties 1,819 2,424 Bank-owned life insurance 133,919 106,974 Other assets 59,198 52,179 Total assets $ 8,489,366 7,289,751 LIABILITIES Deposits: Noninterest bearing checking accounts $ 2,765,360 2,210,012 Interest bearing checking accounts 1,446,259 1,172,022 Money market accounts 1,899,172 1,581,364 Savings accounts 626,616 519,266 Time deposits of $100,000 or more 483,130 564,365 Other time deposits 212,228 226,567 Total deposits 7,432,765 6,273,596 Borrowings 60,764 61,829 Accrued interest payable 609 904 Operating lease liabilities 17,323 17,868 Other liabilities 48,155 42,133 Total liabilities 7,559,616 6,396,330 Commitments and contingencies SHAREHOLDERS’ EQUITY Preferred stock, no par value per share. Authorized: 5,000,000 shares Issued & outstanding: none and none — — Common stock, no par value per share. Authorized: 40,000,000 shares Issued & outstanding: 28,524,480 and 28,579,335 shares 398,058 400,582 Retained earnings 529,474 478,489 Stock in rabbi trust assumed in acquisition ( 1,791 ) ( 2,243 ) Rabbi trust obligation 1,791 2,243 Accumulated other comprehensive income (loss) 2,218 14,350 Total shareholders’ equity 929,750 893,421 Total liabilities and shareholders’ equity $ 8,489,366 7,289,751 See accompanying notes to unaudited consolidated financial statements. Page 4 Index First Bancorp and Subsidiaries Consolidated Statements of Income ($ in thousands, except share data-unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 INTEREST INCOME Interest and fees on loans $ 50,957 52,739 154,325 160,000 Interest on investment securities: Taxable interest income 8,383 4,958 22,085 15,203 Tax-exempt interest income 686 189 1,483 470 Other, principally overnight investments 528 802 1,809 2,688 Total interest income 60,554 58,688 179,702 178,361 INTEREST EXPENSE Savings, checking and money market accounts 903 1,440 3,353 5,132 Time deposits of $100,000 or more 558 1,747 2,097 6,994 Other time deposits 165 346 563 1,254 Borrowings 375 422 1,139 2,865 Total interest expense 2,001 3,955 7,152 16,245 Net interest income 58,553 54,733 172,550 162,116 Provision (reversal) for loan losses ( 1,400 ) 6,120 ( 1,400 ) 31,008 Provision for unfunded commitments 1,049 — 2,988 — Total provision for credit losses ( 351 ) 6,120 1,588 31,008 Net interest income after provision for credit losses 58,904 48,613 170,962 131,108 NONINTEREST INCOME Service charges on deposit accounts 3,209 2,567 8,766 8,193 Other service charges, commissions and fees 6,464 6,190 18,482 14,883 Fees from presold mortgage loans 2,096 4,864 8,914 9,725 Commissions from sales of insurance and financial products 1,198 2,357 5,854 6,515 SBA consulting fees 1,128 1,956 6,079 6,722 SBA loan sale gains 1,655 2,929 6,981 5,541 Bank-owned life insurance income 711 633 1,945 1,904 Securities gains (losses), net — — — 8,024 Other gains (losses), net 50 ( 44 ) 1,533 ( 157 ) Total noninterest income 16,511 21,452 58,554 61,350 NONINTEREST EXPENSES Salaries expense 20,651 22,127 61,969 62,843 Employee benefits expense 4,447 3,918 13,105 12,312 Total personnel expense 25,098 26,045 75,074 75,155 Occupancy expense 2,618 2,856 8,190 8,538 Equipment related expenses 1,125 1,049 3,223 3,214 Merger and acquisition expenses 254 — 665 — Intangibles amortization expense 695 928 2,437 2,961 Foreclosed property losses, net 23 90 7 284 Other operating expenses 11,004 9,471 32,271 29,264 Total noninterest expenses 40,817 40,439 121,867 119,416 Income before income taxes 34,598 29,626 107,649 73,042 Income tax expense 6,955 6,329 22,527 15,213 Net income $ 27,643 23,297 85,122 57,829 Earnings per common share: Basic $ 0.97 0.81 2.99 1.99 Diluted 0.97 0.81 2.99 1.99 Dividends declared per common share $ 0.20 0.18 0.60 0.54 Weighted average common shares outstanding: Basic 28,385,912 28,857,111 28,358,393 28,962,576 Diluted 28,515,328 28,940,018 28,514,405 29,102,953 See accompanying notes to unaudited consolidated financial statements. Page 5 Index First Bancorp and Subsidiaries Consolidated Statements of Comprehensive Income ($ in thousands-unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income $ 27,643 23,297 85,122 57,829 Other comprehensive income (loss): Unrealized gains (losses) on securities available for sale: Unrealized holding gains (losses) arising during the period, pretax 3,673 19 ( 16,236 ) 23,556 Tax (expense) benefit ( 844 ) ( 4 ) 3,731 ( 5,413 ) Reclassification to realized (gains) losses — — — ( 8,024 ) Tax expense — — — 1,844 Postretirement Plans: Amortization of unrecognized net actuarial loss 109 153 485 511 Tax expense (benefit) 5 ( 35 ) ( 112 ) ( 118 ) Other comprehensive income (loss) 2,943 133 ( 12,132 ) 12,356 Comprehensive income $ 30,586 23,430 72,990 70,185 See accompanying notes to unaudited consolidated financial statements. Page 6 Index First Bancorp and Subsidiaries Consolidated Statements of Shareholders’ Equity ($ in thousands, except share data - unaudited) Common Stock Retained Earnings Stock in Rabbi Trust Assumed in Acquisition Rabbi Trust Obligation Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Amount 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 Cash dividends declared ($ 0.18 per common share) ( 5,155 ) ( 5,155 ) 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, 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 Cash dividends declared ($ 0.20 per common share) ( 5,700 ) ( 5,700 ) Change in Rabbi Trust obligation 137 ( 137 ) — Stock withheld for payment of taxes ( 6 ) ( 182 ) ( 182 ) Stock-based compensation 38 536 536 Other comprehensive income (loss) 2,943 2,943 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. Page 7 Index ($ in thousands, except share data - unaudited) Common Stock Retained Earnings Stock in Rabbi Trust Assumed in Acquisition Rabbi Trust Obligation Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Amount Nine Months Ended September 30, 2020 Balances, January 1, 2020 29,601 $ 429,514 417,764 ( 2,587 ) 2,587 5,123 852,401 Net income 57,829 57,829 Cash dividends declared ($ 0.54 per common share) ( 15,605 ) ( 15,605 ) 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, 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 Adoption of new accounting standard ( 17,051 ) ( 17,051 ) Net income 85,122 85,122 Cash dividends declared ($ 0.60 per common share) ( 17,086 ) ( 17,086 ) Change in Rabbi Trust Obligation 452 ( 452 ) — Stock repurchases ( 107 ) ( 4,036 ) ( 4,036 ) Stock withheld for payment of taxes ( 13 ) ( 506 ) ( 506 ) Stock-based compensation 65 2,018 2,018 Other comprehensive income (loss) ( 12,132 ) ( 12,132 ) 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. Page 8 Index First Bancorp and Subsidiaries Consolidated Statements of Cash Flows ($ in thousands-unaudited) Nine Months Ended September 30, 2021 2020 Cash Flows From Operating Activities Net income $ 85,122 57,829 Reconciliation of net income to net cash provided by operating activities: Provision (reversal) for credit losses 1,588 31,008 Net security premium amortization 9,930 2,832 Loan discount accretion ( 6,199 ) ( 4,789 ) Other purchase accounting accretion and amortization, net 98 55 Foreclosed property (gains) losses and write-downs, net 7 284 Gains on securities available for sale — ( 8,024 ) Other (gains) losses ( 1,533 ) 157 (Decrease) increase in net deferred loan fees ( 309 ) 7,380 Bank-owned life insurance income ( 1,945 ) ( 1,904 ) Depreciation of premises and equipment 4,434 4,392 Amortization of operating lease right-of-use assets 1,107 1,522 Repayments of lease obligations ( 1,034 ) ( 1,392 ) Stock-based compensation expense 1,764 2,013 Amortization of intangible assets 2,437 2,961 Amortization of SBA servicing assets 1,605 1,231 Fees/gains from sale of presold mortgages and SBA loans ( 15,895 ) ( 15,266 ) Origination of presold mortgage loans in process of settlement ( 243,737 ) ( 294,270 ) Proceeds from sales of presold mortgage loans in process of settlement 277,394 290,657 Origination of SBA loans for sale ( 73,510 ) ( 117,412 ) Proceeds from sales of SBA loans 72,219 82,998 Decrease (increase) in accrued interest receivable 850 ( 2,998 ) Decrease (increase) in other assets 596 ( 5,550 ) Increase in net deferred income tax asset ( 42 ) ( 8,638 ) Decrease in accrued interest payable ( 295 ) ( 849 ) (Decrease) increase in other liabilities ( 3,476 ) 9,818 Net cash provided by operating activities 111,176 34,045 Cash Flows From Investing Activities Purchases of securities available for sale ( 1,128,880 ) ( 701,201 ) Purchases of securities held to maturity ( 213,485 ) ( 69,899 ) Proceeds from maturities/issuer calls of securities available for sale 252,668 156,108 Proceeds from maturities/issuer calls of securities held to maturity 11,246 26,989 Proceeds from sales of securities available for sale — 219,697 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 ) Proceeds from sales of foreclosed properties 2,847 1,880 Purchases of premises and equipment ( 8,847 ) ( 8,983 ) Proceeds from sales of premises and equipment 218 189 Net cash received (paid) from sale/(purchase) of business 11,314 ( 9,559 ) Net cash used by investing activities ( 1,221,210 ) ( 702,422 ) Cash Flows From Financing Activities Net increase in deposits 1,159,204 1,128,951 Net decrease in short-term borrowings — ( 148,000 ) Proceeds from long-term borrowings — 150,000 Payments on long-term borrowings ( 1,198 ) ( 252,003 ) Cash dividends paid – common stock ( 16,527 ) ( 15,798 ) Repurchases of common stock ( 4,036 ) ( 28,701 ) Payment of taxes related to stock withheld ( 506 ) ( 178 ) Net cash provided by financing activities 1,136,937 834,271 Increase in cash and cash equivalents 26,903 165,894 Cash and cash equivalents, beginning of period 367,290 231,302 Cash and cash equivalents, end of period $ 394,193 397,196 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for interest $ 7,447 17,094 Cash paid during the period for income taxes 25,602 21,302 Non-cash: Unrealized (loss) gain on securities available for sale, net of taxes ( 12,505 ) 18,143 Non-cash: Foreclosed loans transferred to other real estate 2,249 1,032 Non-cash: Initial recognition of operating lease right-of-use assets and operating lease liabilities 2,191 253 Non-cash: Equity issued related to acquisitions — 494 Non-cash: Loans acquired — 14,633 Non-cash: Other assets acquired — 451 Non-cash: Borrowings assumed — 11,671 Non-cash: Derecognition of intangible assets related to sale of insurance operations ( 10,229 ) — See accompanying notes to consolidated financial statements. Page 9 Index First Bancorp and Subsidiaries Notes to Consolidated Financial Statements (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 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 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 - 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 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 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. Note 2 – Accounting Policies Note 1 to the 2020 Annual Report on Form 10-K filed with the SEC contains a description of the accounting policies followed by the Company and a discussion of recent accounting pronouncements. The following paragraphs update that information as necessary. Accounting Standards Adopted in 2021 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 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. 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. It also applies to off-balance sheet credit exposures, such as unfunded commitments to extend credit. In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not they will be required to sell. Page 10 Index 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”). 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. The adoption of CECL had an insignificant impact on the Company's held to maturity and available for sale securities portfolios. The Company recorded a net decrease to retained earnings of $ 17.1 million as of January 1, 2021 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Federal banking regulatory agencies provided optional relief to delay the adverse regulatory capital impact of CECL at adoption. The Company did not elect the option. 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. 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 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. 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 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. The Company elected to use, as a practical expedient, the fair value of collateral when determining the allowance for credit losses on loans for which repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty (collateral-dependent loans). 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. 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. 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 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. Gains and losses on sales of securities are recognized at the time of sale based upon the specific identification method. A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income. Page 11 Index 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 $ 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 enterprises. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. 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 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. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income with the establishment of an allowance under CECL compared to a direct write down of the security under Incurred Loss. For debt securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether any decline in fair value is due to credit loss factors. In making this assessment, management considers any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses under CECL are recorded as provision for (or reversal of) credit loss expense. 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 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 $ 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. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments. The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date. All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. 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. Page 12 Index 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. In those cases, the Company will consider internal loan grades, delinquency status and other relevant factors in assessing whether purchased loans are PCD. PCD loans are recorded at the amount paid. An initial allowance for credit losses is determined using the same methodology as other loans held for investment, but with no impact to earnings. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan's purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. 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 (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. 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. The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped into homogenous segments, or pools, for analysis. The Discounted Cash Flow (“DCF”) method is utilized for substantially all pools, with discounted cash flows computed for each loan in a pool based on its individual characteristics (e.g. maturity date, payment amount, interest rate, etc.), and the results are aggregated at the pool level. A probability of default and loss given default, as adjusted for recoveries (as noted above), are applied to the discounted cash flows for each pool, while considering prepayment and principal curtailment effects. The analysis produces a discounted expected cash flow total for each pool, which is then compared to the amortized cost of the pool to arrive at the expected credit loss. In determining the proper level of default rates and loss given default, management has determined that the loss experience of the Company provides the best basis for its assessment of expected credit losses. It therefore utilized its own historical credit loss experience by each loan segment over an economic cycle, while excluding loss experience from certain acquired institutions (i.e., failed banks). Management considers forward-looking information in estimating expected credit losses. 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 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 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 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. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to the long term mean of historical factors over twelve quarters using a straight-line approach. 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. Page 13 Index 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). Each period the Company considers qualitative factors that are relevant within the qualitative framework that includes the following: 1) changes in lending policies, procedures, and strategies, 2) changes in the nature and volume of the portfolio, 3) staff experience, 4) changes in volume and trends in classified loans, delinquencies and nonaccrual loans, 5) concentration risk, 6) trends in underlying collateral value, 7) external factors, including competition and legal and regulatory factors, 8) changes in the quality of the Company's loan review system, and 9) economic conditions not already captured. The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a discounted cash flow methodology at the loan level, with loss rates, prepayment assumptions and curtailment assumptions driven by each loan’s collateral type: Commercial, financial, and agricultural - Risks to this loan category include industry concentration and the inability to monitor the condition of the collateral which often consists of inventory, accounts receivable and other non-real estate assets. Equipment and inventory obsolescence can also pose a risk. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt. Also included in this category for periods subsequent to March 31, 2020 are PPP loans, which are fully guaranteed by the SBA and thus have minimal risk. Real estate - construction, land development, & other land loans - Risks common to commercial construction loans are cost overruns, changes in market demand for property, inadequate long-term financing arrangements and declines in real estate values. Residential construction loans are susceptible to those same risks as well as those associated with residential mortgage loans (see below). Changes in market demand for property could lead to longer marketing times resulting in higher carrying costs, declining values, and higher interest rates. Real estate - mortgage - residential (1-4 family) first - Residential mortgage loans are susceptible to weakening general economic conditions and increases in unemployment rates and declining real estate values. Real estate - mortgage - home equity loans / lines of credit - Risks common to home equity loans and lines of credit are general economic conditions, including an increase in unemployment rates, and declining real estate values which reduce or eliminate the borrower’s home equity. Real estate - mortgage - commercial and other - Loans in this category are susceptible to declines in occupancy rates, business failure and general economic conditions. Also, declines in real estate values and lack of suitable alternative use for the properties are risks for loans in this category. Consumer loans - Risks common to these loans include regulatory risks, unemployment and changes in local economic conditions as well as the inability to monitor collateral consisting of personal property . When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. When the discounted cash flow method is used to determine the allowance for credit losses, management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments. Determining the Contractual Term - Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. 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. 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 Page 14 Index 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 cancellable by the Company. 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. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to fund. Note 3 – Stock-Based Compensation 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. 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. Upon forfeiture, any previously recognized compensation cost is reversed. Upon a change in control (as defined in the Equity Plan), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested. Certain of the Company’s equity grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company recognizes compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for each incremental award. Compensation expense is based on the estimated number of stock awards that will ultimately vest. 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 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. 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 nine months of 2021 related to the Company’s outstanding restricted stock: Page 15 Index Long-Term Restricted Stock Number of Units Weighted-Average Grant-Date Fair Value Nonvested at January 1, 2021 172,105 $ 33.80 Granted during the period 63,950 37.29 Vested during the period ( 43,166 ) 41.27 Forfeited or expired during the period ( 8,011 ) 38.00 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 September 30, 2021 2020 ($ in thousands except per share amounts) Income (Numerator) Shares (Denominator) Per Share Amount Income (Numerator) Shares (Denominator) Per Share Amount Basic EPS: Net income $ 27,643 $ 23,297 Less: income allocated to participating securities ( 125 ) ( 67 ) Basic EPS per common share $ 27,518 28,385,912 $ 0.97 $ 23,230 28,857,111 $ 0.81 Diluted EPS: Net income $ 27,643 28,385,912 $ 23,297 28,857,111 Effect of Dilutive Securities — 129,416 — 82,907 Diluted EPS per common share $ 27,643 28,515,328 $ 0.97 $ 23,297 28,940,018 $ 0.81 For the Nine Months Ended September 30, 2021 2020 ($ in thousands except per share amounts) Income (Numerator) Shares (Denominator) Per Share Amount Income (Numerator) Shares (Denominator) Per Share Amount Basic EPS: Net income $ 85,122 $ 57,829 Less: income allocated to participating securities $ ( 466 ) $ ( 279 ) Basic EPS per common share $ 84,656 28,358,393 $ 2.99 $ 57,550 28,962,576 $ 1.99 Diluted EPS: Net income $ 85,122 28,358,393 $ 57,829 28,962,576 Effect of Dilutive Securities — 156,012 — 140,377 Diluted EPS per common share $ 85,122 28,514,405 $ 2.99 $ 57,829 29,102,953 $ 1.99 Page 16 Index 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 September 30, 2021 and December 31, 2020 are summarized as follows: ($ in thousands) September 30, 2021 December 31, 2020 Amortized Cost Fair Value Unrealized Amortized Cost Fair Value Unrealized Gains (Losses) Gains (Losses) Securities available for sale: Government-sponsored enterprise securities $ 70,014 68,608 — ( 1,406 ) 70,016 70,206 371 ( 181 ) Mortgage-backed securities 2,187,209 2,191,530 18,604 ( 14,283 ) 1,318,998 1,337,706 20,832 ( 2,124 ) Corporate bonds 43,640 44,937 1,426 ( 129 ) 43,670 45,220 1,760 ( 210 ) Total available for sale $ 2,300,863 2,305,075 20,030 ( 15,818 ) 1,432,684 1,453,132 22,963 ( 2,515 ) Securities held to maturity: Mortgage-backed securities $ 22,028 22,886 858 — 29,959 30,900 941 — State and local governments 345,865 347,067 2,774 ( 1,572 ) 137,592 139,834 2,407 ( 165 ) 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 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 Loss Position for Less than 12 Months Securities in an Unrealized Loss Position for More than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Government-sponsored enterprise securities $ 49,238 776 19,370 630 68,608 1,406 Mortgage-backed securities 1,010,196 12,219 124,643 2,064 1,134,839 14,283 Corporate bonds — — 4,871 129 4,871 129 State and local governments 125,063 1,347 9,518 225 134,581 1,572 Total unrealized loss position $ 1,184,497 14,342 158,402 3,048 1,342,899 17,390 Page 17 Index The following table presents information regarding securities with unrealized losses at December 31, 2020: ($ in thousands) Securities in an Unrealized Loss Position for Less than 12 Months Securities in an Unrealized Loss Position for More than 12 Months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Government-sponsored enterprise securities $ 29,812 181 — — 29,812 181 Mortgage-backed securities 497,992 1,957 6,168 167 504,160 2,124 Corporate bonds 3,956 45 835 165 4,791 210 State and local governments 23,310 165 — — 23,310 165 Total unrealized loss position $ 555,070 2,348 7,003 332 562,073 2,680 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 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 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. Securities Available for Sale Securities Held to Maturity ($ in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Securities Due within one year $ 1,001 1,031 1,271 1,282 Due after one year but within five years 27,639 28,801 536 550 Due after five years but within ten years 84,014 82,739 8,388 8,525 Due after ten years 1,000 974 335,670 336,710 Mortgage-backed securities 2,187,209 2,191,530 22,028 22,886 Total securities $ 2,300,863 2,305,075 367,893 369,953 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 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. The Company determined that neither stock was impaired at either period end. Page 18 Index The Company owns 12,356 Class B shares of Visa, Inc. (“Visa”) stock that were received upon Visa’s initial public offering. These shares are expected to convert into Class A Visa shares subsequent to the settlement of certain litigation against Visa, to which the Company is not a party. 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 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 . If a readily determinable fair value becomes available for the Class B shares, or upon the conversion to Class A shares, the Company will adjust the carrying value of the stock to its market value with a credit to earnings. Note 6 – Loans, Allowance for Credit Losses, and Asset Quality Information The following is a summary of the major categories of total loans outstanding: ($ in thousands) September 30, 2021 December 31, 2020 Amount Percentage Amount Percentage All loans: Commercial, financial, and agricultural $ 612,554 12 % $ 782,549 17 % Real estate – construction, land development & other land loans 588,103 12 % 570,672 12 % Real estate – mortgage – residential (1-4 family) first mortgages 914,266 19 % 972,378 21 % Real estate – mortgage – home equity loans / lines of credit 281,219 6 % 306,256 6 % Real estate – mortgage – commercial and other 2,423,341 50 % 2,049,203 43 % Consumer loans 53,747 1 % 53,955 1 % Subtotal 4,873,230 100 % 4,735,013 100 % Unamortized net deferred loan fees ( 3,389 ) ( 3,698 ) 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 $ 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 $ 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. Accelerated amortization is recorded in the periods in which principal amounts are forgiven in accordance with the terms of the program. 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) September 30, 2021 December 31, 2020 Guaranteed portions of non-PPP SBA loans included in table above $ 27,542 33,959 Unguaranteed portions of non-PPP SBA loans included in table above 123,518 135,703 Total non-PPP SBA loans included in the table above $ 151,060 169,662 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 PCI loans was $ 8.6 million. Page 19 Index 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 Accretion ( 927 ) Reclassification from (to) nonaccretable difference 400 Other, net ( 481 ) Balance at end of period 3,141 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) September 30, 2021 December 31, 2020 Nonperforming assets Nonaccrual loans $ 31,268 35,076 TDRs - accruing 7,600 9,497 Accruing loans > 90 days past due — — Total nonperforming loans 38,868 44,573 Foreclosed real estate 1,819 2,424 Total nonperforming assets $ 40,687 46,997 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) September 30, 2021 December 31, 2020 Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Nonaccrual Loans Commercial, financial, and agricultural $ 510 9,019 9,529 9,681 Real estate – construction, land development & other land loans — 373 373 643 Real estate – mortgage – residential (1-4 family) first mortgages 735 3,599 4,334 6,048 Real estate – mortgage – home equity loans / lines of credit — 1,018 1,018 1,333 Real estate – mortgage – commercial and other 10,951 4,972 15,923 17,191 Consumer loans — 91 91 180 Total $ 12,196 19,072 31,268 35,076 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 nine months ended September 30, 2021. Page 20 Index ($ in thousands) For the Nine Months Ended September 30, 2021 Commercial, financial, and agricultural $ 160 Real estate – construction, land development & other land loans — Real estate – mortgage – residential (1-4 family) first mortgages 20 Real estate – mortgage – home equity loans / lines of credit 11 Real estate – mortgage – commercial and other 446 Consumer loans — Total $ 637 The following table presents an analysis of the payment status of the Company’s loans as of September 30, 2021. ($ in thousands) Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing 90 Days or More Past Due Nonaccrual Loans Accruing Current Total Loans Receivable Commercial, financial, and agricultural $ 584 60 — 9,529 602,381 612,554 Real estate – construction, land development & other land loans — — — 373 587,730 588,103 Real estate – mortgage – residential (1-4 family) first mortgages 668 738 — 4,334 908,526 914,266 Real estate – mortgage – home equity loans / lines of credit 606 67 — 1,018 279,528 281,219 Real estate – mortgage – commercial and other 346 334 — 15,923 2,406,738 2,423,341 Consumer loans 127 34 — 91 53,495 53,747 Total $ 2,331 1,233 — 31,268 4,838,398 4,873,230 Unamortized net deferred loan fees ( 3,389 ) Total loans $ 4,869,841 The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2020. ($ in thousands) Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing 90 Days or More Past Due Nonaccrual Loans Accruing Current Total Loans Receivable Commercial, financial, and agricultural $ 1,464 1,101 — 9,681 770,166 782,412 Real estate – construction, land development & other land loans 572 — — 643 569,307 570,522 Real estate – mortgage – residential (1-4 family) first mortgages 10,146 869 — 6,048 951,088 968,151 Real estate – mortgage – home equity loans / lines of credit 1,088 42 — 1,333 303,693 306,156 Real estate – mortgage – commercial and other 2,540 3,111 — 17,191 2,022,422 2,045,264 Consumer loans 180 36 — 180 53,521 53,917 Purchased credit impaired 328 112 719 — 7,432 8,591 Total $ 16,318 5,271 719 35,076 4,677,629 4,735,013 Unamortized net deferred loan fees ( 3,698 ) Total loans $ 4,731,315 Page 21 Index 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 Commercial, financial, and agricultural $ — 4,663 — — — 4,663 Real estate – construction, land development & other land loans — — — — — — Real estate – mortgage – residential (1-4 family) first mortgages 735 — — — — 735 Real estate – mortgage – home equity loans / lines of credit — — — — — — Real estate – mortgage – commercial and other — — — 13,848 — 13,848 Consumer loans — — — — — — Total $ 735 4,663 — 13,848 — 19,246 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. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. The Company's policy is to obtain third-party appraisals on any significant pieces of collateral. 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, 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. For reviewed loans that are not on nonaccrual basis, the Company assigns a specific allowance based on the parameters noted above. The Company does not believe that there is significant over-coverage of collateral for any of the loan types noted above. Page 22 Index 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, Financial, and Agricultural Real Estate – Construction, Land Development & Other Land Loans Real Estate – Residential (1-4 Family) First Mortgages Real Estate – Mortgage – Home Equity Lines of Credit Real Estate – Mortgage – Commercial and Other Consumer Loans Unallocated Total 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 Charge-offs ( 899 ) — ( 24 ) — ( 4 ) ( 178 ) — ( 1,105 ) Recoveries 398 98 176 311 79 49 — 1,111 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 nine months ended September 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 Charge-offs ( 2,887 ) ( 66 ) ( 138 ) ( 139 ) ( 1,838 ) ( 485 ) — ( 5,553 ) Recoveries 1,065 784 499 540 419 311 — 3,618 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 Page 23 Index The following table presents the activity in the allowance for loan losses for the year ended December 31, 2020 (under the Incurred Loss methodology). ($ in thousands) Commercial, Financial, and Agricultural Real Estate – Construction, Land Development & Other Land Loans Real Estate – Residential (1-4 Family) First Mortgages Real Estate – Mortgage – Home Equity Lines of Credit Real Estate – Mortgage – Commercial and Other Consumer Loans Unallocated Total As of and for the year ended December 31, 2020 Beginning balance $ 4,553 1,976 3,832 1,127 8,938 972 — 21,398 Charge-offs ( 5,608 ) ( 51 ) ( 478 ) ( 524 ) ( 968 ) ( 873 ) — ( 8,502 ) Recoveries 745 1,552 754 487 621 294 — 4,453 Provisions 11,626 1,878 3,940 1,285 15,012 1,085 213 35,039 Ending balance $ 11,316 5,355 8,048 2,375 23,603 1,478 213 52,388 Ending balances as of December 31, 2020: Allowance for loan losses Individually evaluated for impairment $ 3,546 30 800 — 2,175 — — 6,551 Collectively evaluated for impairment $ 7,742 5,325 7,141 2,375 21,428 1,475 213 45,699 Purchased credit impaired $ 28 — 107 — — 3 — 138 Loans receivable as of December 31, 2020: Ending balance – total $ 782,549 570,672 972,378 306,256 2,049,203 53,955 — 4,735,013 Unamortized net deferred loan fees ( 3,698 ) Total loans $ 4,731,315 Ending balances as of December 31, 2020: Loans Individually evaluated for impairment $ 7,700 677 9,303 15 18,582 4 — 36,281 Collectively evaluated for impairment $ 774,712 569,845 958,848 306,141 2,026,682 53,913 — 4,690,141 Purchased credit impaired $ 137 150 4,227 100 3,939 38 — 8,591 Page 24 Index 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, Financial, and Agricultural Real Estate – Construction, Land Development & Other Land Loans Real Estate – Residential (1-4 Family) First Mortgages Real Estate – Mortgage – Home Equity Lines of Credit Real Estate – Mortgage – Commercial and Other Consumer Loans Unallocated Total 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 Charge-offs ( 325 ) ( 6 ) ( 4 ) ( 23 ) — ( 310 ) — ( 668 ) Recoveries 126 213 279 207 482 125 — 1,432 Provisions 2,986 388 82 ( 83 ) 2,369 308 70 6,120 Ending balance $ 8,776 6,272 8,696 2,460 21,606 1,346 70 49,226 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 Charge-offs ( 4,256 ) ( 51 ) ( 478 ) ( 404 ) ( 545 ) ( 707 ) — ( 6,441 ) Recoveries 603 856 594 373 584 251 — 3,261 Provisions 7,876 3,491 4,748 1,364 12,629 830 70 31,008 Ending balance $ 8,776 6,272 8,696 2,460 21,606 1,346 70 49,226 Ending balance as of September 30, 2020: Allowance for loan losses Individually evaluated for impairment $ 1,814 56 820 — 1,624 — — 4,314 Collectively evaluated for impairment $ 6,921 6,216 7,760 2,460 19,982 1,342 70 44,751 Purchased credit impaired $ 41 — 116 — — 4 — 161 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 Unamortized net deferred loan fees ( 5,439 ) Total loans $ 4,813,736 Ending balances as of September 30, 2020: Loans Individually evaluated for impairment $ 7,001 853 9,657 319 16,349 — — 34,179 Collectively evaluated for impairment $ 797,654 652,117 1,002,254 309,911 1,963,303 50,141 — 4,775,380 Purchased credit impaired $ 176 150 5,176 96 3,970 48 — 9,616 Page 25 Index The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2020. ($ in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Impaired loans with no related allowance recorded: Commercial, financial, and agricultural $ 3,688 4,325 — 750 Real estate – mortgage – construction, land development & other land loans 554 694 — 308 Real estate – mortgage – residential (1-4 family) first mortgages 4,115 4,456 — 4,447 Real estate – mortgage –home equity loans / lines of credit 15 27 — 264 Real estate – mortgage –commercial and other 11,763 13,107 — 9,026 Consumer loans 4 4 — 1 Total impaired loans with no allowance $ 20,139 22,613 — 14,796 Impaired loans with an allowance recorded: Commercial, financial, and agricultural $ 4,012 4,398 3,546 5,139 Real estate – mortgage – construction, land development & other land loans 123 131 30 502 Real estate – mortgage – residential (1-4 family) first mortgages 5,188 5,361 800 5,186 Real estate – mortgage –home equity loans / lines of credit — — — 21 Real estate – mortgage –commercial and other 6,819 7,552 2,175 5,786 Consumer loans — — — — 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 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. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type. Page 26 Index The following describes the Company’s internal risk grades in ascending order of likelihood of loss: Risk Grade Description Pass: 1 Loans with virtually no risk, including cash secured loans. 2 Loans with documented significant overall financial strength. These loans have minimum chance of loss due to the presence of multiple sources of repayment – each clearly sufficient to satisfy the obligation. 3 Loans with documented satisfactory overall financial strength. These loans have a low loss potential due to presence of at least two clearly identified sources of repayment – each of which is sufficient to satisfy the obligation under the present circumstances. 4 Loans to borrowers with acceptable financial condition. These loans could have signs of minor operational weaknesses, lack of adequate financial information, or loans supported by collateral with questionable value or marketability. 5 Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management. Collateral is generally required and felt to provide reasonable coverage with realizable liquidation values in normal circumstances. Repayment performance is satisfactory. P (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 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 Company. Classified: 7 An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. 8 Loans that have a well-defined weakness that make the collection or liquidation in full highly questionable and improbable. Loss appears imminent, but the exact amount and timing is uncertain. 9 Loans that are considered uncollectible and are in the process of being charged-off. This grade is a temporary grade assigned for administrative purposes until the charge-off is completed. F (Fail) Consumer loans (<$500,000) with a well-defined weakness, such as exceptions of any kind with no mitigating factors, history of paying outside the terms of the note, insufficient income to support the current level of debt, etc. Page 27 Index The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination or renewal as of September 30, 2021. Term Loans by Year of Origination ($ in thousands) 2021 2020 2019 2018 2017 Prior Revolving Total Commercial, financial, and agricultural Pass $ 177,374 136,471 88,627 70,541 15,904 19,406 84,328 592,651 Special Mention 14 613 3,467 2,823 192 5 2,702 9,816 Classified 15 679 1,404 7,583 72 12 322 10,087 Total commercial, financial, and agricultural 177,403 137,763 93,498 80,947 16,168 19,423 87,352 612,554 Real estate – construction, land development & other land loans Pass 350,577 139,023 47,604 9,676 11,717 9,290 12,828 580,715 Special Mention 43 749 5,135 — 111 12 11 6,061 Classified 579 317 117 183 14 117 — 1,327 Total real estate – construction, land development & other land loans 351,199 140,089 52,856 9,859 11,842 9,419 12,839 588,103 Real estate – mortgage – residential (1-4 family) first mortgages Pass 169,818 206,945 111,517 74,291 83,813 239,602 7,315 893,301 Special Mention 1,007 571 193 141 315 3,052 95 5,374 Classified 316 155 540 1,296 653 11,760 871 15,591 Total real estate – mortgage – residential (1-4 family) first mortgages 171,141 207,671 112,250 75,728 84,781 254,414 8,281 914,266 Real estate – mortgage – home equity loans / lines of credit Pass 1,453 345 548 1,340 268 1,251 268,863 274,068 Special Mention — — 16 — — 19 1,080 1,115 Classified 78 109 68 — — 496 5,285 6,036 Total real estate – mortgage – home equity loans / lines of credit 1,531 454 632 1,340 268 1,766 275,228 281,219 Real estate – mortgage – commercial and other Pass 882,823 651,882 261,293 164,575 148,376 216,052 60,035 2,385,036 Special Mention 4,109 4,918 4,613 2,049 1,890 222 545 18,346 Classified 6,726 133 1,871 6,291 4,327 611 — 19,959 Total real estate – mortgage – commercial and other 893,658 656,933 267,777 172,915 154,593 216,885 60,580 2,423,341 Consumer loans Pass 12,826 24,684 3,770 1,994 792 653 8,704 53,423 Special Mention — — — — — — — — Classified 3 58 22 10 6 35 190 324 Total consumer loans 12,829 24,742 3,792 2,004 798 688 8,894 53,747 Total $ 1,607,761 1,167,652 530,805 342,793 268,450 502,595 453,174 4,873,230 Unamortized net deferred loan fees ( 3,389 ) Total loans 4,869,841 Page 28 Index 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. The amount of revolving lines of credit that converted to term loans during the period was immaterial. The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2020. ($ in thousands) Pass Special Mention Loans Classified Accruing Loans Classified Nonaccrual Loans Total Commercial, financial, and agricultural $ 762,091 9,553 1,087 9,681 782,412 Real estate – construction, land development & other land loans 560,845 7,877 1,157 643 570,522 Real estate – mortgage – residential (1-4 family) first mortgages 943,455 7,609 11,039 6,048 968,151 Real estate – mortgage – home equity loans / lines of credit 297,795 1,468 5,560 1,333 306,156 Real estate – mortgage – commercial and other 1,988,684 34,588 4,801 17,191 2,045,264 Consumer loans 53,488 80 169 180 53,917 Purchased credit impaired 6,901 85 1,605 — 8,591 Total $ 4,613,259 61,260 25,418 35,076 4,735,013 Unamortized net deferred loan fees ( 3,698 ) Total loans 4,731,315 Troubled Debt Restructurings The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. 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 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 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 $1.8 million of loans that were otherwise performing prior to modification. Pursuant to the CARES Act and banking regulator guidance, these loans are not considered TDRs. Page 29 Index The following table presents information related to loans that were modified in a TDR during the three months ended September 30, 2021 and 2020. ($ in thousands) For the three months ended September 30, 2021 For the three months ended September 30, 2020 Number of Contracts Pre- Modification Restructured Balances Post- Modification Restructured Balances Number of Contracts Pre- Modification Restructured Balances Post- Modification Restructured Balances TDRs – Accruing Commercial, financial, and agricultural — $ — $ — — $ — $ — Real estate – construction, land development & other land loans — — — — — — Real estate – mortgage – residential (1-4 family) first mortgages — — — — — — Real estate – mortgage – home equity loans / lines of credit — — — — — — Real estate – mortgage – commercial and other — — — — — — Consumer loans — — — — — — TDRs – Nonaccrual Commercial, financial, and agricultural — — — — — — Real estate – construction, land development & other land loans — — — — — — Real estate – mortgage – residential (1-4 family) first mortgages — — — — — — Real estate – mortgage – home equity loans / lines of credit — — — — — — Real estate – mortgage – commercial and other — — — 1 2,344 2,344 Consumer loans — — — — — — Total TDRs arising during period — $ — $ — 1 $ 2,344 $ 2,344 Page 30 Index 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 Number of Contracts Pre- Modification Restructured Balances Post- Modification Restructured Balances Number of Contracts Pre- Modification Restructured Balances Post- Modification Restructured Balances 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 1 2,344 2,344 Consumer loans — — — — — — Total TDRs arising during period 10 $ 2,926 $ 2,923 6 $ 2,629 $ 2,632 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 September 30, 2021 For the Three Months Ended September 30, 2020 Number of Contracts Recorded Investment Number of Contracts Recorded Investment Accruing TDRs that subsequently defaulted Real estate – mortgage – residential (1-4 family first mortgages) — $ — — $ — Real estate – mortgage – commercial and other — — — — Total accruing TDRs that subsequently defaulted — $ — — $ — Page 31 Index 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 Number of Contracts Recorded Investment Number of Contracts Recorded Investment 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 In addition to the allowance for credit losses on loans, the Company maintains an allowance for lending-related commitments such as unfunded loan commitments and letters of credit. Under CECL, the Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for lending-related commitments on off-balance sheet credit exposures is adjusted as a provision for credit loss expense. 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 $ 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 Beginning balance at December 31, 2020 $ 582 Adjustment for implementation of CECL on January 1, 2021 7,504 Charge-offs — Recoveries — Provisions for credit losses on unfunded commitments 2,988 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 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 September 30, 2021 and December 31, 2020, and the carrying amount of unamortized intangible assets as of those same dates. Page 32 Index September 30, 2021 December 31, 2020 ($ in thousands) Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Amortizable intangible assets: Customer lists $ 2,700 1,263 7,613 2,814 Core deposit intangibles 28,440 25,677 28,440 23,832 SBA servicing asset 11,687 5,792 9,976 4,188 Other 1,040 962 1,403 1,232 Total $ 43,867 33,694 47,432 32,066 Unamortizable intangible assets: Goodwill $ 231,906 239,272 SBA servicing assets are recorded for the portions of SBA loans that the Company has sold but continues to service for a fee. 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 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 $ 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 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. 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 Page 33 Index 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 Expense October 1, 2021 to December 31, 2021 $ 642 2022 1,994 2023 1,037 2024 392 2025 213 Thereafter — Total $ 4,278 Note 8 – Pension Plans The Company has historically sponsored two defined benefit pension plans – a qualified retirement plan (the “Pension Plan”) which was generally available to all employees, and a Supplemental Executive Retirement Plan (the “SERP”), which was for the benefit of certain senior management executives of the Company. Effective December 31, 2012, the Company froze both plans for all participants. Although no previously accrued benefits were lost, employees no longer accrue benefits for service subsequent to 2012. 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 September 30, ($ in thousands) 2021 Pension Plan 2020 Pension Plan 2021 SERP 2020 SERP 2021 Total Both Plans 2020 Total Both Plans Service cost $ — — — — — — Interest cost 283 303 30 55 313 358 Expected return on plan assets ( 264 ) ( 325 ) — — ( 264 ) ( 325 ) Amortization of net (gain)/loss 106 194 3 ( 41 ) 109 153 Net periodic pension cost $ 125 172 33 14 158 186 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 Service cost $ — — — — — — Interest cost 693 917 89 165 782 1,082 Expected return on plan assets ( 792 ) ( 976 ) — — ( 792 ) ( 976 ) Amortization of net (gain)/loss 474 634 11 ( 123 ) 485 511 Net periodic pension cost $ 375 575 100 42 475 617 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 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. Page 34 Index Note 9 – Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss) for the Company are as follows: ($ in thousands) September 30, 2021 December 31, 2020 Unrealized gain (loss) on securities available for sale $ 4,212 20,448 Deferred tax asset (liability) ( 968 ) ( 4,699 ) Net unrealized gain (loss) on securities available for sale 3,244 15,749 Postretirement plans asset (liability) ( 1,332 ) ( 1,817 ) Deferred tax asset (liability) 306 418 Net postretirement plans asset (liability) ( 1,026 ) ( 1,399 ) Total accumulated other comprehensive income (loss) $ 2,218 14,350 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 (Loss) on Securities Available for Sale Postretirement Plans Asset (Liability) Total Beginning balance at January 1, 2021 $ 15,749 ( 1,399 ) 14,350 Other comprehensive income (loss) before reclassifications ( 12,505 ) — ( 12,505 ) Amounts reclassified from accumulated other comprehensive income — 373 373 Net current-period other comprehensive income (loss) ( 12,505 ) 373 ( 12,132 ) 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 (Loss) on Securities Available for Sale Postretirement Plans Asset (Liability) Total Beginning balance at January 1, 2020 $ 7,504 ( 2,381 ) 5,123 Other comprehensive income (loss) before reclassifications 18,143 — 18,143 Amounts reclassified from accumulated other comprehensive income ( 6,180 ) 393 ( 5,787 ) Net current-period other comprehensive income (loss) 11,963 393 12,356 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. Amounts reclassified from accumulated other comprehensive income for Postretirement Plans Asset (Liability) represent amortization of amounts included in Accumulated Other Comprehensive Income, net of taxes, and are recorded in the "Other operating expenses" line item of the Consolidated Statements of Income. Note 10 – Fair Value Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal and most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value: Page 35 Index Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: 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 assets that were measured at fair value on a recurring and nonrecurring basis at September 30, 2021. ($ in thousands) Description of Financial Assets Fair Value at September 30, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Recurring Securities available for sale: Government-sponsored enterprise securities $ 68,608 — 68,608 — Mortgage-backed securities 2,191,530 — 2,191,530 — Corporate bonds 44,937 — 44,937 — Total available for sale securities $ 2,305,075 — 2,305,075 — Presold mortgages in process of settlement $ 16,746 16,746 — — Nonrecurring Individually evaluated loans $ 12,279 — — 12,279 Foreclosed real estate 462 — — 462 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 Assets Fair Value at December 31, 2020 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Recurring Securities available for sale: Government-sponsored enterprise securities $ 70,206 — 70,206 — Mortgage-backed securities 1,337,706 — 1,337,706 — Corporate bonds 45,220 — 45,220 — Total available for sale securities $ 1,453,132 — 1,453,132 — Presold mortgages in process of settlement $ 42,271 42,271 — — Nonrecurring Impaired loans $ 22,142 — — 22,142 Foreclosed real estate 1,484 — — 1,484 Page 36 Index 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. Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by our third-party bond accounting provider using matrix pricing. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. For the Company, Level 2 securities include mortgage-backed securities, commercial mortgage-backed obligations, government-sponsored enterprise securities, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. 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. 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. The vast majority of the collateral is real estate. The value of real estate collateral is generally determined by third-party appraisers using an income or market valuation approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3). The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower’s financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the loans first became impaired, and thus the appraisals are not necessarily as of the period ends presented. Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income. Foreclosed real estate – Foreclosed real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value. Fair value is measured on a non-recurring basis and is based upon independent market prices or current appraisals that are generally prepared using an income or market valuation approach and conducted by an independent, licensed third party appraiser, adjusted for estimated selling costs (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the assets were acquired, and thus the appraisals are not necessarily as of the period ends presented. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses. 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 September 30, 2021, the significant unobservable inputs used in the fair value measurements were as follows: Page 37 Index ($ in thousands) Description Fair Value at September 30, 2021 Valuation Technique Significant Unobservable Inputs Range (Weighted Average) Individually evaluated loans - collateral-dependent $ 7,973 Appraised value Discounts applied for estimated costs to sell 10 % Individually evaluated loans - cash flow dependent 4,306 PV of expected cash flows Discount rates used in the calculation of the present value ("PV") of expected cash flows 4 %- 11 % ( 6.23 %) Foreclosed real estate 462 Appraised value Discounts for estimated costs to sell 10 % For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows: ($ in thousands) Description Fair Value at December 31, 2020 Valuation Technique Significant Unobservable Inputs Range (Weighted Average) Impaired loans - valued at collateral value $ 16,000 Appraised value Discounts applied for estimated costs to sell 10 % Impaired loans - valued at PV of expected cash flows 6,142 PV of expected cash flows Discount rates used in the calculation of PV of expected cash flows 4 %- 11 % ( 6.21 %) 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 September 30, 2021 and December 31, 2020 are as follows: September 30, 2021 December 31, 2020 ($ in thousands) Level in Fair Value Hierarchy Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Cash and due from banks, noninterest-bearing Level 1 $ 80,090 80,090 93,724 93,724 Due from banks, interest-bearing Level 1 314,103 314,103 273,566 273,566 Securities held to maturity Level 2 367,893 369,953 167,551 170,734 SBA loans held for sale Level 2 1,518 1,766 6,077 7,465 Total loans, net of allowance Level 3 4,806,213 4,799,181 4,678,927 4,661,197 Accrued interest receivable Level 1 19,422 19,422 20,272 20,272 Bank-owned life insurance Level 1 133,919 133,919 106,974 106,974 SBA Servicing Asset Level 3 5,895 6,954 5,788 6,569 Deposits Level 2 7,432,765 7,433,494 6,273,596 6,275,329 Borrowings Level 2 60,764 53,962 61,829 53,321 Accrued interest payable Level 2 609 609 904 904 Commitments to extend credit Level 3 — 11,074 — 461 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Page 38 Index Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses. In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. Note 11 – Revenue from Contracts with Customers 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 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 Nine Months Ended $ in thousands September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Noninterest Income In-scope of ASC 606: Service charges on deposit accounts: $ 3,209 2,567 8,766 8,193 Other service charges, commissions, and fees: Interchange income (net) 4,405 3,608 12,338 9,580 Other service charges and fees 2,059 2,582 6,144 5,303 Commissions from sales of insurance and financial products: Insurance income 70 1,477 2,789 4,058 Wealth management income 1,128 880 3,065 2,457 SBA consulting fees 1,128 1,956 6,079 6,722 Noninterest income (in-scope of ASC 606) 11,999 13,070 39,181 36,313 Noninterest income (out-of-scope of ASC 606) 4,512 8,382 19,373 25,037 Total noninterest income $ 16,511 21,452 58,554 61,350 A description of the Company’s revenue streams accounted for under ASC 606 is detailed below. Service charges on deposit accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Overdraft fees are recognized at the point in time that the overdraft occurs. Maintenance and activity fees include account maintenance fees and transaction-based fees. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month, representing the period over which the Company satisfies the performance obligation. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Service charges on deposits are withdrawn from the customer’s account balance. Other service charges, commissions, and fees: The Company earns interchange income on its customers’ debit and credit card usage and earns fees from other services utilized by its customers. Interchange income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as MasterCard. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Interchange fees are offset with interchange expenses and are presented on a net basis. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, ATM surcharge fees, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Commissions from the sale of insurance and financial products: 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. Page 39 Index Wealth Management Income primarily consists of commissions received on financial product sales, such as annuities. The Company’s performance obligation is generally satisfied upon the issuance of the financial product. Shortly after the policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. 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: The Company earns fees for its consulting services related to the origination of SBA loans. Fees are based on a percentage of the dollar amount of the originated loans and are recorded when the performance obligation has been satisfied. 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 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 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. The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from the above-described contracts with customers. Note 12 – Leases The Company enters into leases in the normal course of business. 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 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. As permitted by applicable accounting standards, the Company has elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's Consolidated Balance Sheets. Leases are classified as either operating or finance leases at the lease commencement date, and as previously noted, all of the Company's leases have been determined to be operating leases. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. 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 3.12 % 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. Page 40 Index ($ in thousands) October 1, 2021 to December 31, 2021 $ 421 2022 1,606 2023 1,580 2024 1,584 2025 1,563 Thereafter 19,051 Total undiscounted lease payments 25,805 Less effect of discounting ( 8,482 ) Present value of estimated lease payments (lease liability) $ 17,323 Note 13 - Shareholders' Equity Stock Repurchases 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 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 FHLB Principal Reducing Credit 12/22/2023 None 962 1.25 % fixed FHLB Principal Reducing Credit 1/15/2026 None 4,500 1.98 % fixed FHLB Principal Reducing Credit 6/26/2028 None 227 0.25 % fixed FHLB Principal Reducing Credit 7/17/2028 None 45 0.00 % fixed FHLB Principal Reducing Credit 8/18/2028 None 168 1.00 % fixed FHLB Principal Reducing Credit 8/22/2028 None 168 1.00 % fixed FHLB Principal Reducing Credit 12/20/2028 None 345 0.50 % fixed Trust Preferred Securities 1/23/2034 Quarterly by Company beginning 1/23/2009 20,620 2.83 % at 9/30/21 adjustable rate 3 month LIBOR + 2.70 % Trust Preferred Securities 6/15/2036 Quarterly by Company beginning 6/15/2011 25,774 1.51 % at 9/30/21 adjustable rate 3 month LIBOR + 1.39 % Trust Preferred Securities 1/7/2035 Quarterly by Company beginning 1/7/2010 10,310 2.13 % at 9/30/21 adjustable rate 3 month LIBOR + 2.00 % Total borrowings/ weighted average rate as of September 30, 2021 $ 63,210 2.14 % Unamortized discount on acquired borrowings ( 2,446 ) Total borrowings $ 60,764 Page 41 Index Description Due date Call Feature December 31, 2020 Interest Rate FHLB Principal Reducing Credit 7/24/2023 None 124 1.00 % fixed FHLB Principal Reducing Credit 12/22/2023 None 991 1.25 % fixed FHLB Principal Reducing Credit 1/15/2026 None 5,500 1.98 % fixed FHLB Principal Reducing Credit 6/26/2028 None 235 0.25 % fixed FHLB Principal Reducing Credit 7/17/2028 None 49 0.00 % fixed FHLB Principal Reducing Credit 8/18/2028 None 174 1.00 % fixed FHLB Principal Reducing Credit 8/22/2028 None 174 1.00 % fixed 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 beginning 1/23/2009 20,620 2.91 % at 12/31/2020 adjustable rate 3 month LIBOR + 2.70 % Trust Preferred Securities 6/15/2036 Quarterly by Company beginning 6/15/2011 25,774 1.61 % at 12/31/2020 adjustable rate 3 month LIBOR + 1.39 % Trust Preferred Securities 1/7/2035 Quarterly by Company beginning 1/7/2010 10,310 2.24 % at 12/31/2020 adjustable rate 3 month LIBOR + 2.00 % Total borrowings / weighted average rate as of December 31, 2020 $ 64,409 2.22 % Unamortized discount on acquired borrowings ( 2,580 ) 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. 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. Page 42 Index