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Item 1. Business

2022-03-01 compared with 2021-02-26 · 287 added, 312 removed, 134 unchanged (82% of the section changed)

General Description

First Bancorp (the “Company”) is the fifth largest bank holding company headquartered in North Carolina.

The Company is the fourth largest bank holding company headquartered in North Carolina.

At December 31, 2021, the Company had total consolidated assets of $10.5 billion, total loans of $6.1 billion, total deposits of $9.1 billion, and shareholders’ equity of $1.2 billion.

Our principal activity is the ownership and operation of First Bank (the “Bank”), a state-chartered bank with its main office in Southern Pines, North Carolina.

The Company was incorporated in North Carolina on December 8, 1983, as Montgomery Bancorp, for the purpose of acquiring 100% of the outstanding common stock of the Bank through a stock-for-stock exchange.

On December 31, 1986, the Company changed its name to First Bancorp to conform its name to the name of the Bank, which had changed its name from Bank of Montgomery to First Bank in 1985.

The Bank was organized in 1934 and began banking operations in 1935 as the Bank of Montgomery, named for the county in which it operated.

Until September 2013, the Bank’s main office was in Troy, North Carolina, located in the center of Montgomery County.

In September 2013, the Company and the Bank moved their main offices approximately 45 miles to Southern Pines, North Carolina, in Moore County.

As of December 31, 2020, we conducted business from 101 branches covering a geographical area from Florence, South Carolina to the south, to Wilmington, North Carolina to the east, to Kill Devil Hills, North Carolina to the northeast, to Mayodan, North Carolina to the north, and to Asheville, North Carolina to the west.

Of the Bank’s 101 branches, 95 branches are in North Carolina and six branches are in South Carolina.

Ranked by assets, the Bank was the fifth largest bank headquartered in North Carolina as of December 31, 2020 and one of two banks with total assets between $4 billion and $45 billion.

As of December 31, 2020, the Bank had four wholly owned subsidiaries, First Bank Insurance Services, Inc.

(“First Bank Insurance”), SBA Complete, Inc.

(“SBA Complete”), Magnolia Financial, Inc.

("Magnolia Financial"), and First Troy SPE, LLC.

First Bank Insurance’s primary business activity is the placement of property and casualty insurance coverage.

SBA Complete specializes in providing consulting services for financial institutions across the country related to Small Business Administration (“SBA”) loan origination and servicing.

Our principal activity is the ownership and operation of the Bank, a state-chartered bank with its main office in Southern Pines, North Carolina.

The Company was incorporated in North Carolina on December 8, 1983 for the purpose of acquiring 100% of the outstanding common stock of the Bank through a stock-for-stock exchange.

The Bank began banking operations in 1935 as the Bank of Montgomery, named for the county in which it operated.

In 1985, its name was changed to First Bank.

In September 2013, the Company and the Bank moved their main offices approximately 45 miles from Troy, North Carolina to Southern Pines, North Carolina, in Moore County.

As of December 31, 2021, we conducted business from 121 branches, with 114 branch offices located across North Carolina and seven branches in South Carolina, primarily in the Pee Dee area.

As of year end, the Bank had three wholly-owned subsidiaries, SBA Complete, Magnolia Financial, and First Troy SPE, LLC.

SBA Complete specializes in providing consulting services for financial institutions across the country related to SBA loan origination and servicing.

Magnolia Financial is a business financing company that offers accounts receivable financing and factoring, inventory financing, and purchase order financing throughout the southeastern United States.

First Troy SPE, LLC, which was organized in December 2009, is a holding entity for certain foreclosed properties.

During 2021, the Bank sold substantially all of the assets of a fourth subsidiary, First Bank Insurance, an insurance agency.

Our principal executive offices are located at 300 SW Broad Street, Southern Pines, North Carolina, 28387, and our telephone number is (910) 246-2500.

Unless the context requires otherwise, references to the “Company,” “we,” “our,” or “us” in this Annual Report on Form 10-K shall mean collectively First Bancorp and its consolidated subsidiaries.

Unless the context requires otherwise, references to the “Company,” “we,” “our,” or “us” in this Annual Report shall mean collectively the Company and its consolidated subsidiaries.

General Business

We engage in a full range of banking activities, with the acceptance of deposits and the making of loans being our most basic activities.

We offer deposit products such as checking, savings, and money market accounts, as well as time deposits, including various types of certificates of deposits (“CDs”) and individual retirement accounts (“IRAs”).

We engage in a full range of banking activities.

We offer deposit products such as checking, savings, and money market accounts, as well as time deposits, including various types of certificates of deposits and individual retirement accounts.

We provide loans for a wide range of consumer and commercial purposes, including loans for business, real estate, personal uses, home improvement, and automobiles.

We offer residential mortgages through our Mortgage Banking Division, and we offer SBA loans to small business owners across the nation through our SBA Lending Division.

We offer accounts receivable financing and factoring, inventory financing, and purchase order financing through Magnolia Financial.

Through Magnolia Financial we provide accounts receivable financing and factoring, inventory financing, and purchase order financing.

We also offer credit cards, debit cards, letters of credit, safe deposit box rentals, and electronic funds transfer services, including wire transfers.

In addition, we offer internet banking, mobile banking, cash management and bank-by-phone capabilities to our customers, and have a fleet of ATMs across our branch network for the convenience of our customers.

We also offer a mobile check deposit feature for our mobile banking customers that allows them to securely deposit checks via their smartphone.

For our business customers, we offer remote deposit capture, which provides them with a method to electronically transmit checks received from customers into their bank account without having to visit a branch.

We are a member of the Certificate of Deposit Account Registry Service (“CDARS”), which gives our customers the ability to obtain Federal Deposit Insurance Corporation (“FDIC”) insurance on deposits of up to $50 million, while continuing to work directly with their local First Bank branch.

Because the majority of our customers are individuals and small to medium-sized businesses located in the markets we serve, management does not believe that the loss of a single customer or group of customers would have a material adverse impact on the Bank.

In addition, to enhance the convenience of our customers, we provide internet banking, mobile banking, cash management, and bank-by-phone capabilities, and a fleet of ATMs across our branch network.

A mobile check deposit feature is offered to our

mobile banking customers that allows them to securely deposit checks via their smartphone.

For our business customers, we offer remote deposit capture, which empowers them to electronically transmit checks received from their customers into their bank accounts without having to visit a branch.

The Bank is a member of the Certificate of Deposit Account Registry Service (“CDARS”), which gives our customers the ability to obtain FDIC insurance on deposits of up to $50 million, while continuing to work directly with their local First Bank deposit team.

Because the majority of our customers are individuals and small- to medium-sized businesses, we do not believe that the loss of a single customer or group of customers would have a material adverse impact on the Bank.

There are no seasonal factors that tend to have any material effect on the Bank’s business, and we do not rely on foreign sources of funds or income.

Because we operate primarily within North Carolina and northeastern South Carolina, the economic conditions of these areas could have a material impact on the Company.

See additional discussion below in the section entitled “Territory Served and Competition.”

See additional discussion below in the section entitled “Competition.”

We also offer various ancillary services as part of our commitment to customer service.

Through First Bank Insurance, we offer the placement of property and casualty insurance.

We also offer non-FDIC insured investment and insurance products, including mutual funds, annuities, long-term care insurance, life insurance, and company retirement plans, as well as financial planning services through our investments division called FB Wealth Management Services.

First Bank also offers SBA loans to small business owners throughout the nation, which is supported by First Bank’s subsidiary, SBA Complete.

Through a contractual relationship, we offer the placement of property and casualty insurance.

We also provide non-FDIC insured investment and insurance products, including mutual funds, annuities, long-term care insurance, life insurance, and company retirement plans, as well as financial planning services through the Bank's investments division, FB Wealth Management Services.

The Bank offers SBA loans to small business owners throughout the nation, which is supported by its subsidiary, SBA Complete.

SBA Complete specializes in providing consulting services for financial institutions across the country related to SBA loan origination and servicing.

The Company is also the parent to a series of statutory business trusts organized for the purpose of issuing trust preferred debt securities that qualify as regulatory capital.

See additional discussion below in the section entitled “Borrowings.”

Territory Served and Competition

Our headquarters are located in Southern Pines, Moore County, North Carolina, where we have a significant concentration of deposits.

At the end of 2020, we served regions spread across North Carolina, with additional operations in northeastern South Carolina.

The following table presents, for each county where we operated as of December 31, 2020, the number of bank branches operated by the Bank within the county, the approximate amount of deposits with the Bank in the county as of December 31, 2020, our approximate deposit market share at June 30, 2020, and the number of bank competitors located in the county at June 30, 2020.

County Number of

Branches Deposits

(in millions) Market

Share Number of

Alamance, NC 1 $ 74 2.5 % 15

Beaufort, NC 2 114 15.7 % 5

Bladen, NC 1 72 13.5 % 4

Brunswick, NC 4 306 9.8 % 10

Buncombe, NC 8 702 10.2 % 16

Cabarrus, NC 2 67 2.1 % 10

Carteret, NC 2 91 5.6 % 9

Chatham, NC 2 71 8.3 % 8

Chesterfield, SC 1 54 11.7 % 6

Columbus, NC 2 88 10.4 % 5

Cumberland, NC 1 44 0.9 % 14

Dare, NC 1 37 2.7 % 8

Davidson, NC 2 184 6.3 % 9

Dillon, SC 3 77 21.6 % 4

Duplin, NC 3 214 20.0 % 6

Florence, SC 2 80 2.9 % 13

Forsyth, NC 4 81 0.8 % 16

Guilford, NC 6 589 4.2 % 21

Harnett, NC 3 159 13.0 % 8

Henderson, NC 2 105 4.3 % 10

Iredell, NC 2 86 2.2 % 19

Lee, NC 3 252 24.3 % 9

Madison, NC 1 48 44.2 % 1

McDowell, NC 1 84 21.8 % 4

Mecklenburg, NC 2 84 0.0 % 30

Montgomery, NC 2 148 40.8 % 2

Moore, NC 10 674 32.0 % 9

New Hanover, NC 5 340 2.6 % 19

Onslow, NC 2 133 8.7 % 10

Pitt, NC 1 52 1.6 % 14

Randolph, NC 3 221 10.4 % 10

Richmond, NC 1 70 13.9 % 5

Robeson, NC 4 253 19.7 % 8

Rockingham, NC 1 32 2.5 % 9

Rowan, NC 1 86 4.0 % 12

Scotland, NC 1 125 28.6 % 5

Stanly, NC 4 166 13.6 % 6

Transylvania, NC 1 32 4.5 % 5

Wake, NC 4 159 0.5 % 32

Brokered Deposits — 20

Historically, our branches and facilities have been primarily located in small to medium-sized communities, whose economies are based primarily on a variety of industries, including services and manufacturing.

Leading producers of lumber and rugs are located in Montgomery County, North Carolina.

The Pinehurst area within Moore County, North Carolina, is a widely known golf resort and retirement area.

The High Point, North Carolina area is widely

known for its furniture market.

New Hanover and Brunswick Counties, located in the southeastern coastal region of North Carolina, are popular with tourists and have significant retirement populations.

Buncombe County, located in the western region of North Carolina, is a highly diverse area with industries in manufacturing, service, and tourism.

Additionally, several of the communities served by the Bank are “bedroom” communities of large cities like Charlotte, Raleigh and Greensboro, while several branches are located in medium-sized cities such as Albemarle, Asheboro, Fayetteville, Greenville, Jacksonville, High Point, Southern Pines, and Sanford.

In recent years, we have implemented a branch strategy of expansion into larger, higher growth markets.

In 2016, this expansion continued with additional investments in Charlotte, Raleigh and the Triad region of North Carolina.

Several seasoned bankers joined the Bank and have led our expansion efforts in these markets.

The Company is the parent of a series of statutory business trusts organized for the purpose of issuing trust preferred debt securities that qualify as regulatory capital.

See additional discussion below in Item 7 under the section entitled “Borrowings.”

Historically, our branches and facilities have primarily been located in small- to medium-sized communities with economies based primarily on a variety of industries, including services and manufacturing.

Additionally, a number of the communities we serve are “bedroom” communities of large North Carolina cities including Charlotte, Raleigh (Triangle region), and Greensboro/Winston-Salem (Triad region), and many of our branches are located in medium-sized cities such as Albemarle, Asheboro, Asheville, Fayetteville, Greenville, Jacksonville, High Point, Southern Pines, Sanford, and Wilmington.

In recent years, we have implemented a strategy of expansion into larger, higher growth markets.

We opened our first full service branch in Charlotte in August 2016, after opening a loan production office there in 2015.

In Raleigh, we opened a loan production office early in 2016 and upgraded that location to a full-service branch in April 2017.

Additionally, in recent years, we opened two new branches in cities just outside of Raleigh and now have four branches in Wake County.

In the Triad region, experienced bankers joined us in early 2016 as we opened our first loan production office in Greensboro.

Our expansion into higher growth markets was significantly enhanced by three strategic transactions that occurred in 2016 and 2017.

See discussion below in the section entitled “Mergers and Acquisitions.”

We have three counties that hold significant shares of our deposit base.

Buncombe County, the former headquarters of one of our 2017 acquisitions (Asheville Savings Bank), holds 11% of our total deposit base.

Moore County, the headquarters of the Company, also has total deposits comprising approximately 11% of our deposit base, while Guilford County, the former headquarters of another 2017 acquisition (Carolina Bank), holds 9% of our deposit base.

Accordingly, material changes in competition, the economy or the population of these counties could materially impact the Company.

No other county comprises more than 10% of our deposit base.

We subsequently opened three new branches in cities just outside of Raleigh.

We opened our first loan production office in Greensboro in 2016, and we now have 10 branches in the Triad region.

Our expansion into higher growth markets was significantly enhanced by several strategic transactions that occurred in 2016, 2017, and 2021.

See the discussion below entitled “Mergers and Acquisitions.”

We have three markets that hold significant shares of our deposit base.

Moore County, the headquarters of the Company, has total deposits comprising approximately 9.6% of our deposit base.

Buncombe County, the former headquarters of one of our 2017 acquisitions (Asheville Savings), holds 8.6% of our total deposit base, while Guilford County, the former headquarters of another 2017 acquisition (Carolina Bank), holds 7.0% of our deposit base.

Accordingly, material changes in competition, the economy, or the population of these markets could materially impact the Company.

No other market areas comprises more than 5% of our deposit base.

We compete in our various market areas with, among others, several large, interstate bank holding companies.

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Many of the markets we operate in are particularly competitive markets, with at least ten other financial institutions having a physical presence within those markets.

We compete not only against banking organizations, but also against a wide range of financial service providers, including federally and state-chartered thrift institutions, credit unions, investment and brokerage firms and small-loan or consumer finance companies.

We compete not only against banking organizations, but also against a wide range of financial service providers, including savings institutions, credit unions, mortgage loan originators, investment and brokerage firms, and small-loan or consumer finance companies.

One of the credit unions in our market area is among the largest in the nation.

Competition among financial institutions of all types is virtually unlimited with respect to legal ability and authority to provide most financial services.

We also experience competition from internet loan providers, especially for mortgage loans, and from internet banks, particularly in the area of time deposits.

Despite the competitive market, we believe we have certain advantages over our competition in the areas we serve.

Compared to the smaller banks we compete against, we are large enough to be able to more easily absorb higher costs being experienced in the banking industry, particularly regulatory costs and technology costs.

We are also able to originate significantly larger loans than many of our smaller bank competitors.

In our competition with larger banks, we attempt to maintain a banking culture commonly associated with smaller banks – a culture that has a personal and local flavor that appeals to many retail and small business customers.

Increasingly, we compete with other companies based on financial technology capabilities.

Competition among providers of financial products and services continues to increase as technology advances have lowered the barriers to entry for financial technology companies, with customers having the opportunity to select from a growing variety of traditional and nontraditional alternatives, including crowdfunding, digital wallets, and money transfer services.

The ability of non-banking financial institutions to provide services previously limited to commercial banks has intensified competition.

Because non-bank financial institutions are not subject to the same regulatory restrictions as banks and bank holding companies, they often can operate with greater flexibility and lower cost structures.

We believe we have certain advantages over our competition in the areas we serve.

Compared to the smaller financial institutions we compete against, our size enables us to absorb more easily the higher costs associated with being in the financial services industry, particularly regulatory costs and technology costs.

We also are able to originate significantly larger loans than many of our smaller competitors.

In our competition with larger banks, we attempt to maintain a community banking culture – a culture that has a personal and local flavor that appeals to many retail and small business customers.

Specifically, we seek to maintain a distinct local identity in each of the communities we serve, and we actively sponsor and participate in local civic affairs.

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Additionally, employment of local managers and personnel in various offices and low turnover of personnel enable us to establish and maintain long-term relationships with individual and corporate customers.

Also, due to acquisitions of other banks headquartered in North Carolina and South Carolina, we are one of two banks headquartered in North Carolina with total assets between $4 billion and $45 billion.

We believe that enhances several of our competitive advantages discussed above, as well as provides scarcity value from an investor viewpoint.

Mergers and Acquisitions

We pursue an acquisition strategy to augment our organic growth.

We regularly evaluate the potential acquisition of various financial institutions.

Our acquisitions have generally fallen into one of three categories:

1) an acquisition of a financial institution or branch thereof within a market in which we operate, 2) an acquisition of a financial institution or branch thereof in a market contiguous or nearly contiguous to a market in which we operate, or 3) an acquisition of a company that has products or services that we do not currently offer.

Historically, we have paid for our acquisitions with cash and/or common stock.

We have completed numerous acquisitions in each of the three categories described above.

We have completed several whole-bank traditional acquisitions in our existing and contiguous markets, and we have purchased a number of bank branches from other banks (both in existing market areas and in contiguous/nearly contiguous markets).

Also, as discussed below, we acquired companies that specialize in SBA loans and business financing, which brought new products and services to the Company.

In May 2016, we completed the acquisition of SBA Complete, a consultant to financial institutions across the country related to SBA loan origination and servicing.

Many community banks do not have the in-house capability to comprehensively originate and service those types of loans, so they contract with SBA Complete for assistance.

To learn more about this subsidiary of the Bank, please visit www.sbacomplete.com.

Information included on our internet site is not incorporated by reference into this Report.

In connection with our acquisition of SBA Complete, we leveraged its capabilities by launching our own SBA Lending Division.

Through a network of specialized Bank loan officers, this Division offers SBA loans to small business owners throughout the United States.

We typically sell the portion of each loan that is guaranteed by the SBA at a premium and record the non-guaranteed portion to our balance sheet.

To learn more about our SBA Lending Division, please visit www.firstbanksba.com.

Information included on our internet site is not incorporated by reference into this Report.

In July 2016, we exchanged our seven Virginia branches with approximately $151 million in loans and $134 million in deposits for six North Carolina branches of a Virginia bank with approximately $152 million in loans and $111 million in deposits.

Four of the six branches we acquired were in Winston-Salem, with the other two branches located in the Charlotte-metro markets of Mooresville and Huntersville.

The Winston-Salem branches we assumed improved our Triad region expansion initiative, while the Mooresville and Huntersville branches increased our Charlotte market expansion.

We acquired Bankingport, Inc., an insurance agency based in Sanford, North Carolina, in 2016 and Bear Insurance Services, Inc., an insurance agency based in Albemarle, North Carolina, in 2017 to create a platform for providing insurance services throughout our branch network.

After successfully integrating and operating these acquired companies within our subsidiary, First Bank Insurance, we sold substantially all of the assets of this subsidiary effective June 30, 2021 to a Virginia-based insurance services provider for cash and an equity interest in the Virginia acquirer, and entered into an agreement with it to provide insurance services through our branches.

In March 2017, we acquired Carolina Bank, a community bank headquartered in Greensboro with $682 million in assets and eight branches located in Greensboro, Winston-Salem, Burlington, and Asheboro.

This acquisition significantly accelerated our expansion initiative in the Greensboro/Winston-Salem market.

In October 2017, we acquired Asheville Savings which operated in the attractive and high-growth market of Asheville, North Carolina, with $798 million in assets and 13 branches located throughout the Asheville market area.

On September 1, 2020, we completed the acquisition of Magnolia Financial, a business financing company headquartered in Spartanburg, South Carolina, that makes loans throughout the southeastern United States.

Magnolia Financial held $14.6 million in loans at the date of acquisition.

Although not material to our Company’s consolidated operations, the acquisition provided us with the opportunity to enhance our product offerings, such as accounts receivable financing and factoring, inventory financing, and purchase order financing.

In October 2021, we acquired Select, a community bank headquartered in Dunn, North Carolina with $1.8 billion in assets, $1.3 billion in loans, and $1.6 billion in deposits.

Select operated from 22 branches located throughout North Carolina, in the Upstate of South Carolina and in Virginia Beach, Virginia.

We have closed or will close and consolidate 12 of Select's branches during 2022.

There are many factors that we consider when evaluating how much to offer for potential acquisition candidates.

The more significant factors we analyze are projected impact on earnings per share, projected impact on capital, and projected impact on book value and tangible book value.

Significant assumptions that affect this analysis include the estimated future earnings stream of the acquisition candidate, estimated credit and other losses to be incurred, the amount of cost efficiencies that can be realized, and the interest rate earned/lost on the cash received/paid.

In addition to these primary factors, we also consider other factors including, but not limited to, marketplace acquisition statistics, location of the candidate in relation to our expansion strategy, market growth potential, management of the candidate, potential integration issues (including corporate culture), and the size of the acquisition candidate.

We plan to continue to evaluate acquisition opportunities that could potentially benefit the Company and its shareholders.

These opportunities may include acquisitions that do not fit the categories discussed above.

Human Capital Resources

Our employees are key to our success.

We are committed to attracting, retaining, and promoting top quality talent regardless of sex, sexual orientation, gender identity, race, color, national origin, age, religion, and physical ability.

We strive to identify and select the best candidates for all open positions based on the qualifying factors for each job.

We are dedicated to providing a workplace for our employees that is inclusive, supportive, and free of any form of discrimination or harassment;

rewarding and recognizing our team members based on their individual results and performance;

and recognizing and respecting all of the characteristics and differences that make each of our employees unique.

In 2020, we formed a Diversity Council, which is chaired by our CEO and meets regularly.

The Diversity Council is focused on recommending actions for improvement and identifying barriers that impede progress related to the following areas:

• Creating a work environment that demonstrates all views are respected and provides equal access to opportunities for growth and advancement;

• Ensuring all open positions have a diverse pool of candidates, and our job requirements align with our principles and the markets we serve;

• Creating internal organizational learning opportunities in which associates may voluntarily participate to deepen and develop personal understanding of diversity, equity, and inclusion.

In October 2020, we encouraged our employees to participate in "Global Diversity Awareness Month." Team activity guides promoting diversity and learning about other cultures were distributed to promote this initiative.

Maintaining and further enhancing our corporate culture is an important element of our Board’s oversight of risk because our people are critical to the implementation of our corporate strategy.

Our Board sets the “tone at the top” and holds senior management accountable for embodying, maintaining, and communicating our culture to employees.

Our culture is guided by a philosophy we call Our Promise to Service Excellence.

The principles of Our Promise to Service Excellence are:

Safety and Soundness, Knowledge and Accuracy, Courteous Service, and Convenience and Ease.

We have developed specialized training that all new associates receive, and we hold regular team meetings and training that promote our Service Excellence principles.

By emphasizing a consistent set of principles for all associates, we believe that our associates' work experience is more satisfying, and they are better able to serve their customers consistently and at a high level.

We also seek to design careers with our Company that are fulfilling, with competitive compensation and benefits alongside a positive work-life balance.

We dedicate resources to fostering professional and personal growth with continuing education, on-the-job training, and development programs.

We have worked closely with our employees during the COVID-19 pandemic to ensure their safety and their ability to take care of their families.

we established health safety protocols, facilitated remote work arrangements, and considered ways to provide for family needs, such as child care, all without any employee layoffs or furloughs.

As of December 31, 2021, we had 1,179 full-time and 55 part-time employees.

We are not a party to any collective bargaining agreements, and we consider our employee relations to be good.

Lending Policy and Procedures

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Loans are approved under our written loan policy, which provides that lending officers, principally branch managers, have authority to approve loans of various amounts up to $350,000 with lending limits varying depending upon the experience of the lending officer and whether the loan is secured or unsecured.

We have seven senior lending officers who have authority to approve secured loans up to $500,000 and each of our three Regional Presidents has authority to approve secured loans up to $1,000,000.

We have seven senior lending officers who have authority to approve secured loans up to $500,000, and our Division Banking Executives have authority to approve secured loans up to $1,000,000.

Loans up to $10,000,000 are approved by the Bank’s Regional Credit Officers through our Credit Administration Department.

The Bank’s President and Chief Credit Officer have authority to approve loans up to $25,000,000, while the President and the Chief Credit Officer have joint authority to approve loans up to $75,000,000.

The Bank’s Board of Directors maintains loan authority in excess of the Bank’s in-house limit, currently $50,000,000, and generally approves loans through its Executive Loan Committee.

The Bank’s Board maintains loan authority in excess of the Bank’s in-house limit, currently $75,000,000, and generally approves loans through its Executive Loan Committee.

Our legal lending limit to any one borrower is approximately $153.7 million.

All lending authorities are based on the borrower’s Total Credit Exposure (“TCE”), which is an aggregate of the Bank’s lending relationship to the borrower.

TCE is based on the borrower’s total credit exposure with the Bank either directly or indirectly through loan guarantees or other borrowing entities related to the borrower through control or ownership.

All lending authorities are based on the borrower’s total credit exposure, which is an aggregate of the Bank’s lending relationship with the borrower either directly or indirectly through loan guarantees or other borrowing entities related to the borrower through control or ownership.

The Executive Loan Committee reviews and approves loans that exceed the Bank’s in-house limit, loans to executive officers, directors, and their affiliates and, in certain instances, other types of loans.

New credit extensions are reviewed daily by our senior management and the Credit Administration Department.

New credit extensions are reviewed regularly by our senior management and the Credit Administration Department.

We continually monitor our loan portfolio to identify areas of concern and to enable us to take corrective action.

Lending and credit administration officers and the board of directors meet periodically to review past due loans and portfolio quality, while assuring that the Bank is appropriately meeting the credit needs of the communities it serves.

Lending and credit administration officers and the Bank’s Board meet periodically to review past due loans and portfolio quality, while assuring that the Bank is appropriately meeting the credit needs of the communities it serves.

Individual lending officers are responsible for monitoring any changes in the financial status of borrowers and pursuing collection of early-stage past due amounts.

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Reports are generated for management based on these activities and findings are used to adjust risk grades as deemed appropriate.

In addition, these reports are shared with the Bank’s Board of Directors.

In addition, these reports are shared with the Bank’s Board.

The Loan Review Department also provides training assistance to the Bank’s Training and Credit Administration departments.

To further assess the Bank’s loan portfolio, and as a secondary review of the Bank’s loan review department, we also contract with an independent consulting firm to review new loan originations meeting certain criteria, as well as to review risk grades to existing credits meeting certain thresholds.

The consulting firm’s observations, comments, and risk grades, including variances with the Bank’s risk grades, are shared with the audit committee of the Company’s board of directors and are considered by management in setting Bank policy, as well as in evaluating the adequacy of our allowance for loan losses.

For additional information, see “Allowance for Loan Losses and Loan Loss Experience” under Item 7 below.

The consulting firm’s observations, comments, and risk grades, including variances with the Bank’s risk grades, are shared with the audit committee of the Board and are considered by management in setting Bank policy, and in evaluating the adequacy of our allowance for credit losses.

For additional information, see “Allowance for Credit Losses and Loan Loss Experience” under Item 7 below.

Investment Policy and Procedures

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Pursuant to this policy, we may invest in U.S.

government and government-sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, state and municipal obligations, public housing authority bonds, and, to a limited extent, corporate bonds.

We may also invest up to $60 million in time deposits with other financial institutions.

government and GSEs, mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, state and municipal obligations, public housing authority bonds, and, to a limited extent, corporate bonds.

We also also invest up to $60 million in time deposits with other financial institutions.

Time deposit purchases from any one financial institution exceeding FDIC insurance coverage limits are evaluated as a corporate bond and are subject to the same due diligence requirements as corporate bonds (described below).

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Securities rated below A are periodically reviewed for credit-worthiness.

We may purchase non-rated municipal bonds only if such bonds are in our general market area and we determine these bonds have a credit risk no greater than the minimum ratings

referred to above.

We are also authorized by our Board of Directors to invest a portion of our securities portfolio in high quality corporate bonds, with the amount of such bonds not to exceed 15% of the entire securities portfolio.

Prior to purchasing a corporate bond, the Company’s management performs due diligence on the issuer of the bond, and the purchase is not made unless we believe that the purchase of the bond bears no more risk to the Company than would an unsecured loan to the same company.

We may purchase non-rated municipal bonds only if such bonds are in our general market area and we determine these bonds have a credit risk no greater than the minimum ratings referred to above.

We also are authorized by our Board to invest a portion of our securities portfolio in high quality corporate bonds, with the amount of such bonds not to exceed 15% of the entire securities portfolio.

Prior to purchasing a corporate bond, the Bank’s management performs due diligence on the issuer of the bond, and the purchase is not made unless we believe that the purchase of the bond bears no more risk to the Bank than would an unsecured loan to the same company.

On a quarterly basis, we review the financial statements for the corporate bond issuers that we own for any signs of deterioration so that we can take timely action if deemed necessary.

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The Investment Committee compares our securities portfolio with portfolios of other companies of comparable size.

In addition, reports of all purchases, sales, issuer calls, net profits or losses and market appreciation or depreciation of the securities portfolio are reviewed by our Board of Directors.

Once a quarter, our interest rate risk exposure is evaluated by our Board of Directors.

Each year, the written investment policy is approved by the board of directors.

Mergers and Acquisitions

As part of our operations, we have pursued an acquisition strategy over the years to augment our organic growth.

We regularly evaluate the potential acquisition of various financial institutions.

Our acquisitions have generally fallen into one of three categories:

Historically, we have paid for our acquisitions with cash and/or common stock and any operating income or loss has been fully borne by the Company beginning on the closing date of the acquisition.

Since becoming a public company in 1987, we have completed numerous acquisitions in each of the three categories described above.

We have completed several whole-bank traditional acquisitions in our existing and contiguous markets;

we have purchased a number of bank branches from other banks (both in existing market areas and in contiguous/nearly contiguous markets);

and we have acquired several insurance agencies, which has provided us with the ability to offer property and casualty insurance coverage.

Also, as discussed below, we acquired companies that specialize in SBA loans and business financing, which brought new products and services to the Company.

In 2009, FDIC-assisted acquisitions began to occur frequently as banking regulators closed problem banks.

In FDIC-assisted transactions, the acquiring bank often does not pay any consideration for the failed bank, and in some cases receives cash from the FDIC as part of the transaction.

In addition, the acquiring bank usually enters into one or more loss share agreements with the FDIC, which affords the acquiring bank significant loss protection.

In both 2009 and 2011 we acquired the operations of failed banks in FDIC-assisted transactions.

See the Company’s Annual Reports on Form 10-K for those years for more information on these acquisitions.

The following paragraphs describe the other acquisitions that we have completed in recent years.

See the respective Company’s Annual Reports on Form 10-K for more information on the acquisitions discussed below.

In January 2016, we acquired Bankingport, Inc., an insurance agency based in Sanford, North Carolina.

Although not material to the Company’s consolidated operations, the acquisition provided us with the opportunity to enhance our product offerings, as well as expand our insurance agency operations into a significant banking market for our Company.

Also, this acquisition provided us a larger platform for leveraging insurance services throughout our bank branch network.

In May 2016, we completed the acquisition of SBA Complete.

SBA Complete specializes in consulting with financial institutions across the country related to SBA loan origination and servicing.

Many community banks do not have the in-house capability to comprehensively originate and service those types of loans, so they contract with SBA Complete for assistance.

To learn more about this subsidiary of the Bank, please visit www.sbacomplete.com.

Information included on our Internet site is not incorporated by reference into this annual report.

Soon after the acquisition of SBA Complete, we leveraged its capabilities by launching our own SBA Lending Division.

Through a network of specialized First Bank loan officers, this Division offers SBA loans to small business owners throughout the United States.

We typically sell the portion of each loan that is guaranteed by the SBA at a premium and record the non-guaranteed portion to our balance sheet.

To learn more about our SBA Lending

Division, please visit www.firstbanksba.com.

Information included on our Internet site is not incorporated by reference into this annual report.

In March 2016, we announced an agreement to exchange our seven Virginia branches, with approximately $151 million in loans and $134 million in deposits, for six North Carolina branches of a community bank with a large Virginia presence that included approximately $152 million in loans and $111 million in deposits.

Four of the six branches we assumed were in Winston-Salem, with the other two branches located in the Charlotte-metro markets of Mooresville and Huntersville.

The Winston-Salem branches we assumed improved the Triad expansion initiative, while the Mooresville and Huntersville branches increased our Charlotte market expansion.

This transaction, which was completed in July 2016, resulted in our exit from western Virginia.

The opportunity to assume what is essentially a banking franchise in markets where we had recently invested in human capital was the primary factor we considered in entering into the exchange agreement.

In March 2017, we acquired Carolina Bank Holdings, Inc.

(“Carolina Bank”), the parent company of Carolina Bank.

Carolina Bank was a community bank headquartered in Greensboro with $682 million in assets, with eight branches located in Greensboro, Winston-Salem, Burlington and Asheboro.

This acquisition built on the Winston-Salem expansion previously discussed and significantly accelerated our recent expansion initiative in the Greensboro market.

In September 2017, we acquired Bear Insurance Services, an insurance agency based in Albemarle, North Carolina.

This acquisition provided us a larger platform for leveraging insurance services throughout our bank branch network and more than doubled our insurance agency revenue.

In October 2017, we acquired ASB Bancorp, Inc.

(“Asheville Savings Bank”), the parent company of Asheville Savings Bank, SSB.

Asheville Savings Bank operated in the attractive and high-growth market of Asheville, North Carolina, with $798 million in assets and 13 branches located throughout the Asheville market area.

On September 1, 2020, we completed the acquisition of Magnolia Financial, Inc., a business financing company headquartered in Spartanburg, South Carolina, that makes loans throughout the southeastern United States.

Magnolia Financial held $14.6 million in loans at the date of acquisition.

Although not material to our Company’s consolidated operations, the acquisition provides us with the opportunity to enhance our product offerings, such as accounts receivable financing and factoring, inventory financing, and purchase order financing.

There are many factors that we consider when evaluating how much to offer for potential acquisition candidates, with a few of the more significant factors being projected impact on earnings per share, projected impact on capital, and projected impact on book value and tangible book value.

In addition to these primary factors, we also consider other factors including (but not limited to) marketplace acquisition statistics, location of the candidate in relation to our expansion strategy, market growth potential, management of the candidate, potential integration issues (including corporate culture), and the size of the acquisition candidate.

We plan to continue to evaluate acquisition opportunities that could potentially benefit the Company and its shareholders.

These opportunities may include acquisitions that do not fit the categories discussed above.

Human Capital Resources

As of December 31, 2020, we had 1,071 full-time and 47 part-time employees.

We are not a party to any collective bargaining agreements, and we consider our employee relations to be good.

Oversight of our corporate culture is an important element of our Board of Director’s oversight of risk because our people are critical to the success of our corporate strategy.

Our board sets the “tone at the top,” and holds senior management accountable for embodying, maintaining, and communicating our culture to employees.

Our culture is guided by a philosophy we call Our Promise to Service Excellence.

The principles of Our Promise to Service Excellence are:

Safety & Soundness, Knowledge and Accuracy, Courteous Service, and Convenience and Ease.

We have developed specialized training that all new associates receive, and we hold regular team meetings and training that promote our Service Excellence principals.

By emphasizing a consistent set of principles that all employees follow, we believe that our employees work experience is more satisfying, and they are better able to serve their customers consistently and at a high level.

We have a Service Excellence Committee that on an annual

basis selects Service Excellence Champions, who have been nominated for the award throughout the year by fellow employees, based on their demonstrated commitment to Our Promise to Service Excellence.

Our employees are key to our success as an organization.

We are committed to attracting, retaining and promoting top quality talent regardless of sex, sexual orientation, gender identity, race, color, national origin, age, religion and physical ability.

We strive to identify and select the best candidates for all open positions based on qualifying factors for each job.

We are dedicated to providing a workplace for our employees that is inclusive, supportive, and free of any form of discrimination or harassment;

rewarding and recognizing our employees based on their individual results and performance;

and recognizing and respecting all of the characteristics and differences that make each of our employees unique.

In 2020, we formed a Diversity Council, which is chaired by our Chief Executive Officer and meets regularly.

The Diversity Council is focused on recommending actions for the improvement related to three key objectives, and for identifying barriers that impede progress in the following areas:

• Create a work environment that demonstrates all views are respected and provides equal access to opportunities for growth and advancement.

• Ensure all open positions have a diverse pool of candidates, and our job requirements align with the markets we serve.

• Create internal organizational learning opportunities in which associates may voluntarily participate to deepen and develop personal understanding of diversity, equity and inclusion.

We also seek to design careers with our company that are fulfilling ones, with competitive compensation and benefits alongside a positive work-life balance.

We dedicate resources to fostering professional and personal growth with continuing education, on-the-job training and development programs.

We have worked closely with our employees during the pandemic to ensure their safety and their ability to take care of their family.

Health safety protocols were established, remote work arrangements were facilitated and considerations were provided for family needs, such as child care, all without any employee layoffs or furloughs.

In addition, reports of all purchases, sales, issuer calls, net profits or losses and market appreciation or depreciation of the securities portfolio are reviewed by our Board.

Once a quarter, our interest rate risk exposure is evaluated by the Bank’s Board.

Each year, our written investment policy is reviewed by the Board and appropriate changes are made.

Supervision and Regulation

As a bank holding company, we are subject to supervision, examination and regulation by the Federal Reserve and the North Carolina Office of the Commissioner of Banks (the “Commissioner”).

As a bank holding company, we are subject to supervision, examination, and regulation by the Federal Reserve and the Commissioner.

The Bank is also subject to supervision and examination by the Federal Reserve and the Commissioner.

For additional information, see Note 15 to the consolidated financial statements.

The Company and the Bank are subject to extensive regulation under federal and state laws.

The regulatory framework is designed to protect the banking system as a whole and not for the protection of our shareholders and creditors.

The applicable statutes and regulations, as well as related policies, continue to be subject to changes by Congress, state legislatures, and federal and state regulators.

Changes in statutes, regulations, and polices applicable to Company and the Bank (including their interpretations or implementation) cannot be predicted and could have a material adverse impact on the business and operations of the Company and the Bank.

As a result of the Company’s acquisition of Select, its total assets at December 31, 2021 exceeded $10.0 billion.

Under current banking regulations and as discussed further below, banks exceeding this asset threshold are subject to heightened supervision and regulation.

The following is a general summary of the material aspects of certain statutes, regulations and policies applicable to us.

This summary does not purport to be complete and is qualified by reference to the applicable statutes, regulations, and policies.

Supervision and Regulation of the Company .

The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended and is regulated by the Federal Reserve.

The Company is also regulated by the Commissioner under the North Carolina banking laws.

A bank holding company is required to file quarterly reports and other information regarding its business operations and those of its subsidiaries with the Federal Reserve.

It is also subject to examination by the Federal Reserve and is required to obtain Federal Reserve approval prior to making certain acquisitions of other institutions or voting securities.

The Federal Reserve requires the Company to maintain certain levels of capital - see “Capital Resources and Shareholders’ Equity” under Item 7 below.

The Federal Reserve also has the authority to take enforcement action against any bank holding company that commits any unsafe or unsound practice, or violates certain laws, regulations or conditions imposed in writing by the Federal Reserve.

The Federal Reserve generally prohibits a bank holding company from declaring or paying a cash dividend that would impose undue pressure on the capital of subsidiary banks or would be funded only through borrowing or other arrangements which might adversely affect a bank holding company’s financial position.

Under the Federal Reserve policy, a bank holding company is not permitted to continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition.

The BHC Act limits the business of a bank holding company to owning or controlling banks and engaging in other activities closely related to the business of banking.

In addition, the Company also must file reports with, and provide additional information, to the Federal Reserve.

Holding Company Bank Ownership.

The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before:

(1) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares;

(2) acquiring all or substantially all of the assets of another bank or bank holding company;

or (3) merging or consolidating with another bank holding company.

Holding Company Control of Non-banks.

With some exceptions, the BHC Act prohibits a bank holding company from acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries.

The principal exceptions to these prohibitions involve certain non-bank activities that, by federal statute, agency regulation, or order, have been identified as activities closely related to the business of banking or of managing or controlling banks.

Transactions with Affiliates.

Bank subsidiaries of a bank holding company are subject to restrictions imposed by the Federal Reserve Act on extensions of credit to the holding company or its subsidiaries, on investments in securities, and on the use of securities as collateral for loans to any borrower.

The Dodd-Frank Act further extended the definition of an “affiliate” and treats credit exposure arising from derivative transactions, securities lending, and borrowing transactions as covered transactions under the regulations.

It also (1) expands the scope of covered transactions required to be collateralized;

(2) requires collateral to be maintained at all times for covered transactions required to be collateralized;

and (3) places limits on acceptable collateral.

These regulations and restrictions may limit the Company’s ability to obtain funds from the Bank for its cash needs, including funds of payments of dividends, interest, and operational expenses.

Tying Arrangements.

The Company is prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property, or furnishing of services.

For example, with certain exceptions, neither the Company nor the Bank may condition an extension of credit to a customer on either (1) a requirement that the customer obtain additional services provided by the Company or the Bank;

or (2) an agreement by the customer to refrain from obtaining other services from a competitor.

Support of Bank Subsidiaries .

Under Federal Reserve policy and the Dodd-Frank Act, the Company is required to act as a source of financial and managerial strength to the Bank.

This means that the Company is required to commit, as necessary, capital and resources to support the Bank, including at times when the Company may not be in a financial position to provide such resources or when it may not be in the Company’s or its shareholders’ best interests to do so.

Any capital loans a bank holding company makes to its bank subsidiaries are subordinate to deposits and to certain other indebtedness of the bank subsidiaries.

State Law Restrictions.

As a North Carolina corporation, the Company is subject to certain limitations and restrictions under applicable North Carolina corporate law.

For example, North Carolina corporate law includes limitations and restrictions relating to indemnification of directors, distributions to shareholders, transactions involving directors, officers, or interested shareholders, maintenance of books, records, and minutes, and observance of certain corporate formalities.

North Carolina Holding Company Law.

The Commissioner is empowered to regulate certain acquisitions of North Carolina banks and bank holding companies, issue cease and desist orders for violations of North Carolina banking laws, and promulgate rules necessary to effectuate the purposes of those banking laws.

Regulatory authorities have cease and desist powers over bank holding companies and their nonbank subsidiaries where their actions would constitute a serious threat to the safety, soundness or stability of a subsidiary bank.

Those authorities may compel holding companies to invest additional capital into banking subsidiaries upon acquisitions or in the event of significant loan losses or rapid growth of loans or deposits.

Congress and the North Carolina General Assembly have periodically considered and adopted legislation that has impacted the Company.

Supervision and Regulation of the Bank

The Bank is a state-chartered bank and is a member of the Federal Reserve.

The Bank is a North Carolina state-chartered bank and is a member of the Federal Reserve.

Federal banking regulations applicable to all depository financial institutions, among other things:

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and (iv) bar certain director and officer interlocks between financial institutions.

As a state-chartered bank, the Bank is subject to the provisions of the North Carolina banking statutes and to regulation by the Commissioner.

As a state-chartered bank, the Bank is subject to regulation by the Commissioner.

The Commissioner has a wide range of regulatory authority over the activities and operations of the Bank, and the Commissioner’s staff conducts periodic examinations of the Bank and its affiliates to ensure compliance with state banking laws and regulations and to assess the safety and soundness of the Bank.

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The Commissioner also has cease and desist powers over state-chartered banks for violations of state banking laws or regulations and for unsafe or unsound conduct that is likely to jeopardize the interest of depositors.

The dividends that may be paid by the Bank to the Company are subject to legal limitations under North Carolina law.

In addition, under Federal Reserve regulations, a dividend cannot be paid by the Bank if it would be less than well-capitalized after the dividend.

The Federal Reserve may also prevent the payment of a dividend by the Bank if it determines that the payment would be an unsafe and unsound banking practice.

The ability of the Company to pay dividends to its shareholders is largely dependent on the dividends paid to the Company by the Bank.

The Federal Reserve is authorized to approve conversions, mergers, and assumptions of deposit liability transactions between insured banks and uninsured banks or institutions, and to prevent capital or surplus diminution in such transactions if the resulting, continuing, or assumed bank is an insured member bank.

First Bank is a member of the Federal Reserve System, and accordingly the Federal Reserve also conducts periodic examinations of the Bank to assess its safety and soundness and its compliance with banking laws and regulations, and it has the power to implement changes to, or restrictions on, the Bank’s operations if it finds that a violation is occurring or is threatened.

In addition, the Federal Reserve monitors the Bank’s compliance with several banking statutes, such as the Depository Institution Management Interlocks Act and the Community Reinvestment Act of 1977.

The Bank is a member of the Federal Reserve System, and accordingly the Federal Reserve also conducts periodic examinations of the Bank to assess its safety and soundness and its compliance with banking laws and regulations, and it has the power to implement changes to, or restrictions on, the Bank’s operations if it finds that a violation is occurring or is threatened.

Consumer Protection.

The Bank is subject to a variety of federal and state consumer protection laws and regulations that govern its relationships and interactions with consumers, including laws and regulations that impose certain disclosure requirements and that govern the manner in which the Bank takes deposits, makes and collect loans, and provides other services.

In recent years, examination and enforcement by federal and state banking agencies for non-compliance with consumer protection laws and regulations have increased and become more intense.

Failure to comply with these laws and regulations may subject the Bank to various penalties.

Failure to comply with consumer protection requirements may also result in failure to obtain any required regulatory approval for merger or acquisition transactions we may wish to pursue.

Community Reinvestment.

The CRA requires that, in connection with examinations of financial institutions within their jurisdiction, federal bank regulators evaluate the record of financial institutions in meeting the credit needs of its local communities, including low and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions.

A bank's community reinvestment record is also considered by the applicable banking agencies in evaluating mergers, acquisitions, and applications to open a branch or facility.

In some cases, a bank's failure to comply with the CRA or CRA protests filed by interested parties during applicable comment periods can result in the denial or delay of such transactions.

Insider Credit Transactions.

Banks are subject to certain restrictions on extensions of credit to executive officers, directors, principal shareholders, and their related interests.

Extensions of credit 1) must be made on substantially the same terms (including interest rates and collateral) and follow credit underwriting procedures that are at least as stringent as those prevailing at the time for comparable transactions with persons not related to the lending bank;

and 2) must not involve more than the normal risk of repayment or present other unfavorable features.

Banks are also subject to certain lending limits and restrictions on overdrafts to insiders.

A violation of these restrictions may result in the assessment of substantial civil monetary penalties, regulatory enforcement actions, and other regulatory sanctions.

The Dodd-Frank Act and federal regulations place additional restrictions on loans to insiders and generally prohibit loans to senior officers other than for certain specified purposes.

Regulation of Management.

Federal law 1) sets forth circumstances under which officers or directors of a bank may be removed by the bank's federal supervisory agency;

2) places restraints on lending by a bank to its executive officers, directors, principal shareholders, and their related interests;

and 3) generally prohibits management personnel of a bank from serving as directors or in other management positions of another financial institution whose assets exceed a specified amount or which has an office within a specified geographic area.

Safety and Soundness Standards .

Certain non-capital safety and soundness standards also are imposed upon banks.

These standards cover, among other things, internal controls, information systems and internal audit

systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, such other operational and managerial standards as the agency determines to be appropriate, and standards for asset quality, earnings, and stock valuation.

In addition, each insured depository institution must implement a comprehensive written information security program that includes administrative, technical, and physical safeguards appropriate to the institution's size and complexity and the nature and scope of its activities.

The information security program must be designed to ensure the security and confidentiality of customer information, protect against unauthorized access to or use of such information, and ensure the proper disposal of customer and consumer information.

An institution that fails to meet these standards may be required to submit a compliance plan, or be subject to regulatory sanctions, including restrictions on growth.

A principal source of the Company's cash is from dividends received from the Bank, which are subject to regulation and limitation.

As a general rule, regulatory authorities may prohibit banks and bank holding companies from paying dividends in a manner that would constitute an unsafe or unsound banking practice.

For example, regulators have stated that paying dividends that deplete an institution's capital base to an inadequate level would be an unsafe and unsound banking practice and that an institution generally should pay dividends only out of current operating earnings.

In addition, a bank may not pay cash dividends if that payment could reduce the amount of its capital below that necessary to meet minimum applicable regulatory capital requirements.

Current guidance from the Federal Reserve provides, among other things, that dividends per share on the Company's common stock generally should not exceed earnings per share, measured over the previous four fiscal quarters.

North Carolina banking law also places limitations upon the payment of dividends by North Carolina banks.

Rules adopted in accordance with Basel III also impose limitations on the Bank's ability to pay dividends.

In general, these rules limit the Bank's ability to pay dividends unless the Bank's common equity conservation buffer exceeds the minimum required capital ratio by at least 2.5% of risk-weighted assets.

The Federal Reserve has also issued a policy statement on the payment of cash dividends by bank holding companies.

In general, the policy statement expresses the view that although no specific regulations restrict dividend payments by bank holding companies other than state corporate laws, a bank holding company should not pay cash dividends unless the bank holding company's earnings for the past year are sufficient to cover both the cash dividends and a prospective rate of earnings retention that is consistent with the bank holding company's capital needs, asset quality, and overall financial condition.

A bank holding company's ability to pay dividends may also be restricted if a subsidiary bank becomes under-capitalized.

These various regulatory policies may affect the Company's and the Bank's ability to pay dividends or otherwise engage in capital distributions.

Dodd-Frank Act

The Dodd-Frank Act was signed into law in July 2010 and it significantly changed the bank regulatory structure and affects the lending, deposit, investment, trading, and operating activities of banks and bank holding companies, including the Bank and the Company.

Some of the provisions of the Dodd-Frank Act that impact the Company's and the Bank's business and operations are summarized below.

Corporate Governance.

The Dodd-Frank Act requires publicly traded companies to provide their shareholders with 1) a non-binding shareholder vote on executive compensation;

2) a non-binding shareholder vote on the frequency of such vote;

3) disclosure of "golden parachute" arrangements in connection with specified change in control transactions;

and 4) a non-binding shareholder vote on golden parachute arrangements in connection with these change in control transactions.

In August 2015, the SEC adopted a rule mandated by the Dodd-Frank Act that requires a public company to disclose the ratio of the compensation of its CEO to the median compensation of its employees.

This rule is intended to provide shareholders with information that they can use to evaluate a CEO's compensation.

Consumer Financial Protection Bureau.

The Dodd-Frank Act established the CFPB and empowered it to exercise broad rulemaking, supervision, and enforcement authority for a wide range of consumer protection laws.

Since the Bank’s total consolidated assets exceeded $10 billion as of December 31, 2021, we now will be subject to the direct supervision of the CFPB.

The CFPB focuses on (i) risks to consumers and compliance with federal consumer financial laws, (ii) the markets in which firms operate and risks to consumers posed by activities in those markets, (iii) depository institutions that offer a wide variety of consumer financial products and services, and (iv) non-depository companies that offer one or more consumer financial products or services.

The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices.

Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s (i) lack of financial savvy, (ii) inability to protect himself in the selection or use of consumer financial products or services, or (iii) reasonable reliance on a covered entity to act in the consumer’s interests.

The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws.

The CFPB also may institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or injunction.

Interchange Fees .

Under the Federal Reserve’s rules issued under the Durbin Amendment, banks with at least $10 billion in total consolidated assets are limited to a maximum permissible interchange fee for an electronic debt transaction equal to the sum of $0.21 per transaction and five basis points multiplied by the value of the transaction.

The rules also allow for an upward adjustment of no more than $0.01 to an issuer’s debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards.

Prior to December 31, 2021, the Company and the Bank qualified for the small issuer exemption from the Federal Reserve’s interchange fees rules.

As of December 31, 2021, however, the Company and the Bank exceeded $10 billion in total consolidated assets.

Beginning July 1, 2022, the interchange fee limit is expected to have a $8.5 million - $9.0 million pre-tax annual impact on the Company’s earnings.

The Federal Reserve conducts periodic inspections of bank holding companies, such as the Company.

In general, the objectives of the Federal Reserve's inspection program are to ascertain whether the financial strength of a bank holding company is maintained on an ongoing basis and to determine the effects or consequences of transactions between a bank holding company or its non-banking subsidiaries and its bank subsidiaries.

The inspection type and frequency typically varies depending on asset size, complexity of the organization, and the bank holding company's rating at its last inspection.

Examinations .

Banks are subject to periodic examinations by their primary regulators.

In assessing a bank's condition, bank examinations have evolved from reliance on transaction testing to a risk-focused approach.

These examinations are extensive and cover the entire breadth of the operations of a bank.

Examinations alternate between the federal and state bank regulatory agencies, and in some cases they may occur on a combined schedule.

The frequency of consumer compliance and CRA examinations is linked to the size of the institution and its compliance and CRA ratings of its most recent examinations.

However, the examination authority of the Federal Reserve allows it to examine supervised institutions as frequently as deemed necessary based on the condition of the institution or as a result of certain triggering events.

FDIC Insurance

As an FDIC insured depository institution, our deposits are insured up to applicable limits by the FDIC, and such insurance is backed by the full faith and credit of the United States Government.

The basic deposit insurance level is generally $250,000, as specified in FDIC regulations.

As an FDIC insured depository institution, our deposits are insured up to applicable limits by the DIF of the FDIC.

The basic deposit insurance level is generally $250,000.

For this protection, each insured bank pays a quarterly statutory assessment and is subject to the rules and regulations of the FDIC.

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We recognized approximately $2.7 million, $1.7 million, and $0.3 million in FDIC insurance expense in 2021, 2020, and 2019, respectively.

In November 2018, the FDIC announced that the Deposit Insurance Fund (“DIF”) reserve ratio exceeded the statutory minimum of 1.35% as of September 30, 2018.

Among other things, this resulted in the

FDIC awarding assessment credits for banks with less than $10 billion in total assets that had contributed to the DIF in prior years.

In November 2018, the FDIC announced that the DIF reserve ratio exceeded the statutory minimum of 1.35% as of September 30, 2018.

Among other things, this resulted in the FDIC awarding assessment credits for banks with less than $10 billion in total assets that had contributed to the DIF in prior years.

We were notified in January 2019 that we had received $1.35 million in credits that would be available to offset deposit insurance assessments once the DIF reached 1.38%.

The DIF reached 1.38% as of June 30, 2019 and therefore, the FDIC began to apply the Bank’s credits to our quarterly deposit insurance assessments beginning with the second quarter of 2019.

Our credits became fully utilized during the first quarter of 2020, and thus our FDIC insurance expense increased in 2020 compared to 2019.

We expect our FDIC insurance expense to increase in 2021 due to a full year of expense and increases in total assets during 2020.

The FDIC may conduct examinations of and require reporting by FDIC-insured institutions.

It may also prohibit an institution from engaging in any activity that it determines by regulation or order to pose a serious risk to the deposit insurance fund and may terminate the Bank’s deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

Our credits became fully utilized during the first quarter of 2020.

The Dodd-Frank Act made banks with $10 billion or more in total assets, which threshold the Bank exceeded as of December 31, 2021,

responsible for the increase DIF ratio from 1.15% to 1.35%.

Accordingly, we do not expect to receive any further such credits.

Legislative and Regulatory Guidance and Developments

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Congress that may affect our operations.

In addition, the regulations governing the Company and the Bank may be amended from time to time by the Federal Reserve, the Commissioner, the FDIC, the Securities and Exchange Commission (the “SEC”), or other agencies, as appropriate.

In addition, the regulations governing the Company and the Bank may be amended from time to time by the Federal Reserve, the Commissioner, the FDIC, the SEC, or other agencies, as appropriate.

Any legislative or regulatory changes, or changes to accounting standards, in the future could adversely affect our operations and financial condition.

Regulatory Capital Requirement under Basel III.

The Company and the Bank are subject to regulatory capital rules agreed to by the Basel Committee on Banking Supervision in the accord referred to as “Basel III.” Under the Basel III Capital Rules, the following were the initial minimum capital ratios applicable to the Company and the Bank as of January 1, 2015:

• 4.5% CET1 to risk-weighted assets;

• 6.0% Tier I capital (that is, CET1 plus Additional Tier I capital) to risk-weighted assets;

• 8.0% total capital (that is, Tier I capital plus Tier II capital) to risk-weighted assets;

• 4.0% Tier I leverage ratio (that is Tier I capital) to quarterly average total assets.

Common Equity Tier I capital (“CET1”) is comprised of common stock and related surplus, plus retained earnings, and is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities.

The Company and the Bank are subject to the Basel III regulatory capital rules adopted in 2013 and fully phased-in as of January 1, 2019.

Under Basel III, CET1 is comprised of common stock and related surplus, plus retained earnings, and is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities.

Tier I capital is comprised of CET1 capital plus Additional Tier I capital, which for the Company includes non-cumulative perpetual preferred stock and trust preferred securities.

Total capital is comprised of Tier I capital plus certain adjustments, the largest of which for the Company and the Bank is the allowance for loan losses.

Total capital is comprised of Tier I capital plus certain adjustments, the largest of which for the Company and the Bank is the allowance for credit losses.

Risk-weighted assets refer to the on- and off-balance sheet exposures of the Company and the Bank, adjusted for their related risk levels using formulas set forth in Federal Reserve regulations.

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Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and was phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reached 2.5% on January 1, 2019).

Thus, effective as of January 1, 2019, the Company and the Bank were required to maintain this additional capital conservation buffer of 2.5% of CET1, resulting in the following minimum capital ratios:

The Company and the Bank are required to maintain the following minimum capital ratios:

• 4.5% CET1 to risk-weighted assets, plus the capital conservation buffer, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7%;

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If a bank falls below “well capitalized” status in any of these four ratios, it must ask for FDIC permission to originate or renew brokered deposits.

First Bank is well-capitalized under all capital guidelines.

Current Expected Credit Loss Accounting Standard

The Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard related to reserving for credit losses.

This standard, referred to as Current Expected Credit Loss (or “CECL”), requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets.

The CECL framework is expected to result in earlier recognition of credit losses and is expected to be significantly influenced by the composition, characteristics and quality of the Company's loan portfolio, as well as the prevailing economic conditions and forecasts.

As originally contemplated by CECL, we would have adopted this new standard on January 1, 2020.

However, the CARES Act and subsequent legislation provided companies with the option to delay the implementation of CECL until as late as January 1, 2022.

We expect to adopt CECL as of January 1, 2021.

The Company will initially apply the impact of the new guidance through a cumulative-effect adjustment to retained earnings.

Future adjustments to credit loss expectations will be recorded through the income statement as charges or credits to earnings.

At this time, the Company expects its allowance for credit losses will increase by approximately $12-14 million upon adoption and that its reserve for unfunded commitments will increase by $6-$7 million.

The Federal Reserve and the FDIC have adopted a rule that provides a banking organization the option to phase-in over a three-year period the effects of CECL on its regulatory capital upon the adoption of the standard.

Due to the expected insignificant impact to the Company's overall capital levels at adoption, the Company does not expect to exercise the phase-in option.

Liquidity Requirements

Historically, the regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, without required formulaic measures.

Liquidity risk management has become increasingly important since the financial crisis.

The Basel III liquidity framework requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward would be required by regulation.

One test, referred to as the liquidity coverage ratio (“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon (or, if greater, 25% of its expected total cash outflow) under an acute liquidity stress scenario.

The other test, referred to as the net stable funding ratio (“NSFR”), is designed to promote more medium- and long-term funding of the assets and activities of banking entities over a one-year time horizon.

These requirements incent banking entities to increase their holdings of Treasury securities and other sovereign debt as a component of assets and increase the use of long-term debt as a funding source.

In October 2018, the federal bank regulators proposed to revise their liquidity requirements so that banking organizations that are not global systematically important banks and have less than $250 billion in total consolidated assets and less than $75 billion in each of off-balance sheet exposure, nonbank assets, cross-jurisdictional activity and short-term wholesale funding would not be subject to any LCR or NSFR requirements.

Accordingly, these regulations do not currently apply to the Company or the Bank.

Financial Privacy and Cybersecurity.

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These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party.

These regulations affect how consumer information is transmitted

through diversified financial companies and conveyed to outside vendors.

These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors.

In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications.

Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.

In March 2015, federal regulators issued two related statements regarding cybersecurity.

One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution.

The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware.

Under various policy statements, financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution.

Additionally, management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption, and maintenance of the institution’s operations after a cyber-attack involving destructive malware.

A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack.

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If, however, we fail to observe the regulatory guidance in the future, we could be subject to various regulatory sanctions, including financial penalties.

In October 2016, the federal banking regulators jointly issued an advance notice of proposed rulemaking on enhanced cyber risk management standards that are intended to increase the operational resilience of large and interconnected entities under their supervision.

If established, the enhanced cyber risk management standards would be designed to help reduce the potential impact of a cyber-attack or other cyber-related failure on the financial system.

The advance notice of proposed rulemaking addresses five categories of cyber standards:

In October 2016, the federal banking regulators jointly issued an advance notice of proposed rulemaking on enhanced cyber risk management standards that is intended to increase the operational resilience of large and interconnected entities under their supervision.The advance notice of proposed rulemaking addressed five categories of cyber standards:

(i) cyber risk governance;

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and (v) incident response, cyber resilience, and situational awareness.

In May 2019, the Federal Reserve announced that it would revisit the Advance Notice of Proposed Rulemaking ("ANPR") in the future.

In May 2019, the Federal Reserve announced that it would revisit the Advance Notice of Proposed Rulemaking in the future.

In December 2020, the federal banking agencies issued a Notice of Proposed Rulemaking that would require banking organizations to notify their primary regulator within 36 hours of becoming aware of a “computer-security incident” or a “notification incident.” The Notice of Proposed Rulemaking also would require specific and immediate notifications by bank service providers that become aware of similar incidents.

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.

These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data.

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Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures.

While to date we have not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, our systems and those of our customers and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future.

Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.

Risk Factors for a further discussion of risks related to cybersecurity.

While to date we have not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking, and other technology-based products and services by us and our customers.

Anti-Money Laundering and the USA Patriot Act.

A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing.

The USA PATRIOT Act of 2001 (the "USA Patriot Act""), substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations on financial institutions, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.

The BSA requires all financial institutions to establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism.

The BSA also sets forth various recordkeeping and reporting requirements (such as reporting suspicious activities that might signal criminal activity) and certain due diligence and "know your customer" documentation requirements.

The Patriot Act substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations on financial institutions, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.

Financial institutions are also prohibited from entering into specified financial transactions and account relationships and must use enhanced due diligence procedures in their dealings with certain types of high-risk customers and implement a written customer identification program.

Financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering

and report certain types of suspicious transactions.

Financial institutions must take certain steps to assist government agencies in detecting and preventing money laundering and report certain types of suspicious transactions.

Regulatory authorities routinely examine financial institutions for compliance with these obligations, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.

Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.

The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the Bank Secrecy Act of 1970 (“BSA”), was enacted in January 2021.

The AMLA is intended to be a comprehensive reform and modernization to U.S.

The AML, which amends the BSA, was enacted in January 2021 and is intended to be a comprehensive reform and modernization to U.S.

bank secrecy and anti-money laundering laws.

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requires the development of standards for evaluating technology and internal processes for BSA compliance;

expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.

and expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.

Office of Foreign Assets Control Regulation.

The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others which are administered by the U.S.

Treasury Department Office of Foreign Assets Control (“OFAC”).

The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals, and others which are administered by OFAC.

Failure to comply with these sanctions could have serious legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.

Community Reinvestment Act.

The Community Reinvestment Act of 1977 (“CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice.

The CRA requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice.

Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities.

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Furthermore, banking regulators take into account CRA ratings when considering a request for an approval of a proposed transaction.

First Bank received a rating of “satisfactory” in its most recent CRA examination.

In December 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) jointly proposed rules that would significantly change existing CRA regulations.

The proposed rules are intended to increase bank activity in low- and moderate-income communities where there is significant need for credit, more responsible lending, greater access to banking services, and improvements to critical infrastructure.

The proposals change four key areas:

(i) clarifying what activities qualify for CRA credit;

(ii) updating where activities count for CRA credit;

(iii) providing a more transparent and objective method for measuring CRA performance;

and (iv) revising CRA-related data collection, record keeping, and reporting.

However, the Federal Reserve Board did not join in that proposed rulemaking.

In May 2020, the OCC issued its final CRA rule, effective October 1, 2020.

The FDIC has not finalized the revisions to its CRA regulations.

In September 2020, the Federal Reserve issued an ANPR that invites public comment on an approach to modernize the regulations that implement the CRA by strengthening, clarifying, and tailoring them to reflect the current banking landscape and better meet the core purpose of the CRA.

The ANPR seeks feedback on ways to evaluate how banks meet the needs of low- and moderate-income communities and address inequities in credit access.

As such, we will continue to evaluate the impact of any changes to the regulations implementing the CRA and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.

The Bank received a rating of “satisfactory” in its most recent CRA examination.

In September 2020, the Federal Reserve released an Advanced Notice of Proposed Rulemaking, seeking public comment on ways to modernize the Federal Reserve’s CRA regulations.

The Advanced Notice of Proposed Rulemaking requests feedback on ways to evaluate how banks meet the needs of low- and moderate-income communities and to address inequities in credit access.

We have and will continue to monitor the Federal Reserve’s proposed changes and evaluate any impact on the Company, which will depend on the final form of any Federal Reserve rulemaking and cannot be predicted at this time.

Incentive Compensation.

In June 2010, the federal bank regulatory agencies issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of financial institutions do not determine the safety and soundness of such institutions by encouraging excessive risk-taking.

The "Interagency Guidance on Sound Incentive Compensation Policies," which covers all employees who have the ability to materially affect the risk profile of a financial institution, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the institution’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the financial institution’s board of directors.

Section 956 of the Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities that encourage inappropriate risk-taking by providing an executive officer, employee, director, or principal shareholder with excessive compensation, fees, or benefits, or that could lead to material financial loss to the entity.

The federal bank regulatory agencies issued such proposed rules in March 2011 and issued a revised proposed rule in June 2016 implementing the requirements and prohibitions set forth in Section 956.

The revised proposed rule would apply to all banks, among other institutions, with at least $1 billion in average total consolidated assets, for which it would go beyond the existing "Interagency Guidance on Sound Incentive Compensation Policies" to (i) prohibit certain types and features of incentive-based compensation arrangements for senior executive officers, (ii) require incentive-based compensation arrangements to adhere to certain basic principles to avoid a presumption of encouraging inappropriate risk, (iii) require appropriate board or committee oversight, (iv) establish minimum recordkeeping, and (v) mandate disclosures to the appropriate federal bank regulatory agency.

These proposed rules have not yet been finalized.

Federal Securities Laws.

The common stock of the Company is registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Therefore, the Company is subject to the reporting, information disclosure, proxy solicitation, insider trading limits and other requirements imposed on public companies by the SEC under the Exchange Act.

The common stock of the Company is registered with the SEC under the Exchange Act and is subject to the reporting, information disclosure, proxy solicitation, insider trading limits and other requirements imposed on public companies by the SEC under the Exchange Act.

This includes limits on sales of stock by certain insiders and the filing of insider ownership reports with the SEC.

The SEC and Nasdaq have adopted regulations under the Sarbanes-Oxley Act of 2002 and the Dodd

Frank Act that apply to the Company as a Nasdaq-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial reporting improprieties and improve the reliability of disclosures in SEC filings.

The SEC and NASDAQ have adopted regulations under the Sarbanes-Oxley Act of 2002 and the Dodd Frank Act that apply to the Company as a NASDAQ-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial reporting improprieties and improve the reliability of disclosures in SEC filings.

Future Legislation and Regulation

Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by

or operating in those states.

Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied.

The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which we operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategy, and limit the ability to pursue business opportunities in an efficient manner.

Available Information

We maintain a corporate Internet site at www.LocalFirstBank.com, which contains a link within the “Investor Relations” section of the site to each of our filings with the SEC, including our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.

We maintain a corporate internet site at www.LocalFirstBank.com, which contains a link within the “Investor Relations” section of the site to each of our filings with the SEC, including our Annual Reports, as well as our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.

These filings are available, free of charge, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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

What changed 10-K

Item 1. Business