What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-02-26 · 696 added, 651 removed, 1583 unchanged (46% of the section changed)

13 unchanged sentences

Securities held to maturity (fair values of $ 511,699 in 2021 and $ 170,734 in 2020)

Presold mortgages in process of settlement

513,825 167,551

SBA loans held for sale 6,077 —

Presold mortgages in process of settlement

19,257 42,271

Allowance for loan losses

SBA and other loans held for sale 61,003 6,077

6,081,715 4,731,315

Allowance for credit losses on loans ( 78,789 ) ( 52,388 )

Net loans 6,002,926 4,678,927

45 unchanged sentences

35,629,177 shares in 2021 and 28,579,335 shares in 2020

722,671 400,582

Retained earnings

3 unchanged sentences

Rabbi trust obligation

Accumulated other comprehensive income (loss)

Accumulated other comprehensive (loss) income ( 24,970 ) 14,350

Total shareholders’ equity

30 unchanged sentences

246,395 218,122 216,204

Provision (reversal) for loan losses

35,039 2,263 ( 3,589 )

Net interest income after provision for loan losses

183,083 213,941 211,019

Provision for loan losses 9,611 35,039 2,263

Provision for unfunded commitments 5,420 — —

Total provision for credit losses 15,031 35,039 2,263

Net interest income after provision for credit losses 231,364 183,083 213,941

Noninterest Income

13 unchanged sentences

2,885 2,533 2,564

Securities gains, net 8,024 97 —

Securities (losses) gains, net ( 1,237 ) 8,024 97

Other gains (losses), net

2 unchanged sentences

73,611 81,346 59,529

Noninterest Expenses

Noninterest Expense

86,815 84,941 79,129

13 unchanged sentences

44,987 40,264 39,087

Total noninterest expenses

161,298 157,194 156,483

Total noninterest expense 184,656 161,298 157,194

Income before income taxes

18 unchanged sentences

Net income $ 95,644 81,477 92,046

Other comprehensive income (loss):

Unrealized gains (losses) on securities available for sale:

Unrealized holding gains (losses) arising during the period, pretax

18,729 22,230 ( 10,179 )

Tax (expense) benefit

( 4,304 ) ( 5,157 ) 2,379

Reclassification to realized (gains) losses

( 8,024 ) ( 97 ) —

Tax expense (benefit)

Other comprehensive (loss) income:

Unrealized (losses) gains on securities available for sale:

Unrealized holding (losses) gains arising during the period, pretax ( 53,752 ) 18,729 22,230

Tax benefit (expense) 12,352 ( 4,304 ) ( 5,157 )

Reclassification to realized losses (gains) 1,237 ( 8,024 ) ( 97 )

Tax (benefit) expense ( 284 ) 1,844 22

Postretirement plans:

3 unchanged sentences

( 136 ) ( 158 ) ( 200 )

Other comprehensive income (loss)

9,227 17,084 ( 7,815 )

Other comprehensive (loss) income ( 39,320 ) 9,227 17,084

Comprehensive income

4 unchanged sentences

Years Ended December 31, 2021, 2020 and 2019

(In thousands, except per share) Common Stock Retained

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

Earnings Stock in

7 unchanged sentences

Cash dividends declared ($ 0.54 per common share)

( 16,020 ) ( 16,020 )

Change in Rabbi Trust Obligation 648 ( 648 ) —

Equity issued related to acquisition earn-out 78 3,070 3,070

Stock repurchases ( 282 ) ( 10,000 ) ( 10,000 )

Stock option exercises 9 129 129

5 unchanged sentences

Cash dividends declared ($ 0.72 per common share)

( 20,752 ) ( 20,752 )

Change in Rabbi Trust Obligation 344 ( 344 ) —

1 unchanged sentence

Stock repurchases ( 1,117 ) ( 31,868 ) ( 31,868 )

Stock option exercises 9 129 129

Stock withheld for payment of taxes ( 11 ) ( 307 ) ( 307 )

2 unchanged sentences

Balances, December 31, 2020 28,579 400,582 478,489 ( 2,243 ) 2,243 14,350 893,421

Adoption of new accounting standard ( 17,051 ) ( 17,051 )

Net income 95,644 95,644

Cash dividends declared ($ 0.80 per common share)

( 24,208 ) ( 24,208 )

Change in Rabbi Trust Obligation 440 ( 440 ) —

Equity issued related to acquisition 24 494 494

Equity issued pursuant to acquisition 7,070 324,389 324,389

Stock repurchases ( 107 ) ( 4,036 ) ( 4,036 )

11 unchanged sentences

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

Provision (reversal) for loan losses 35,039 2,263 ( 3,589 )

Provision for credit losses 15,031 35,039 2,263

Deferred tax expense (benefit) ( 4,800 ) ( 10,007 ) 1,588

Net security premium amortization 14,058 5,019 2,653

2 unchanged sentences

Foreclosed property losses and write-downs, net 24 547 939

Gains on securities available for sale ( 8,024 ) ( 97 ) —

Other losses (gains) 54 169 ( 723 )

Losses (gains) on securities available for sale 1,237 ( 8,024 ) ( 97 )

Other (gains) losses ( 1,648 ) 54 169

Bank-owned life insurance income ( 2,885 ) ( 2,533 ) ( 2,564 )

Decrease (increase) in net deferred loan costs 5,639 ( 642 ) ( 2,285 )

(Decrease) increase in net deferred loan fees ( 1,994 ) 5,639 ( 642 )

Depreciation of premises and equipment 6,187 5,838 5,836

4 unchanged sentences

Amortization of SBA servicing assets 2,272 1,795 1,340

Gains from sale of presold mortgage and SBA loans ( 22,156 ) ( 12,219 ) ( 13,101 )

Fees/gains from sales of presold mortgages and SBA loans ( 18,304 ) ( 22,156 ) ( 12,219 )

Originations of presold mortgage loans in process of settlement ( 326,019 ) ( 418,394 ) ( 173,705 )

3 unchanged sentences

Increase in accrued interest receivable ( 773 ) ( 3,624 ) ( 644 )

(Increase) decrease in other assets ( 991 ) ( 3,171 ) 6,059

Decrease (increase) in other assets 13,978 ( 991 ) ( 3,171 )

(Decrease) increase in accrued interest payable ( 683 ) ( 1,250 ) 178

(Decrease) increase in net deferred income tax liability ( 10,007 ) 1,588 1,601

Increase (decrease) in other liabilities 9,805 ( 391 ) ( 8,230 )

(Decrease) increase in other liabilities 394 9,805 ( 391 )

Net cash provided by operating activities 138,901 57,075 51,238

5 unchanged sentences

Proceeds from sales of securities available for sale 106,484 219,697 39,797

Redemptions (purchases) of FRB and FHLB stock, net 9,851 4,088 ( 6,129 )

Redemptions of FRB and FHLB stock 2,043 9,851 4,088

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

Net increase in loans ( 97,559 ) ( 233,788 ) ( 165,203 )

2 unchanged sentences

Proceeds from sales of premises and equipment 313 189 1,799

Net cash paid in acquisition ( 9,559 ) — —

Net cash received (paid) in acquisition activities 208,992 ( 9,559 ) —

Net cash received in disposition activities 11,314 — —

Net cash used by investing activities ( 1,270,443 ) ( 960,281 ) ( 424,686 )

1 unchanged sentence

Net increase in deposits 1,258,193 1,342,340 272,206

Net (decrease) increase in short-term borrowings ( 198,000 ) ( 55,000 ) 50,000

Net decrease in short-term borrowings — ( 198,000 ) ( 55,000 )

Proceeds from long-term borrowings — 150,000 —

12 unchanged sentences

Foreclosed loans transferred to foreclosed real estate 2,285 1,583 3,249

Unrealized gain (loss) on securities available for sale, net of taxes 14,425 17,073 ( 7,800 )

Unrealized (loss) gain on securities available for sale, net of taxes ( 41,400 ) 14,425 17,073

Accrued dividends at period end 7,125 5,144 5,328

Initial recognition of operating lease right-of-use assets and liabilities 2,191 253 19,406

Equity issued related to acquisitions 494 3,070 —

Loans acquired 14,633 — —

Other assets acquired 451 — —

Borrowings assumed 11,671 — —

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

Acquisition of Select Bancorp, Inc.

See Note 2 — —

See accompanying notes to consolidated financial statements.

4 unchanged sentences

Basis of Presentation - The consolidated financial statements include the accounts of First Bancorp (the “Company”) and its wholly owned subsidiary First Bank (the “Bank”).

The Bank has four wholly owned subsidiaries that are fully consolidated - First Bank Insurance Services, Inc.

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

The Bank has three wholly owned subsidiaries that are fully consolidated, SBA Complete, Inc.

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

1 unchanged sentence

All significant intercompany accounts and transactions have been eliminated.

Subsequent events have been evaluated through the date of filing this Form 10-K.

Subsequent events have been evaluated through the date of filing this Annual Report Form 10-K.

The Company is a bank holding company.

4 unchanged sentences

The trust preferred securities qualify as capital for regulatory capital adequacy requirements.

First Bank Insurance is an agent for property and casualty insurance policies.

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

1 unchanged sentence

First Troy SPE, LLC was formed in order to hold and dispose of certain real estate foreclosed upon by the Bank.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

The most significant estimates made by the Company in the preparation of its consolidated financial statements are the determination of the allowance for loan losses, the valuation of other real estate, the accounting and impairment testing related to intangible assets, and the fair value and discount accretion of acquired loans.

Operating, Accounting and Reporting Considerations related to COVID-19 - The coronavirus (COVID-19) pandemic has negatively impacted the global economy, disrupted global supply chains and increased unemployment levels.

The resulting temporary closure of many businesses and the implementation of social distancing and sheltering-in-place policies have impacted and may continue to impact many of the Company’s customers.

While the full effects of the pandemic remain unknown, the Company is committed to supporting its customers, employees and communities during this difficult time.

The Company has provided hardship relief assistance to customers, including the consideration of various loan payment deferral and fee waiver options, and encouraged customers to reach out for assistance to support their individual circumstances.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed by the President of the United States.

Certain provisions within the CARES Act encourage financial institutions to practice prudent efforts to work with borrowers impacted by COVID-19.

Under these provisions, which the Company has applied, loan modifications deemed to be COVID-19-related are not considered a troubled debt restructuring (“TDR”) if the loan was not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or December 31, 2020.

In December 2020, this CARES Act provision was extended to December 31, 2021.

The banking regulators issued similar guidance, which also clarified that a COVID-19-related modification would not meet the requirements under accounting principles generally accepted in the United States of America to be a TDR if the borrower was current on payments at the time the underlying loan modification program was implemented and if the modification is considered to be short-term.

The Company generally offered impacted borrowers loan payment deferrals of 90 days in duration.

The Company offered subsequent 90 day deferrals if requested by the borrower.

Any deferred amounts were generally added by the Company to the payoff balance of the loan at maturity.

Most of the deferral requests occurred during the second quarter of 2020, and in the second half of 2020, most of those borrowers resumed payments.

As of December 31, 2020, the Company had remaining payment deferrals of $ 16.6 million.

Additionally, the Company is a lender for the Small Business Administration's (“SBA”) Paycheck Protection Program ("PPP"), a program under the CARES Act, and other SBA, Federal Reserve or United States Treasury programs that have been created in response to the pandemic and may be a lender under such programs created in the future.

These programs are recent and their effects on the Company’s business remain uncertain.

The most significant estimates made by the Company in the preparation of its consolidated financial statements are the determination of the allowance for credit losses on loans, the allowance for credit losses on unfunded commitments, the accounting and impairment testing related to intangible assets, and the fair value and discount accretion of acquired loans.

Operating, Accounting and Reporting Considerations related to COVID-19 - The coronavirus ("COVID-19") pandemic that emerged in March 2020 negatively impacted the local, national, and global economy, disrupted global supply chains, caused business closures, increased unemployment levels, and created significant volatility and disruption in financial markets.

In response to the hardships arising from the pandemic, on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed by the President of the United States.

Certain provisions within the CARES Act encouraged financial institutions to practice prudent efforts to work with borrowers impacted by COVID-19.

Under these provisions, which the Company applied, loan modifications deemed to be COVID-19-related are not considered a troubled debt restructuring (“TDR”) if the loan was not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or December 31, 2020.

This CARES Act provision was subsequently extended to January 1, 2022.

The banking regulators issued similar guidance, which also clarified that a COVID-19-related modification would not meet the requirements under GAAP to be a TDR if the borrower was current on payments at the time the underlying loan modification program was implemented and if the modification is considered to be short-term.

During 2020, the Company generally offered impacted borrowers loan payment deferrals of 90 days in duration, with a deferral renewal if requested.

As of December 31, 2020, the Company had payment deferrals of $ 16.6 million, and at December 31, 2021 the Company had no loans deferred under this CARES Act provision.

Additionally, the Company participated in the SBA's Paycheck Protection Program ("PPP") under the CARES Act.

The Company originated $ 247.5 million in PPP loans during the second quarter of 2020.

The Company began accepting and transmitting PPP loan forgiveness documentation to the SBA in the fourth quarter of 2020 and had received $ 4.0 million in PPP forgiveness payoffs from the SBA as of December 31, 2020.

At December 31, 2020, the Company had 2,676 PPP loans outstanding totaling approximately $ 241 million.

In December 2020, the Bipartisan-Bicameral Omnibus COVID Relief Deal, included as a component of appropriations legislation, and the Economic Aid Act were enacted to provide economic stimulus to individuals and businesses in further response to the economic distress caused by the COVID-19 pandemic.

Among other things, the legislation includes stimulus payment for individuals under certain income thresholds, extension of enhanced unemployment benefits, a rental assistance program, an extension of the eviction moratorium, targeted funding related to public health measures and small business relief, which included additional funds for PPP loans.

In a period of economic contraction, elevated levels of loan losses and lost interest income may occur.

The Company continues to accrue interest on loans modified in accordance with the CARES Act.

To the extent those borrowers are unable to resume normal contractual payments, the Company could experience additional losses of principal and interest.

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

In December 2020, the Bipartisan-Bicameral Omnibus COVID Relief Deal, included, among other things, additional stimulus payments for individuals under certain income thresholds and small business relief, which included additional funds for PPP loans.

As a result, in early 2021, the Company originated an additional $ 113.1 million in PPP loans.

Beginning in the second quarter of 2020, the Company began accepting and transmitting PPP loan forgiveness documentation.

This forgiveness process continued during 2021, and as a result, the Company's remaining PPP loans amounted to only $ 39.0 million at December 31, 2021.

The economies of our market areas generally improved during 2021 as they recovered from the pandemic.

However, the ongoing impact on the Company of the continuing pandemic, including infection rate spikes and new strains of COVID-19 is uncertain.

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

Business Combinations – The Company accounts for business combinations using the acquisition method of accounting.

4 unchanged sentences

Cash and Cash Equivalents - The Company considers all highly liquid assets with original maturities of 90 days or less, such as cash on hand, noninterest-bearing and interest-bearing amounts due from banks and federal funds sold, to be “cash equivalents.”

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

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

A decline in the market value of any available for sale or held to maturity security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value.

The impairment is charged to earnings and a new cost basis for the security is established.

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

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

Interest income includes amortization of purchase premiums or discounts.

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

Gains and losses on sales of securities are recognized at the time of sale based upon the specific identification method.

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

A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent.

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

Allowance for Credit Losses ("ACL") - Securities Held to Maturity - Since its adoption of Accounting Standards Codification 326 ("CECL"), the Company measures expected credit losses on HTM debt securities on an individual security basis.

Accrued interest receivable on HTM debt securities totaled $ 3.7 million at December 31, 2021 and was excluded from the estimate of credit losses.

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

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

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

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

government, are highly rated by major rating agencies, and have a long history of no credit losses.

Substantially all of the state and local government securities held by the Company are highly rated by major rating agencies.

As a result, there was no ACL on HTM securities at December 31, 2021.

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

If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income with the establishment of an allowance under CECL compared to a direct write down of the security under previously applicable accounting

standard ASC 310-30 ("Incurred Loss").

For debt securities AFS that do not meet the aforementioned criteria, the Company evaluates whether any decline in fair value is due to credit loss factors.

In making this assessment, management considers any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.

If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the ACL under CECL are recorded as provision for (or reversal of) credit loss expense.

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

At December 31, 2021, there was no ACL related to the AFS portfolio.

Accrued interest receivable on available for sale debt securities totaled $ 5.0 million at December 31, 2021 and was excluded from the estimate of credit losses.

Presold Mortgages in Process of Settlement - As a part of normal business operations, the Company originates residential mortgage loans that have been pre-approved by secondary investors to be sold on a best efforts basis.

3 unchanged sentences

Additionally, the Company records gains for loans in the process of closing, based on the changes in fair value of the loans and related commitments.

Between the initial funding of the loans

by the Company and the subsequent reimbursement by the investors, the Company carries the loans on its balance sheet at fair value.

Periodically, the Company originates other types of commercial loans and decides to sell them in the secondary market.

The Company carries these loans at the lower of cost or fair value at each reporting date.

There were no such loans held for sale as of December 31, 2020 or 2019, respectively.

SBA Loans Held for Sale - SBA Loans Held for Sale represent the guaranteed portion of SBA loans that the Company intends to sell in the near future.

Between the initial funding of the loans by the Company and the subsequent reimbursement by the investors, the Company carries the loans on its balance sheet at fair value.

SBA and Other Loans Held for Sale - SBA loans included in this line item represent the guaranteed portion of SBA loans that the Company intends to sell in the near future.

These loans are carried at the lower of cost or market as determined on an individual loan basis.

There were $ 6.1 million in SBA loans held for sale as of December 31, 2020 and no ne at December 31, 2019, respectively.

Loans – Loans are stated at the principal amount outstanding less any partial charge-offs plus deferred origination costs, net of nonrefundable loan fees.

Interest on loans is accrued on the unpaid principal balance outstanding.

Net deferred loan origination costs/fees are capitalized and recognized as a yield adjustment over the life of the related loan.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date.

No allowance for loan losses is carried over from the seller or otherwise recorded on the purchase date.

The Company follows specific accounting guidance related to purchased impaired loans.

A loan is considered to be a purchased credit impaired loan when purchased loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments.

Evidence of credit quality deterioration as of the purchase date may include statistics such as past due, risk grade and nonaccrual status.

At the acquisition date, when possible, a stream of expected cash flows is estimated and compared to the estimated fair value in order to determine the accretable yield amount, which is then recognized over the life of the loan based on the effective yield method.

Throughout the life of the loan, the stream of expected cash flows may change based on actual results of the loan or the assumptions related to the future performance.

Subsequent changes of expected cash flows may result in changes to accretable yield if the present value of expected cash flows exceeds the carrying value or an impairment reserve if the present value of expected cash flows is less than the carrying amount.

For purchased impaired loans for which the timing and amount of cash flows expected to be collected cannot be reasonably estimated, the Company uses the cost recovery method of income recognition.

Under the cost recovery method of income recognition, all cash receipts are initially applied to principal, with interest income being recorded only after the carrying value of the loan has been reduced to zero.

For nonimpaired purchased loans, the Company accretes any fair value discount over the life of the loan in a manner consistent with the guidance for accounting for loan origination fees and costs.

An allowance for loan losses is recorded for these loans when the estimated credit losses exceed the remaining unamortized discounts, based on pools of similar loans.

A loan is placed on nonaccrual status when, in management’s judgment, the collection of interest appears doubtful.

The accrual of interest is discontinued on substantially all loans that become 90 days or more past due with respect to principal or interest.

The past due status of loans is based on the contractual payment terms.

While a loan is on nonaccrual status, the Company’s policy is that all cash receipts are applied to principal.

Once the recorded principal balance has been reduced to zero, future cash receipts are applied to recoveries of any amounts previously charged off.

Further cash receipts are recorded as interest income to the extent that any interest has been foregone.

Loans are removed from nonaccrual status when they become current as to both principal and interest, when concern no longer exists as to the collectability of principal or interest, and when the loan has provided generally six months of satisfactory payment performance.

In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the originally contracted terms.

For a nonaccrual loan that has been restructured, if the borrower has six months of satisfactory performance under the restructured terms and it is reasonably assured that the borrower will continue to be able to comply with the restructured terms, the loan may be returned to accruing status.

The nonaccrual policy discussed above applies to all loan classifications.

A loan is considered to be impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

A loan is specifically evaluated for an appropriate valuation allowance if the loan balance is above a prescribed evaluation threshold

(which varies based on credit quality, accruing status, troubled debt restructured status, and type of collateral) and the loan is determined to be impaired.

Impaired loans are measured using either 1) an estimate of the cash flows that the Company expects to receive from the borrower discounted at the loan’s effective rate, or 2) in the case of a collateral-dependent loan, the fair value of the collateral less estimated selling costs.

Unless restructured, while a loan is considered to be impaired, the Company’s policy is that interest accrual is discontinued and all cash receipts are applied to principal.

Once the recorded principal balance has been reduced to zero, future cash receipts are applied to recoveries of any amounts previously charged off.

Further cash receipts are recorded as interest income to the extent that any interest has been foregone.

Impaired loans that are restructured are returned to accruing status in accordance with the restructured terms if the Company believes that the borrower will be able to meet the obligations of the restructured loan terms, and the loan has provided generally six months of satisfactory payment performance.

The impairment policy discussed above applies to all loan classifications.

SBA Loan Originations – Through its SBA Lending Division, the Company offers loans guaranteed by the Small Business Administration (“SBA”) for the purchase of businesses, business startups, business expansion, equipment, and working capital.

All SBA loans are underwritten and documented as prescribed by the SBA.

SBA loans are generally fully amortizing and have maturity dates and amortizations of up to 25 years.

The portion of SBA loans originated that are guaranteed and intended for sale on the secondary market are classified as held for sale and are carried at the lower of cost or fair value.

The Company generally sells the guaranteed portion of the SBA loan as soon as it is eligible to be sold and retains the servicing right.

When the guaranteed portion of an SBA loan is sold, the Company allocates the carrying basis of the loan between the guaranteed portion of the loan sold, the unguaranteed portion of the loans retained, and the servicing asset based on their relative fair values.

A gain is recorded for the difference between the proceeds received from the sale and the basis allocated to the sold portion.

The relative fair value allocation results in a discount that is recorded on the unguaranteed portion of the loan that is retained.

The discount is amortized as a yield adjustment over the life of the loan, so long as the loan performs.

In the event the loan is moved to nonaccrual status, the Company ceases the amortization of the discount and upon any subsequent transfer to foreclosed properties or liquidation of the loan, the remaining discount is amortized, along with any remaining servicing asset and deferred loan costs.

The foregoing discussion relates to the Company's activities in the SBA's Section 7(a) and similar programs.

For information on the Company's participation in the SBA's PPP program, see Note 4 below.

Also see SBA Servicing Assets below.

Allowance for Loan Losses - The allowance for loan losses is established through a provision for loan losses charged to expense.

Loans are charged-off against the allowance for loan losses when management believes that the collectability of the principal is unlikely.

Recoveries on loans previously charged-off are added back to the allowance.

The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance considered adequate to absorb losses inherent in the portfolio.

Management’s determination of the adequacy of the allowance is based on several factors, including:

Risk grades assigned to the loans in the portfolio,

Specific reserves for individually evaluated impaired loans,

Current economic conditions, including the local, state, and national economic outlook;

interest rate risk;

trends in loan volume, mix and size of loans;

levels and trends of delinquencies,

Historical loan loss experience, and

An assessment of the risk characteristics of the Company’s loan portfolio, including industry concentrations, payment structures, changes in property values, and credit administration practices.

The Company segments the loan portfolio into broad categories with similar risk elements for the purposes of computing the allowance for loan losses.

Those categories and their specific risks are described below.

There were $ 9.6 million and $ 6.1 million in SBA loans held for sale at December 31, 2021 and 2020, respectively.

At December 31, 2021, this line item also included two pools of loans assumed in the Company's acquisition of Select Bancorp, Inc.

that the Company determined did not align with its strategy or were not in our markets and were thus designated for sale.

These loans amounted to $ 51.4 million at December 31, 2021 and were carried at the lower of cost or market at the aggregate level for each pool.

See Note 2 for additional discussion of the valuation of these loan pools and Note 22 for disclosure of their disposition.

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

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

Accrued interest receivable related to these loans totaled $ 17.2 million at December 31, 2021 and was reported in accrued interest receivable on the consolidated balance sheets.

Interest income is accrued on the unpaid principal balance.

Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business.

Past due status is based on contractual terms of the loan.

A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status.

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

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

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

Purchased Credit Deteriorated ("PCD") Loans - Subsequent to the Company's adoption of CECL on January 1, 2021, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit

quality since origination are considered PCD loans.

In determining whether an acquired loan is a PCD loan, the Company considers internal loan grades, delinquency status, and other relevant factors.

At the acquisition date, an estimate of expected credit losses is made for groups of PCD loans with similar risk characteristics and individual PCD loans without similar risk characteristics.

This initial ACL is allocated to individual PCD loans and added to the purchase price or acquisition date fair values to establish the initial amortized cost basis of the PCD loans.

As the initial ACL is added to the purchase price, there is no credit loss expense recognized upon acquisition of a PCD loan.

Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors and results in a discount or premium.

Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans.

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

All loans and leases considered to be purchased credit impaired ("PCI") prior to January 1, 2021 under prior accounting guidance were converted to PCD on that date.

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

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

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

Accrued interest receivable totaling $ 17.2 million at December 31, 2021 was excluded from the estimate of credit losses.

The ACL is measured on a collective pool basis when similar risk characteristics exist.

Loans with similar risk characteristics are grouped into homogenous segments, or pools, for analysis.

The Discounted Cash Flow (“DCF”) method is utilized for substantially all pools, with discounted cash flows computed for each loan in a pool based on its individual characteristics (e.g.

maturity date, payment amount, interest rate, etc.), and the results are aggregated at the pool level.

A probability of default and loss given default, as adjusted for recoveries (as noted above), are applied to the discounted cash flows for each pool, while considering prepayment and principal curtailment effects.

The analysis produces a discounted expected cash flow total for each pool, which is then compared to the amortized cost of the pool to arrive at the expected credit loss.

In determining the proper level of default rates and loss given default, management has determined that the loss experience of the Company provides the best basis for its assessment of expected credit losses.

It therefore utilizes its own historical credit loss experience by each loan segment over an economic cycle, while excluding loss experience from certain acquired institutions (i.e., failed banks).

Management considers forward-looking information in estimating expected credit losses.

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

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

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

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

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

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

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

Given the uncertainty that the volatility is indicative of and the inherent imprecision of a forecast accurately projecting economic statistics during these unprecedented times, management elected to base each of the 2021 quarter-end computations of the ACL primarily on an alternative, more negative forecast, that management judged to more appropriately reflect the inherent risks to its loan portfolio.

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

For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to the long-term mean of historical factors over 12 quarters using a straight-line approach.

The Company generally utilizes a four-quarter forecast and a 12-quarter reversion period to the long-term average, which is then held static for the remainder of the forecast period.

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

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

Each period the Company considers qualitative factors that are relevant within the qualitative framework that includes the following:

1) changes in lending policies, procedures, and strategies, 2) changes in the nature and volume of the portfolio, 3) staff experience, 4) changes in volume and trends in classified loans, delinquencies, and nonaccrual loans, 5) concentration risk, 6) trends in underlying collateral value, 7) external factors, including competition and legal and regulatory factors, 8) changes in the quality of the Company's loan review system, and 9) economic conditions not already captured.

The Company has identified the following portfolio segments and calculates the ACL for each using a DCF methodology at the loan level, with loss rates, prepayment assumptions, and curtailment assumptions driven by each loan’s collateral type:

Commercial, financial, and agricultural - Risks to this loan category include industry concentration and the inability to monitor the condition of the collateral which often consists of inventory, accounts receivable, and other non-real estate assets.

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Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt.

Also included in this category for 2020 are PPP loans, which are fully guaranteed by the SBA and thus have minimal risk.

Also included in this category for periods subsequent to March 31, 2020 are PPP loans, which are fully guaranteed by the SBA and thus have minimal risk.

Real estate - construction, land development, & other land loans - Risks common to commercial construction loans are cost overruns, changes in market demand for property, inadequate long-term financing arrangements, and declines in real estate values.

Residential construction loans are susceptible to those same risks as well as those

associated with residential mortgage loans (see below).

Residential construction loans are susceptible to those same risks as well as those associated with residential mortgage loans (see below).

Changes in market demand for property could lead to longer marketing times resulting in higher carrying costs, declining values, and higher interest rates.

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Consumer loans - Risks common to these loans include regulatory risks, unemployment, and changes in local economic conditions as well as the inability to monitor collateral consisting of personal property .

While management uses the best information available to make evaluations, future adjustments may be necessary if economic and other conditions differ substantially from the assumptions used.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses.

Such agencies may require the Bank to recognize additions to the allowance based on the examiners’ judgment about information available to them at the time of their examinations.

When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

When the DCF method is used to determine the ACL, management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

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

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

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

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

SBA Loans – Through its SBA Lending Division, the Company offers loans guaranteed by the SBA for the purchase of businesses, business startups, business expansion, equipment, and working capital.

All SBA loans are underwritten and documented as prescribed by the SBA.

SBA loans are generally fully amortizing and have maturity dates and amortizations of up to 25 years.

The portion of SBA loans originated that are guaranteed and intended for sale on the secondary market are classified as held for sale and are carried at the lower of cost or fair value.

The Company generally sells the guaranteed portion of the SBA loan as soon as it is eligible to be sold and retains the servicing right.

A gain is recorded for the difference between the proceeds received from the sale and the basis allocated to the sold portion.

The relative fair value allocation results in a discount that is recorded on the unguaranteed portion of the loan that is retained.

The discount is amortized as a yield adjustment over the life of the loan, so long as the loan performs.

Refer also to SBA Servicing Assets below.

Transfers of Financial Assets - Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished.

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Goodwill and Other Intangible Assets - Business combinations are accounted for using the acquisition method of accounting.

Identifiable intangible assets are recognized separately and are amortized over their estimated useful lives, which for the Company has generally been seven to ten years and at an accelerated rate.

Identifiable intangible assets are recognized separately and are amortized over their estimated useful lives, which for the Company has generally been five to ten years and at an accelerated rate.

Goodwill is recognized in business combinations to the extent that the price paid exceeds the fair value of the net assets acquired, including any identifiable intangible assets.

Goodwill is not amortized is subject to fair value impairment tests on at least an annual basis.

Goodwill is not amortized, but rather is subject to fair value impairment tests on at least an annual basis.

SBA Servicing Assets - When the Company sells the guaranteed portion of an SBA loan, the Company continues to perform the servicing on the loan and collects a fee related to the sold portion of the loan.

A SBA servicing asset is recorded for the fair value of that fee based on a discounted cash flow analysis.

A SBA servicing asset is recorded for the fair value of that fee based on an analysis of discounted cash flows that incorporates estimates of (1) market servicing costs, (2) market-based prepayment rates, and (3) market profit margins.

SBA servicing assets are included in “Other intangible assets” on the consolidated balance sheets.

SBA servicing assets are amortized against income over the lives of the related loans as a reduction of servicing fee income.

SBA servicing assets are amortized against income over the lives of the related loans as a reduction of servicing fee income, generally five years .

SBA servicing assets are tested for impairment on a quarterly basis by comparing their estimated fair values, aggregated by year of origination, to the related carrying values.

Changes in observable market data relating to market interest rates, loan prepayment speeds, and other factors, could result in impairment or reversal of impairment of these servicing assets and, as such, impact the Company's financial condition and results of operations.

Foreclosed Properties - Foreclosed properties consists primarily of real estate acquired by the Company through legal foreclosure or deed in lieu of foreclosure.

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Bank-Owned Life Insurance – The Company has purchased life insurance policies on certain current and past key employees and directors where the insurance policy benefits and ownership are retained by the employer.

policies are recorded at their cash surrender value.

These policies are recorded at their cash surrender value.

Income from these policies and changes in the net cash surrender value are recorded within noninterest income as “Bank-owned life insurance income.”

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Deferred tax assets are reduced, if necessary, by the amount of such benefits that are not expected to be realized based upon available evidence.

Other Investments – The Company accounts for substantially all of its investments in limited partnerships, limited liability companies (“LLCs”), and other privately held companies using the equity method of accounting.

Other Investments – The Company accounts for substantially all of its investments in limited partnerships and limited liability companies (“LLCs”) using the equity method of accounting.

The accounting treatment depends upon the Company’s percentage ownership and degree of management influence.

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The Company’s policy is to record its share of earnings or losses on equity method investments in the quarter the financial information is received.

All of the Company’s investments in limited partnerships, LLCs, and other companies are privately held, and their market values are not readily available.

All of the Company’s investments in limited partnerships and LLCs and their market values are not readily available.

The Company’s management evaluates its investments in investees for impairment based on the investee’s ability to generate cash through its operations or obtain alternative financing, and other subjective factors.

There are inherent risks associated with the Company’s investments in such companies, which may result in income statement volatility in future periods.

At December 31, 2020 and 2019, the Company’s investments in limited partnerships, LLCs and other privately held companies totaled $ 7.8 million and $ 8.0 million, respectively, and are included in "Other assets".

At December 31, 2021 and 2020, the Company’s investments in limited partnerships and LLCs totaled $ 11.3 million and $ 7.8 million, respectively, and are included in "Other assets".

Also see Note 3 for discussion of an investment without a readily determinable fair value.

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Cash dividends are reported as income.

Federal Reserve Bank (FRB) Stock - The Company is a member of its regional Federal Reserve Bank and is required to own stock based on its level of capital.

FRB stock is carried at cost and is recorded in "Other assets".

Cash dividends are reported as income.

Federal Reserve Bank ("Federal Reserve") Stock - The Company is a member of its regional Federal Reserve and is required to own stock based on its level of capital.

Federal Reserve stock is carried at cost and is recorded in "Other assets." Cash dividends are reported as income.

Loan Commitments and Related Financial Instruments - Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs.

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Such financial instruments are recorded when they are funded.

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

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

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to fund.

Stock-Based Compensation - Restricted stock awards are the primary form of equity grant utilized by the Company.

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For the Company, participating securities are comprised of unvested shares of restricted stock.

Diluted Earnings Per Common Share is computed by assuming the issuance

of common shares for all potentially dilutive common shares outstanding during the reporting period.

For the periods presented, the Company’s potentially dilutive common stock issuances related to unvested shares of restricted stock and stock option grants under the Company’s equity-based plans, as well as contingently issuable shares.

In computing Diluted Earnings Per Common Share, adjustments are made to the computation of Basic Earnings Per Common shares, as follows.

As it relates to unvested shares of restricted stock, the number of shares added to the denominator is equal to the total number of weighted average unvested shares outstanding.

As it relates to stock options, it is assumed that all dilutive stock options are exercised during the reporting period at their respective exercise prices, with the proceeds from the exercises used by the Company to buy back stock in the open market at the average market price in effect during the reporting period.

The difference between the number of shares assumed to be exercised and the number of shares bought back is included in the calculation of dilutive securities.

As it relates to contingently issuable shares, the number of shares that are included in the calculation of dilutive securities is based on the weighted average number of shares that would have been issuable if the end of the reporting period had been the end of the contingency period.

Diluted Earnings Per Common Share is computed by assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period.

For the periods presented, the Company’s potentially dilutive common stock issuances related to unvested shares of restricted stock and contingently issuable shares.

If any of the potentially dilutive common stock issuances have an anti-dilutive effect, the potentially dilutive common stock issuance is disregarded.

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Impairment - Goodwill is evaluated for impairment on at least an annual basis, and more often if a triggering event is identified, by comparing the estimated fair value of the reporting units to their related carrying value.

At December 31, 2020, the Company had three reporting units – 1) First Bank with $ 227.6 million in goodwill, 2) First Bank Insurance with $ 7.4 million in goodwill, and 3) SBA activities, including SBA Complete and our SBA Lending

Division, with $ 4.3 million in goodwill.

At December 31, 2021, the Company had two reporting units – 1) the Bank with $ 360.0 million in goodwill and 2) SBA activities, including SBA Complete and our SBA Lending Division, with $ 4.3 million in goodwill.

If the carrying value of a reporting unit exceeds its fair value, the Company determines whether the implied fair value of the goodwill, using various valuation techniques, exceeds the carrying value of the goodwill.

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Generally, disclosures are required for segments internally identified to evaluate performance and resource allocation.

The Company’s

operations are substantially all within a single banking segment, and the financial statements presented herein reflect the combined results of all of its operations with that segment.

The Company’s operations are substantially all within a single banking segment, and the financial statements presented herein reflect the combined results of all of its operations with that segment.

The Company has no foreign operations or customers.

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Accounting Standards Adopted in 2021

In January 2017, the FASB amended the Goodwill and Other Intangibles topic of the Accounting Standards Codification to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill.

The amendment removes Step 2 of the goodwill impairment test in which an entity performs a hypothetical purchase price allocation to determine the amount of impairment.

The amount of goodwill impairment under this amendment is the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

The effective date and transition requirements for the technical corrections were effective for the Company on January 1, 2020 and the adoption of this amendment did not have a material effect on the Company's financial statements.

In August 2018, the FASB amended the Fair Value Measurement Topic of the Accounting Standards Codification.

The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8:

Notes to Financial Statements.

The amendments were effective on January 1, 2020.

These amendments did not have a material effect on the Company's financial statements.

In March 2019, the FASB issued guidance to address concerns companies had raised about an accounting exception they would lose when assessing the fair value of underlying assets under the leases standard and clarify that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new standard.

The amendments were effective for the Company on January 1, 2020 and their adoption did not have a material effect on its financial statements.

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

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

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

On January 1, 2021, the Company adopted CECL which replaced the prior Incurred Loss methodology for recognizing credit losses with a methodology that is based on estimating future expected lifetime credit losses.

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

It also applies to off-balance sheet credit exposures, such as unfunded commitments to extend credit.

In addition, CECL made changes to the accounting for AFS debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not they will be required to sell.

In adopting CECL, the Company utilized the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Results for reporting periods beginning after January 1, 2021 are presented under CECL while prior period amounts continue to be reported under the Incurred Loss methodology.

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

The adoption of CECL had an insignificant impact on the Company's HTM and AFS securities portfolios.

The Company recorded a net decrease to retained earnings of $ 17.1 million as of January 1, 2021 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded.

Federal banking regulatory agencies provided optional relief to delay the adverse regulatory capital impact of CECL at adoption.

The Company did not elect the option.

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

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

The amortized cost basis of the PCD assets was adjusted to reflect the addition of $ 0.1 million to the ACL.

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

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

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

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

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

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

The ACL for the majority of loans was calculated using a DCF methodology applied at a loan level with a one-year reasonable and supportable forecast period and a three-year straight-line reversion period.

The Company elected to use, as a practical expedient, the fair value of collateral when determining the ACL on loans for which repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty (collateral-dependent loans).

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

In March 2020, Accounting Standards Update ("ASU") 2020-04, “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting” was issued.

ASU 2020-04 provides optional expedients and exceptions for accounting related to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

ASU 2020-04 applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.

ASU 2020-04 was effective upon issuance and generally can be applied through December 31, 2022.

The adoption of ASU 2020-04 did not significantly impact the Company’s consolidated financial statements.

Accounting Standards Pending Adoption

In June 2016, the FASB issued guidance to change the accounting for credit losses.

The guidance requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit losses" and record an allowance that, when deducted from the amortized cost basis of the financial assets, presents the net amount expected to be collected on the financial assets.

In May 2019, the FASB issued additional guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon the adoption of the CECL model.

The Company does not expect to elect this option.

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 provided for in the CECL standard, the Company would have applied the new guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, which, for the Company, was January 1, 2020, with future adjustments to credit loss expectations recorded through the income statement as charges or credits to earnings.

In the first quarter of 2020, in response to the COVID-19 pandemic, the CARES Act was enacted by the United States Congress and signed by the President.

The CARES Act included an election to defer the implementation of CECL until the earlier of the cessation of the national emergency or December 31, 2020.

Due primarily to the challenges associated with developing a reliable forecast of losses that may result from the unprecedented pandemic, the Company elected to opt-in to this deferral option.

In December 2020, the United States Congress extended several provisions of the CARES Act, including the option to further defer implementation of CECL until January 1, 2022.

The Company currently expects to adopt CECL as of January 1, 2021.

Upon the adoption of CECL, the Company expects its allowance for credit losses related to all financial assets will increase by approximately $ 12 -$ 14 million and its reserve for unfunded commitments will increase by $ 6 -$ 7 million.

As noted above, this initial impact will be reflected as a cumulative-effect adjustment to retained earnings.

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

The guidance removes disclosures that are no longer considered cost-beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant.

The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption is permitted.

The Company does not expect these amendments to have a

material effect on its financial statements.

In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for LIBOR reference rate reform.

The amendments are effective as of March 12, 2020 through December 31, 2022.

The Company does not expect these amendments to have a material effect on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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

Acquisitions and Dispositions

Select Acquisition

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

(“Select”), headquartered in Dunn, North Carolina, pursuant to an Agreement and Plan of Merger and Reorganization dated June 1, 2021.

Select's subsidiary, Select Bank & Trust, was merged into the Bank.

The results of Select are included in the Company’s results beginning on the October 15, 2021 acquisition date.

The Company exchanged 0.408 shares of its common stock for each share of Select common stock.

Additionally, all holders of Select stock options were paid cash for the difference between the exercise price of each option and the cash out value of $ 18.00 per option.

The acquisition resulted in the Company issuing 7,070,371 shares of common stock with a fair value $ 324.4 million and paying $ 1.4 million in cash related to the stock options, for total consideration of $ 325.8 million in exchange for 100 % of the outstanding stock of Select.

Select operated 22 branches located in North Carolina, South Carolina, and Virginia.

The acquisition complemented several of the Company’s high-growth markets and increased its market share in others with facilities, operations, and experienced staff already in place.

Accordingly, there were significant synergies to be gained from the acquisition and the Company recognized the goodwill in the transaction related primarily to the reasons just noted, as well as the positive earnings of Select.

This transaction was accounted for using the acquisition method of accounting for business combinations, and accordingly, the assets acquired, intangible assets identified, and liabilities assumed of Select were recorded based on estimates of fair values as of October 15, 2021.

The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change.

Estimated fair values were based on management’s best estimates, using the information available at the date of acquisition, including the use of third-party valuation specialists.

As of December 31, 2021, management has finalized the valuations of all acquired assets and liabilities assumed in the Select acquisition.

The following table summarizes the estimated fair value of acquired assets, identified intangible assets, and liabilities assumed as of October 15, 2021.

Following the table is a discussion of valuation approaches utilized in estimated the fair values in accordance with ASC 850-10.

The $ 132.4 million in goodwill that resulted from this transaction is non-deductible for tax purposes.

($ in thousands) Fair Value Estimate

Assets acquired:

Cash and cash equivalents

Securities available for sale 226,228

Loans held for sale 51,779

Loans 1,230,107

Premises and equipment

Core deposit intangible

Operating right-of-use lease assets 4,649

Other assets 61,020

Liabilities assumed:

Other liabilities 17,248

Net identifiable assets acquired

Total consideration 325,819

Goodwill recorded related to acquisition of Select $ 132,356

The following is a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed included in the table above.

Cash and due from banks, and interest-bearing deposits with banks :

The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Securities available for sale :

Fair value of securities was measured based on quoted market prices, where available.

If a quoted market price was not available, fair value was estimated using quoted market prices for similar securities and adjusted for differences between the quoted instrument and the instrument being valued.

Loans held for sale:

The valuation of loans held for sale reflected quotes or bids on these loans directly from the prospective buyers of the pools.

Fair value of loans acquired was based on a discounted cash flow methodology that considered factors including loan type and related collateral, classification status, remaining term of the loan, fixed or variable interest rate, amortization status, and current discount rates.

Expected cash flows were derived using inputs consistent with management's assessment of credit risk for allowance measurement, including estimated future credit losses and estimated prepayments.

A total fair value mark of $ 19.3 million was recorded.

PCD loans were determined based primarily on internal grades and delinquency status.

The Company reclassified from the fair value mark to ACL a "Day 1" allowance of $ 4.9 million resulting from PCD loans.

The following table presents additional information related to the acquired loan portfolio at the acquisition date:

($ in thousands) October 15, 2021

Par value $ 111,835

Allowance for credit losses ( 4,895 )

Non-credit discount ( 1,251 )

Purchase price $ 105,689

Non-PCD Loans:

Fair Value $ 1,124,418

Gross contractual amounts receivable 1,134,879

Estimate of contractual cash flows not expected to be collected 13,257

Land and buildings held for use are valued at appraised values, which reflect considerations of recent disposition values for similar property types with adjustments for characteristics of individual properties.

Locations held for sale are valued at appraised values which also reference recent disposition values for similar property types but also considers marketability discounts for vacant properties.

The valuations of locations held for sale are reduced by estimated costs to sell.

Lease Assets and Lease Liabilities :

Lease assets and lease liabilities were measured using a methodology that involved estimating the future lease payments over the remaining lease term with discounting using a discount rate.

The lease term was determined for individual leases based on management's assessment of the probability of exercising existing renewal options.

Intangible assets:

Core deposit intangible ("CDI") asset represents the value of the relationships with deposit customers.

The fair value for the core deposit intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of deposit base, net maintenance cost attributable to customer deposits and an estimate of the cost associated with alternative funding sources.

The discount rates used for CDI assets are based on market rates.

The CDI is being amortized over 10 years utilizing an accelerated method, which results in a weighted-average amortization period of approximately 41 months.

The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the acquisition date.

Fair values for time deposits were estimated using a discounted cash flow analysis applying interest rates currently offered to the contractual interest rates on such time deposits.

The fair values of long-term debt instruments are estimated based on quoted market prices for instrument if available, or for similar instruments if not available.

Supplemental Pro Forma Financial Information

The following table presents certain pro forma information as if Select had been acquired on January 1, 2020.

These results combine the historical results of Select with the Company’s results and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2020.

Merger-related costs related to this acquisition of $ 16.8 million were recorded by the Company during 2021 and $ 0.8 million of merger-related costs incurred by Select in 2021 prior to the acquisition were excluded from the pro forma information below.

In addition, no adjustments have been made to such pro forma information to eliminate the provision for loan losses recorded by Select in the amount of $ 6.2 million for 2020 and a negative provision for loan losses recorded by Select of $ 1.3 million recorded in 2021 prior the acquisition.

Pro forma information for the year 2021 has been adjusted to eliminate the following:

1) the non-PCD provision for loan losses recorded on the acquisition date of $ 14.1 million and 2) the initial recording of a provision for credit losses associated with Select’s unfunded commitments of $ 3.9 million.

If the Select acquisition had occurred at the beginning of 2020, the acquisition date credit loss reserve amounts would have been included in the fair value measurements of Select and been included in the goodwill calculation.

Expenses related to systems conversions and other costs of integration are expected to be recorded during 2022.

The Company expects to achieve further operating cost savings and other business synergies as a result of the acquisition.

The following table also discloses the impact of the acquisition of Select from the acquisition date of October 15, 2021 through December 31, 2021.

These amounts are included in the Company’s consolidated financial statements as of and for the year ended December 31, 2021.

Merger-related costs have been excluded from these amounts and the provisions for credit loss amounts associated with non-PCD loans and unfunded commitments that were discussed above have also been excluded.

($ in thousands, unaudited) Revenue Net Income

Year Ended December 31, 2021

Actual Select results included in statement of income since acquisition date $ 15,175 $ 8,813

Supplemental consolidated pro forma as if Select had been acquired on January 1, 2020 380,241 143,882

Year Ended December 31, 2020

Supplemental consolidated pro forma as if Select had been acquired on January 1, 2020 $ 362,654 $ 93,980

First Bank Insurance Services, Inc.

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

Cash received at the time of the sale was $ 11.3 million.

Net assets sold and liabilities transferred amounted to $ 1.7 million.

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

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

Magnolia Acquisition

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

In the transaction, the Company acquired $ 14.6 million in loans and $ 0.5 million of other assets, and assumed $ 11.7 million in borrowings, substantially all of which was paid off subsequent to the closing.

The transaction value was approximately $ 10.0 million with the Company paying $ 9.5 million in cash and issuing 24,096 shares of its common stock, which had a value of approximately $ 0.5 million.

This acquisition was accounted for using the acquisition method of accounting for business combinations, and accordingly, the assets and liabilities of the financing company were recorded based on fair values, which according to applicable accounting guidance, are subject to change for twelve months following the acquisition.

This acquisition was accounted for using the acquisition method of accounting for business combinations, and accordingly, the assets and liabilities of Magnolia Financial were recorded based on fair values, which according to applicable accounting guidance, are subject to change for 12 months following the acquisition.

In connection with this transaction, the Company recorded goodwill of $ 4.9 million and $ 1.6 million in other amortizable intangible assets, all of which are deductible for tax purposes over 15 years.

19 unchanged sentences

$ 513,825 511,699 3,540 ( 5,666 ) 167,551 170,734 3,348 ( 165 )

All of the Company’s mortgage-backed securities were issued by government-sponsored corporations, except for private mortgage-backed securities with a fair value of $ 1.0 million and $ 1.1 million as of December 31, 2020 and 2019, respectively.

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

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

($ in thousands) Securities in an Unrealized

Securities in an Unrealized

Loss Position for

2 unchanged sentences

More than 12 Months Total

Fair Value Unrealized

($ in thousands) Fair Value Unrealized

Losses Fair Value Unrealized

11 unchanged sentences

The following table presents information regarding securities with unrealized losses at December 31, 2020:

($ in thousands) Securities in an Unrealized

Securities in an Unrealized

Loss Position for

2 unchanged sentences

More than 12 Months Total

Fair Value Unrealized

($ in thousands) Fair Value Unrealized

Losses Fair Value Unrealized

10 unchanged sentences

$ 555,070 2,348 7,003 332 562,073 2,680

As of December 31, 2021 and December 31, 2020, the Company's security portfolio held 371 and 69 securities that were in an unrealized loss position, respectively.

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

The Company evaluated the collectability of each of these bonds and concluded that there was no other-than-temporary impairment.

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

In the tables above, substantially all of the mortgage-backed securities in unrealized loss positions at each period end were issued by government-sponsored agencies, including Freddie Mac, Fannie Mae, and Ginnie Mae, which the Company considered in concluding that the unrealized loss position of each security was due to interest rate factors and not credit quality concerns.

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

As of December 31, 2020 and December 31, 2019, the Company's security portfolio held 69 and 54 securities that were in an unrealized loss position, respectively.

The majority of unrealized losses are related to the Company's mortgage-backed securities.

No impairment charges were recognized for any securities during the year ended December 31, 2020.

At adoption of CECL on January 1, 2021 and at December 31, 2021, the Company determined that expected credit losses associated with HTM debt securities were insignificant.

See Note 1 for additional details on the adoption of CECL as it relates to the securities portfolio.

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

10 unchanged sentences

Total securities $ 2,662,481 2,630,414 513,825 511,699

At December 31, 2020 and 2019, investment securities with carrying values of $ 630,303,000 and $ 260,826,000 , respectively, were pledged as collateral for public deposits.

In 2020, the Company received proceeds from sales of securities of $ 219,697,000 and recorded $ 8,024,000 in gross gains from the sales.

In 2019, the Company received proceeds from sales of securities of $ 39,797,000 and recorded $ 97,000 in gross gains from the sales.

The Company sold no securities in 2018.

Included in “other assets” in the Consolidated Balance Sheets are investments in Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank of Richmond (“FRB”) stock totaling $ 23,526,000 and $ 33,380,000 at December 31, 2020 and 2019, respectively.

At December 31, 2021 and 2020, investment securities with carrying values of $ 951.4 million and $ 630.3 million, respectively, were pledged as collateral for public deposits.

At December 31, 2021 and 2020, there were no holdings of securities of any one issuer, other than the US Government and its agencies or government sponsored agencies, in an amount greater than 10% of shareholders' equity.

In 2021, the Company received proceeds from sales of securities of $ 106.5 million and recorded $ 1.2 million in gross losses from the sales.

In 2020, the Company received proceeds from sales of securities of $ 219.7 million and recorded $ 8.0 million in gross gains from the sales.

In 2019, the Company received proceeds from sales of securities of $ 39.8 million and recorded $ 0.1 million in gross gains from the sales.

Included in “Other Assets” in the Consolidated Balance Sheets are investments in FHLB and Federal Reserve stock totaling $ 22.3 million and $ 23.5 million at December 31, 2021 and 2020, respectively.

These investments do not have readily determinable fair values.

The FHLB stock had a cost and fair value of $ 5,855,000 and $ 15,789,000 at December 31, 2020 and 2019, respectively, and serves as part of the collateral for the Company’s line of credit with the FHLB and is also a requirement for membership in the FHLB system.

The FRB stock had a cost and fair value of $ 17,671,000 and $ 17,591,000 at December 31, 2020 and 2019, respectively, and is a requirement for FRB member bank qualification.

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

The FHLB stock had a cost and fair value of $ 4.6 million and $ 5.9 million at December 31, 2021 and 2020, respectively, and serves as part of the collateral for the Company’s line of credit with the FHLB and is also a requirement for membership in the FHLB system.

The Federal Reserve stock had a cost and fair value of $ 17.8 million and $ 17.7 million at December 31, 2021 and 2020, respectively, and is a requirement for Federal Reserve member bank qualification.

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

The Company determined that neither stock was impaired at either period end.

4 unchanged sentences

The conversion rate at December 31, 2021 was approximately 1.62 , which means the Company would receive approximately 19,993 Class A shares if the stock had converted on that date.

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

This Class B stock does not have a readily determinable fair value

and is carried at zero .

If a readily determinable fair value becomes available for the Class B shares, or upon the conversion to Class A shares, the Company will adjust the carrying value of the stock to its market value with a credit to earnings.

1 unchanged sentence

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

($ in thousands) December 31, 2020 December 31, 2019

Amount Percentage Amount Percentage

December 31, 2021 December 31, 2020

($ in thousands) Amount Percentage Amount Percentage

Commercial, financial, and agricultural

10 unchanged sentences

6,083,419 100 % 4,735,013 100 %

Unamortized net deferred loan costs (fees)

( 3,698 ) 1,941

Unamortized net deferred loan fees ( 1,704 ) ( 3,698 )

$ 6,081,715 4,731,315

Included within "Commercial, financial and agricultural" in the table above are PPP loans totaling $ 240.5 million.

Included in the line item "Commercial, financial, and agricultural" in the table above are PPP loans totaling $ 39.0 million and $ 240.5 million at December 31, 2021 and December 31, 2020, respectively.

PPP loans are fully guaranteed by the SBA.

Included in unamortized net deferred loan fees are $ 6.0 million in unamortized net deferred loan fees associated with PPP loans.

Included in unamortized net deferred loan fees are approximately $ 2.6 million and $ 6.0 million at December 31, 2021 and December 31, 2020, respectively, in unamortized net deferred loan fees associated with PPP loans.

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

1 unchanged sentence

Because of their fully guaranteed nature, the Company has no allocation of allowance for loan losses established for these loans.

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

Included in the table above are credit card balances outstanding totaling $ 37.9 million and $ 33.2 million at December 31, 2021 and 2020, respectively.

Approximately 49 % of this total are business credit cards included in "commercial, financial and agricultural" above and the remaining 51 % are personal credit cards included in consumer loans in the table above.

Also included in the table above are non-PPP SBA loans, generally originated under the SBA 7A loan program, with additional information on these loans presented in the table below.

($ in thousands) December 31,

1 unchanged sentence

Guaranteed portions of non-PPP SBA Loans included in table above $ 48,377 33,959

Unguaranteed portions of SBA Loans included in table above 135,703 110,782

Unguaranteed portions of non-PPP SBA Loans included in table above 122,772 135,703

Total non-PPP SBA loans included in the table above $ 171,149 169,662

Sold portions of SBA loans with servicing retained - not included in table above $ 414,240 395,398

At December 31, 2020 and 2019, there was a remaining unaccreted discount on the retained portion of sold SBA loans amounting to $ 7.3 million and $ 7.1 million, respectively.

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

Loans in the amount of $ 4.0 billion were pledged as collateral for certain borrowings at both December 31, 2020 and December 31, 2019, respectively (see Note 9).

Included in the table above are credit card balances outstanding totaling $ 33.2 million and $ 30.9 million at December 31, 2020 and 2019, respectively.

At December 31, 2021 and December 31, 2020, there were remaining unaccreted discounts on the retained portion of sold non-PPP SBA loans amounting to $ 6.0 million and $ 7.3 million respectively.

Loans in the amount of $ 4.3 billion and $ 4.0 billion were pledged as collateral for certain borrowings at December 31, 2021 and December 31, 2020, respectively (see Note 9).

The loans above also include loans to executive officers and directors serving the Company at December 31, 2021 and to their associates, totaling approximately $ 0.6 million and $ 3.4 million at December 31, 2021 and 2020, respectively.

New loans and advances on those loans in 2020 totaled $ 2.2 million and repayments amounted to $ 3.9 million.

There were no new loans and advances on those loans in 2021 and repayments amounted to $ 2.8 million.

Management does not believe these loans involve more than the normal risk of collectability or present other unfavorable features.

1 unchanged sentence

In these transactions, the Company recorded loans at their fair value as required by applicable accounting guidance.

Included in these loan portfolios were purchased credit impaired (“PCI”) loans, which are loans for which it is probable at acquisition date that all contractually required payments will not be collected.

The remaining loans were considered to be purchased non-impaired loans and their related fair value discount or premium is being recognized as an adjustment to yield over the remaining life of each loan.

As of December 31, 2020 , 2019 and 2018, there was a remaining accretable discount of $ 7.9 million , $ 11.1 million, and $ 15.0 million, respectively, related to purchased non-impaired loans.

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

The following table presents changes in the carrying value of PCI loans.

($ in thousands)

Purchased Credit Impaired Loans

For the Year Ended December 31,

2020 For the Year Ended December 31,

2019 For the Year Ended December 31,

Balance at beginning of period $ 12,664 17,393 23,165

Change due to payments received and accretion ( 4,087 ) ( 4,863 ) ( 5,799 )

Change due to loan charge-offs ( 13 ) ( 11 ) ( 4 )

Transfers to foreclosed real estate — — ( 10 )

Other 27 145 41

Balance at end of period $ 8,591 12,664 17,393

The following table presents changes in the accretable yield for PCI loans.

($ in thousands)

Accretable Yield for PCI loans

For the Year Ended December 31,

2020 For the Year Ended December 31,

acquisitions completed prior to the Company's adoption of CECL, these loan portfolios included loans designated as PCI loans, which were loans for which it was probable at acquisition that all contractually required payments would not be collected.

Upon the adoption of CECL, all PCI loans were reclassified as PCD loans, as permitted by the CECL standard.

As of December 31, 2021, unamortized discounts on all acquired loans totaled $ 17.2 million.

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

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

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

The following table presents changes in the accretable yield for PCI loans under the Incurred Loss methodology used by the Company prior to adopting CECL.

($ in thousands) For the Year Ended December 31,

2020 For the Year Ended December 31,

1 unchanged sentence

( 1,119 ) ( 1,486 )

( 1,119 ) ( 1,486 ) ( 2,050 )

Reclassification from (to) nonaccretable difference

( 545 ) 268 1,263

Balance at end of period

$ 2,898 4,149

During 2020, the Company received $ 500,000 in payments that exceeded the carrying amount of the related PCI loans, of which $ 397,000 was recognized as loan discount accretion income, $ 89,000 was recorded as additional loan interest income, and $ 14,000 was recorded as a recovery.

During 2019, the Company received $ 406,000 in payments that exceeded the carrying amount of the related PCI loans, of which $ 348,000 was recognized as loan discount accretion income and $ 58,000 was recorded as additional loan interest income.

During 2018, the Company received $ 772,000 in payments that exceeded the carrying amount of the related PCI loans, of which $ 493,000 was recognized as loan discount accretion income and $ 279,000 was recorded as additional loan interest income.

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

Nonperforming assets are summarized as follows:

ASSET QUALITY DATA ($ in thousands)

During 2020, the Company received $ 0.5 million in payments that exceeded the carrying amount of the related PCI loans, of which $ 0.4 million was recognized as loan discount accretion income, $ 0.1 million was recorded as additional loan interest income, and $ 14,000 was recorded as a recovery.

During 2019, the Company received $ 0.4 million in payments that exceeded the carrying amount of the related PCI loans, of which $ 0.3 million was recognized as loan discount accretion income and $ 0.1 million was recorded as additional loan interest income.

Nonperforming assets, defined as nonaccrual loans, troubled debt restructurings, loans past due 90 or more days and still accruing interest, and foreclosed real estate, are summarized as follows:

($ in thousands) December 31,

2021 December 31,

6 unchanged sentences

Total nonperforming assets $ 52,637 46,997

Purchased credit impaired loans not included above (1) $ 8,591 12,664

(1) In the March 3, 2017 acquisition of Carolina Bank.

and the October 1, 2017 acquisition of Asheville Savings Bank, the Company acquired $ 19.3 million and $ 9.9 million, respectively, in PCI loans in accordance with ASC 310-30 accounting guidance.

These loans are excluded from nonperforming loans, including $ 0.7 million and $ 0.8 million in PCI loans at December 31, 2020 and 2019, respectively, that are contractually past due 90 days or more.

At December 31, 2021 and 2020, the Company had $ 1.5 million and $ 1.9 million in residential mortgage loans in process of foreclosure, respectively.

At December 31, 2021 and 2020, there were no commitments to lend additional funds to debtors whose loans were nonperforming.

The following is a summary the Company’s nonaccrual loans by major categories.

($ in thousands) December 31,

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

CECL Incurred Loss

2021 December 31,

($ in thousands) Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Nonaccrual Loans

Commercial, financial, and agricultural $ 3,947 8,205 12,152 9,681

$ 9,681 5,518

Real estate – construction, land development & other land loans 495 137 632 643

4 unchanged sentences

Total $ 12,948 21,748 34,696 35,076

There is no interest income recognized during the period on nonaccrual loans.

The Company follows its nonaccrual policy of reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status.

The following table represents the accrued interest receivables written off by reversing interest income during the year ended December 31, 2021.

($ in thousands) For the Year Ended December 31, 2021

Commercial, financial, and agricultural $ 195

Real estate – construction, land development & other land loans 6

Real estate – mortgage – residential (1-4 family) first mortgages 31

Real estate – mortgage – home equity loans / lines of credit 14

Real estate – mortgage – commercial and other 453

Consumer loans —

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

16 unchanged sentences

Consumer loans 116 62 — 89 56,971 57,238

Purchased credit impaired

328 112 719 — 7,432 8,591

Total $ 11,763 3,263 1,004 34,696 6,032,693 6,083,419

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

Unamortized net deferred loan fees ( 1,704 )

Total loans $ 6,081,715

22 unchanged sentences

Total loans $ 4,731,315

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2020.

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

The Company reviews individually evaluated loans on nonaccrual with a net book balance of $ 350,000 or greater for designation as collateral dependent loans, as well as certain other loans that may still be accruing interest and/or are less than $ 350,000 in size that management of the Company designates as having higher risk.

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

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

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

Commercial, financial, and agricultural $ — 7,886 — — 7,886

Real estate – construction, land development & other land loans — — 533 — 533

Real estate – mortgage – residential (1-4 family) first mortgages 871 — — — 871

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

Real estate – mortgage – commercial and other — — — 10,743 10,743

Consumer loans — — — — —

Total $ 871 7,886 533 10,743 20,033

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

The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost.

If the fair value of the collateral exceeds the amortized cost, no allowance is required.

The Company's policy is to obtain third-party appraisals on any significant pieces of collateral.

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

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

For non real-estate collateral secured loans, the Company generally

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

For reviewed loans that are not on nonaccrual basis, the Company assigns a specific allowance based on the parameters noted above.

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

The following table presents the activity in the ACL on loans for the year ended December 31, 2021 under the CECL methodology.

($ in thousands) Commercial,

Financial, and

Agricultural Real Estate

2 unchanged sentences

Mortgages Real Estate

of Credit Real Estate

Credit Real Estate

and Other Consumer Loans Unallocated Total

1 unchanged sentence

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

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

( 5,608 ) ( 51 ) ( 478 ) ( 524 ) ( 968 ) ( 873 ) — ( 8,502 )

745 1,552 754 487 621 294 — 4,453

11,626 1,878 3,940 1,285 15,012 1,085 213 35,039

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

Allowance for Select PCD loans 2,917 165 222 92 1,489 10 — 4,895

Charge-offs ( 3,722 ) ( 245 ) ( 273 ) ( 400 ) ( 2,295 ) ( 667 ) — ( 7,602 )

Recoveries 1,744 948 761 578 533 358 — 4,922

Provisions/(Reversals) 927 4,156 ( 2,656 ) ( 888 ) 7,269 803 — 9,611

Ending balance $ 16,249 16,519 8,686 4,337 30,342 2,656 — 78,789

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

Ending balances as of December 31, 2020:

Allowance for loan losses

Individually evaluated for impairment

$ 3,546 30 800 — 2,175 — — 6,551

Collectively evaluated for impairment

$ 7,742 5,325 7,141 2,375 21,428 1,475 213 45,699

Purchased credit impaired

$ 28 — 107 — — 3 — 138

Loans receivable as of December 31, 2020:

Ending balance – total

$ 782,549 570,672 972,378 306,256 2,049,203 53,955 — 4,735,013

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

Ending balances as of December 31, 2020:

Individually evaluated for impairment

$ 7,700 677 9,303 15 18,582 4 — 36,281

Collectively evaluated for impairment

$ 774,712 569,845 958,848 306,141 2,026,682 53,913 — 4,690,141

Purchased credit impaired

$ 137 150 4,227 100 3,939 38 — 8,591

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2019.

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2020 under the Incurred Loss methodology.

($ in thousands) Commercial,

33 unchanged sentences

$ 137 150 4,227 100 3,939 38 — 8,591

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2018.

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2019 under the Incurred Loss methodology.

($ in thousands) Commercial,

33 unchanged sentences

$ 213 166 5,343 223 6,630 89 — 12,664

The following table presents loans individually evaluated for impairment by class of loans, excluding purchased credit impaired loans, as of December 31, 2020.

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2020 under the Incurred Loss methodology.

($ in thousands) Recorded

29 unchanged sentences

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

The following table presents loans individually evaluated for impairment by class of loans, excluding purchased credit impaired loans, as of December 31, 2019.

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2019 under the Incurred Loss methodology.

($ in thousands) Recorded

29 unchanged sentences

Interest income recorded on impaired loans during the year ended December 31, 2019 was $ 1.3 million, and reflects interest income recorded on nonaccrual loans prior to them being placed on nonaccrual status and interest income recorded on accruing TDRs.

The following table presents loans individually evaluated for impairment by class of loans, excluding purchased credit impaired loans, as of December 31, 2018.

($ in thousands) Recorded

Investment Unpaid

Balance Related

Allowance Average

Impaired loans with no related allowance recorded:

Commercial, financial, and agricultural

$ 310 310 — 957

Real estate – mortgage – construction, land development & other land loans

485 803 — 2,366

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

4,626 4,948 — 4,804

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

Real estate – mortgage –commercial and other

3,475 4,237 — 3,670

Consumer loans — — — —

Total impaired loans with no allowance

$ 8,918 10,329 — 11,888

Impaired loans with an allowance recorded:

Commercial, financial, and agricultural

$ 386 387 226 422

Real estate – mortgage – construction, land development & other land loans

860 864 134 385

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

7,765 7,904 955 8,963

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

274 275 48 184

Real estate – mortgage –commercial and other

6,050 6,054 906 5,911

Consumer loans — — — 2

Total impaired loans with allowance

$ 15,335 15,484 2,269 15,867

Interest income recorded on impaired loans during the year ended December 31, 2018 was $ 1.5 million, and reflects interest income recorded on nonaccrual loans prior to them being placed on nonaccrual status and interest income recorded on accruing TDRs.

Credit Quality Indicators

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

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Special Mention:

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

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

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

5 unchanged sentences

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

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2020.

($ in thousands) Pass Special Mention

Loans Classified

Accruing Loans Classified

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination or renewal as of December 31, 2021 under the CECL methodology.

Acquired loans are presented in the year originated, not in the year of acquisition.

Term Loans by Year of Origination

($ in thousands) 2021 2020 2019 2018 2017 Prior Revolving Total

Commercial, financial, and agricultural

$ 762,091 9,553 1,087 9,681 782,412

Pass $ 204,945 138,540 71,369 66,645 16,009 17,492 112,933 627,933

Special Mention 225 1,255 1,313 2,729 225 9 2,348 8,104

Classified 1,609 793 1,703 7,096 511 96 1,152 12,960

Total commercial, financial, and agricultural 206,779 140,588 74,385 76,470 16,745 17,597 116,433 648,997

Real estate – construction, land development & other land loans

560,845 7,877 1,157 643 570,522

Pass 573,613 133,888 69,066 12,455 9,764 8,190 13,737 820,713

Special Mention 41 737 5,095 110 104 2 9 6,098

Classified 1,541 49 47 83 14 4 — 1,738

Total real estate – construction, land development & other land loans 575,195 134,674 74,208 12,648 9,882 8,196 13,746 828,549

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

943,455 7,609 11,039 6,048 968,151

Pass 241,619 224,617 120,097 82,531 86,074 234,950 11,051 1,000,939

Special Mention 888 615 516 229 323 3,237 94 5,902

Classified 419 156 535 1,185 653 11,246 931 15,125

Total real estate – mortgage – residential (1-4 family) first mortgages 242,926 225,388 121,148 83,945 87,050 249,433 12,076 1,021,966

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

297,795 1,468 5,560 1,333 306,156

Pass 3,111 498 439 1,304 245 1,649 317,319 324,565

Special Mention 194 — 15 — — 19 1,341 1,569

Classified 75 97 71 — — 607 4,948 5,798

Total real estate – mortgage – home equity loans / lines of credit 3,380 595 525 1,304 245 2,275 323,608 331,932

Real estate – mortgage – commercial and other

1,988,684 34,588 4,801 17,191 2,045,264

Pass 1,328,156 796,992 355,885 211,118 197,165 197,659 66,104 3,153,079

Special Mention 1,759 4,849 5,801 3,741 2,072 1,801 1,440 21,463

Classified 7,147 413 2,110 6,025 3,897 603 — 20,195

Total real estate – mortgage – commercial and other 1,337,062 802,254 363,796 220,884 203,134 200,063 67,544 3,194,737

Consumer loans

Purchased credit impaired

6,901 85 1,605 — 8,591

$ 4,613,259 61,260 25,418 35,076 4,735,013

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

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2019.

Pass 14,960 25,431 2,965 1,722 673 525 10,810 57,086

Special Mention — 4 — — — — — 4

Classified — 73 — 8 — 25 42 148

Total consumer loans 14,960 25,508 2,965 1,730 673 550 10,852 57,238

Total $ 2,380,302 1,329,007 637,027 396,981 317,729 478,114 544,259 6,083,419

Unamortized net deferred loan fees ( 1,704 )

Total loans 6,081,715

At December 31, 2021, as derived from the table above, the Company had $ 43.1 million in loans graded as Special Mention and $ 56.0 million in loans graded as Classified, which includes all nonaccrual loans.

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

The amount of revolving lines of credit that converted to term loans during the period was immaterial.

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2020 under the Incurred Loss methodology.

($ in thousands) Pass Special Mention

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Troubled Debt Restructurings

The restructuring of a loan is considered a “troubled debt restructuring” ("TDR") if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

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

As previously discussed, under the CARES Act and banking regulator guidance, which the Company has applied, modifications deemed to be COVID-19-related are not considered a TDR if the loan was not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or December 31, 2020.

In December 2020, this provision was extended to December 31, 2021.

The Company's COVID-19 payment deferral program began in late-March 2020, with the payment deferrals limited to 90 days and deferrals were granted to substantially all borrowers who requested it.

As the initial 90 day deferrals began to expire, the Company approved subsequent deferral requests of another 90 days based on the circumstances of each borrower.

Most of the Company's borrowers who were granted payment deferrals began making payments again in the second half of 2020.

As of December 31, 2020, the Company had payment deferrals for 38 loans with an aggregate loan balance of $ 16.6 million, which are not included in the TDR's disclosed in this report.

The Company continues to accrue interest on these loans during the deferral period.

The vast majority of the Company’s TDRs modified during the years ended December 31, 2021, 2020, and 2019 related to interest rate reductions combined with extension of terms.

The Company does not generally grant principal forgiveness.

All loans classified as TDRs are considered to be impaired and are evaluated as such for determination of the allowance for loan losses.

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

1 unchanged sentence

The following table presents information related to loans modified in a TDR during the year ended December 31, 2021.

($ in thousands) For the year ended December 31, 2020

For the year ended December 31, 2021

($ in thousands, except number of contracts) Number of

Contracts Pre-

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Commercial, financial, and agricultural

2 $ 143 $ 143

Real estate – construction, land development & other land loans

5 unchanged sentences

Commercial, financial, and agricultural

5 1,438 1,435

Real estate – construction, land development & other land loans

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The following table presents information related to loans modified in a TDR during the year ended December 31, 2020.

($ in thousands) For the year ended December 31, 2019

For the year ended December 31, 2020

($ in thousands, except number of contracts) Number of

Contracts Pre-

2 unchanged sentences

Commercial, financial, and agricultural

2 $ 395 $ 395

Real estate – construction, land development & other land loans

9 unchanged sentences

Real estate – mortgage – commercial and other

5 5,977 5,977

Consumer loans — — —

2 unchanged sentences

The following table presents information related to loans modified in a TDR during the year ended December 31, 2019.

($ in thousands) For the year ended December 31, 2018

For the year ended December 31, 2019

($ in thousands, except number of contracts) Number of

Contracts Pre-

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

($ in thousands) For the Year Ended December 31, 2020 For the Year Ended December 31, 2019 For the Year Ended December 31, 2018

For the Year Ended December 31, 2021 For the Year Ended December 31, 2020 For the Year Ended December 31, 2019

($ in thousands) Number of

Contracts Recorded

10 unchanged sentences

— $ — 1 274 1 93

Concentration of Credit Risk

Most of the Company's business activity is with customers located within the markets where it has banking operations.

Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy within its markets.

Approximately 88 % of the Company's loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations.

Allowance for Credit Losses - Unfunded Loan Commitments

In addition to the ACL on loans, the Company maintains an allowance for lending-related commitments such as unfunded loan commitments and letters of credit.

Under CECL, the Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The allowance for lending-related commitments on off-balance sheet credit exposures is adjusted as a provision for credit loss expense.

The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans, and are discussed in Note 1.

The allowance for credit losses for unfunded loan commitments of $ 13.5 million and $ 0.6 million at December 31, 2021 and December 31, 2020, respectively, is separately classified on the balance sheet within the line items "Other Liabilities." The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the year ended December 31, 2021.

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

Beginning balance at December 31, 2020 $ 582

Adjustment for implementation of CECL on January 1, 2021 7,504

Charge-offs —

Day 2 provision for credit losses on unfunded commitments acquired from Select 3,982

Provision for credit losses on changes in unfunded commitments 1,438

Ending balance at December 31, 2021 $ 13,506

Allowance for Credit Losses - Securities Held to Maturity

As previously discussed, there was no ACL for securities HTM at December 31, 2021.

Premises and Equipment

8 unchanged sentences

Total premises and equipment $ 136,092 120,502

Depreciation expense amounted to $ 6.2 million, $ 5.8 million, and $ 5.8 million for the years ended December 31, 2021, 2020, and 2019, respectively, and is recorded in occupancy expense.

Goodwill and Other Intangible Assets

13 unchanged sentences

Goodwill $ 364,263 239,272

SBA servicing assets are recorded for the portions of SBA loans that the Company has sold but continue to service for a fee.

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

SBA servicing asset amortization expense is recorded within noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions, and fees." As derived from the table above, the Company had a SBA servicing asset at December 31, 2020 with a remaining book value of $ 5,788,000 .

The Company recorded $ 2,200,000 and $ 2,304,000 in servicing assets associated with the guaranteed portion of SBA loans sold during 2020 and 2019, respectively.

During 2020, 2019, and 2018, the Company recorded $ 1,795,000 , $ 1,340,000 , and $ 846,000 , respectively, in related amortization expense.

At December 31, 2020 and 2019, the Company serviced for others SBA loans totaling $ 395.4 million and $ 316.7 million, respectively.

In connection with the September 1, 2020 acquisition of a business financing company, the Company recorded goodwill of $ 4.9 million and $ 1.6 million in other amortizable intangible assets, each of which is deductible for tax purposes over 15 years.

See Note 2 for additional discussion of this acquisition.

Amortization expense of all other intangible assets, excluding the SBA servicing asset, totaled $ 3,956,000 , $ 4,858,000 and $ 5,917,000 for the years ended December 31, 2020, 2019 and 2018, respectively.

Goodwill is evaluated for impairment on at least an annual basis, with the annual evaluation occurring on October 31 of each year – see Note 1 for additional discussion.

The annual reviews in October 2018 and October 2019, which were primarily of a qualitative nature, indicated that none of the Company's goodwill was impaired.

The onset of the COVID-19 pandemic in March 2020 resulted in economic turmoil and market volatility that resulted in a substantial decrease in the Company's stock price and market capitalization.

Management believed such decreases were triggering indicators requiring indicating the need for interim analysis.

Accordingly, during each quarter of 2020, the Company reviewed its goodwill for impairment.

For the first and third quarters of 2020, the Company performed an interim step-one goodwill impairment quantitative analysis.

For the second quarter of 2020

and the annual fourth quarter 2020 review, management reviewed its goodwill for impairment primarily qualitatively by reviewing the factors and assumptions used in the analysis for the preceding quarter.

The conclusion of each 2020 review was that no ne of the Company's goodwill was impaired.

Customer lists are generally amortized over 5 years and core deposit intangibles are generally amortized over 10 years, both at an accelerated rate.

As discussed in Note 1, SBA servicing assets are recorded for the portions of SBA loans that the Company has sold but continues to service for a fee.

Servicing assets are initially recorded at fair value, amortized over the expected lives of the related loans, and are periodically tested for impairment.

SBA guarantee servicing fees and SBA servicing asset amortization expense are both recorded within noninterest income within the line item "Other service charges, commissions, and fees." As derived from the table above, the Company had a SBA servicing asset at December 31, 2021 with a remaining book value of $ 5.5 million.

The Company recorded $ 2.0 million and $ 2.2 million in servicing assets associated with the guaranteed portion of SBA loans sold during 2021 and 2020, respectively.

During 2021, 2020, and 2019, the Company recorded $ 3.9 million, $ 3.3 million, and $ 2.6 million, respectively, in SBA guarantee servicing fee income, and $ 2.3 million, $ 1.8 million, and $ 1.3 million, respectively, in related amortization expense.

At December 31, 2021 and 2020, the Company serviced SBA for others totaling $ 414.2 million and $ 395.4 million, respectively.

There were no other loans serviced for others in any year presented.

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

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

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

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

Each of the Company's goodwill impairment evaluations for the periods presented, including the most recent October 2021 evaluation, indicated that there was no goodwill impairment.

The following table presents the changes in carrying amounts of goodwill:

($ in thousands) Total Goodwill

Balance at December 31, 2019 $ 234,368

Additions from acquisition of Magnolia Financial 4,904

Balance at December 31, 2020 239,272

Additions from acquisition of Select 132,356

Reduction from disposal of First Bank Insurance Services, Inc.

Balance at December 31, 2021 $ 364,263

In addition to the changes in goodwill presented above, activity for other intangibles related to transactions since January 1, 2020 are presented as follows.

Refer to Note 2 for additional discussion of the transactions.

• In connection with the Select acquisition on October 15, 2021, the Company recorded $ 9.2 million in core deposit intangibles.

• Related to the sale of First Bank Insurance Services, Inc., customer lists with a carrying value of $ 2.8 million were derecognized.

• In connection with the acquisition of Magnolia Financial on September 1, 2020, the Company recorded $ 1.6 million in other amortizable intangible assets.

Amortization expense of all other intangible assets, excluding the SBA servicing asset, totaled $ 3.5 million, $ 4.0 million, and $ 4.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

The following table presents the estimated amortization expense schedule related to acquisition-related amortizable intangible assets for each of the five calendar years ending December 31, 2026 and the estimated amount amortizable thereafter.

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Deferred tax assets:

Allowance for loan losses

$ 12,031 4,916

Allowance for credit losses on loans $ 18,102 12,031

Allowance for credit losses on unfunded commitments 3,103 —

Excess book over tax pension plan cost

2 unchanged sentences

Accruals, book versus tax

Pension liability adjustments

Pension 81 418

Unrealized losses on securities available for sale 7,369 —

Foreclosed real estate

Basis differences in assets acquired in FDIC transactions

Purchase accounting adjustments 4,076 —

Equity compensation 694 661

Partnership investments

Leases 108 120

SBA servicing asset

6 unchanged sentences

Deferred tax liabilities:

( 1,011 ) ( 2,428 )

Loan fees ( 2,840 ) ( 1,011 )

Depreciable basis of fixed assets

3 unchanged sentences

FHLB stock dividends

( 236 ) ( 472 )

Trust preferred securities

( 453 ) ( 473 )

Purchase accounting adjustments

Unrealized gain on securities available for sale

( 4,699 ) ( 2,239 )

Gross deferred tax liabilities

( 19,411 ) ( 19,193 )

Net deferred tax liability - included in other liabilities

$ ( 450 ) ( 7,751 )

A portion of the annual change in the net deferred tax asset relates to unrealized gains and losses on securities available for sale.

The related 2020 and 2019 deferred tax expense (benefit) of approximately $ 2,460,000 and $ 5,135,000 respectively, has been recorded directly to shareholders’ equity.

Additionally, a portion of the annual change in the net deferred tax asset relates to pension adjustments.

The related 2020 and 2019 deferred tax expense (benefit) of $ 292,000 and $ 42,000 respectively, has been recorded directly to shareholders’ equity.

The balance of the 2020 increase in the net deferred tax liability of $ 10,054,000 is reflected as deferred income tax expense, and the balance of the 2019 increase in the net deferred tax liability of $ 1,811,000 is reflected as deferred income tax expense in the consolidated statement of income.

The valuation allowances for 2020 and 2019 relate primarily to state net operating loss carryforwards.

Net deferred tax asset (liability) - included in other assets (liabilities) $ 20,634 ( 450 )

The valuation allowances for 2021 and 2020 related primarily to state net operating loss carryforwards.

It is management’s belief that the realization of the remaining net deferred tax assets is more likely than not.

The Company adjusted its net deferred income tax asset as a result of reductions in the North Carolina income tax rate, which reduced the state income tax rate to 2.5 % effective January 1, 2019.

The Company had no significant uncertain tax positions, and thus no reserve for uncertain tax positions has been recorded.

4 unchanged sentences

There are no indications of any material adjustments relating to any examination currently being conducted by any taxing authority.

Retained earnings at December 31, 2020 and 2019 include approximately $ 6,869,000 representing pre-1988 tax bad debt reserve base year amounts for which no deferred income tax liability has been provided since these

reserves are not expected to reverse or may never reverse.

Retained earnings at December 31, 2021 and 2020 included approximately $ 6.9 million representing pre-1988 tax bad debt reserve base year amounts for which no deferred income tax liability has been provided since these reserves are not expected to reverse or may never reverse.

Circumstances that would require an accrual of a portion or all of this unrecorded tax liability are a reduction in qualifying loan levels relative to the end of 1987, failure to meet the definition of a bank, dividend payments in excess of accumulated tax earnings and profits, or other distributions in dissolution, liquidation or redemption of the Bank’s stock.

8 unchanged sentences

State income taxes, net of federal benefit 2,472 2,117 2,178

Nondeductible merger expenses 242 — —

Change in valuation allowance ( 10 ) ( 20 ) 4

2 unchanged sentences

Total $ 24,675 21,654 24,230

Time Deposits and Related Party Deposits

At December 31, 2021, the scheduled maturities of time deposits were as follows:

4 unchanged sentences

Deposit overdrafts of approximately $ 0.9 million and $ 0.5 million at December 31, 2021 and 2020 are included within "Loans" on the Consolidated Balance Sheets.

As of December 31, 2020 and 2019, the Company held $ 375.7 million and $ 442.2 million, respectively, in time deposits of $ 250,000 or more (which is the current FDIC insurance limit for insured deposits as of December 31, 2020).

Included in these deposits were brokered deposits of $ 20.2 million and $ 86.1 million at December 31, 2020 and 2019, respectively.

As of December 31, 2021 and 2020, the Company held $ 363.8 million and $ 375.7 million, respectively, in time deposits of more than $ 250,000 (which is the current FDIC insurance limit for insured deposits as of December 31, 2021).

Brokered deposits were $ 7.4 million and $ 20.2 million at December 31, 2021 and 2020, respectively.

Total reciprocal deposits through CDARS and ICS were $ 12.6 million and $ 6.8 million at December 31, 2021 and 2020, respectively.

Borrowings and Borrowings Availability

15 unchanged sentences

12/20/2028 None 342 0.50 %fixed

FHLB Principal Reducing Credit

12/20/2028 None 355 0.50% fixed

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

Trust Preferred Securities

13 unchanged sentences

3 month LIBOR + 2.00 %

Trust Preferred Securities

9/20/2034 Quarterly by Company

beginning 9/20/2009 12,372 2.27 % at 12/31/21

adjustable rate

3 month LIBOR + 2.15 %

Total borrowings / weighted average rate as of December 31, 2021 71,050 2.24 %

2 unchanged sentences

Description – 2020 Due date Call Feature 2020 Amount Interest Rate

FHLB Term Note

1/30/2020 None $ 100,000 1.70% fixed

FHLB Term Note

1/31/2020 None 68,000 1.70% fixed

FHLB Term Note

1/31/2020 None 30,000 1.70% fixed

FHLB Term Note

5/29/2020 None 40,000 1.62% fixed

FHLB Principal Reducing Credit

12 unchanged sentences

8/22/2028 None 174 1.00 % fixed

FHLB Principal Reducing Credit

12/20/2028 None 367 0.50% fixed

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

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

Trust Preferred Securities

1/23/2034 Quarterly by Company

beginning 1/23/2009 20,620 4.64% at 12/31/2019

adjustable rate

beginning 1/23/2009 20,620 2.91 % at 12/31/20 adjustable rate

3 month LIBOR + 2.70 %

13 unchanged sentences

All outstanding FHLB borrowings may be accelerated immediately by the FHLB in certain circumstances, including material adverse changes in the condition of the Company or if the Company’s qualifying collateral amounts to less than that required under the terms of the FHLB borrowing agreement.

In the above table for December 31, 2019, borrowings of $ 253.0 million at December 31, 2019 were considered short-term as their original maturity terms were for less than 3 months.

There were no short-term borrowings at December 31, 2020.

In the above table there were no short-term borrowings (original maturity terms of less than 3 months) at December 31, 2021 or December 31, 2020.

In the above tables, the $ 20.6 million in borrowings due on January 23, 2034 relate to borrowings structured as trust preferred capital securities that were issued by First Bancorp Capital Trusts II and III ($ 10.3 million by each trust), which are unconsolidated subsidiaries of the Company, on December 19, 2003 and qualify as capital for regulatory capital adequacy requirements.

7 unchanged sentences

and its subsidiary, Carolina Capital Trust, on March 3, 2017.

These unsecured debt securities qualify as capital for regulatory capital adequacy requirements and

became callable by the Company at par on any quarterly interest payment date beginning on January 7, 2010.

These unsecured debt securities qualify as capital for regulatory capital adequacy requirements and became callable by the Company at par on any quarterly interest payment date beginning on January 7, 2010.

The interest rate on these debt securities adjusts on a quarterly basis at a rate of three-month LIBOR plus 2.00 %.

At December 31, 2020, the Company had three sources of readily available borrowing capacity – 1) an approximately $ 1.02 billion line of credit with the FHLB, of which $ 8 million was outstanding at December 31, 2020 and $ 247 million was outstanding at December 31, 2019, 2) a $ 100 million federal funds line of credit with a correspondent bank, of which none was outstanding at December 31, 2020 or 2019, and 3) an approximately $ 134 million line of credit through the Federal Reserve Bank of Richmond’s (FRB) discount window, of which none was outstanding at December 31, 2020 or 2019.

The Company’s line of credit with the FHLB totaling approximately $ 1.02 billion can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity needs and is secured by the Company’s FHLB stock and a blanket lien on most of its real estate loan portfolio.

In the above tables, the $ 12.4 million in borrowings due on September 20, 2034 relate to borrowings structured as trust preferred capital securities that were issued by New Century Statutory Trust I, an unconsolidated subsidiary of the Company.

The Company acquired Select Bancorp, Inc.

and its subsidiary, New Century Statutory Trust I, on

October 15, 2021.

The interest rate on these debt securities adjusts on a quarterly basis at a rate of three-month LIBOR plus 2.15 %.

At December 31, 2021, the Company had three sources of readily available borrowing capacity – 1) an approximately $ 866 million line of credit with the FHLB, of which $ 2 million was outstanding at December 31, 2021 and $ 8 million was outstanding at December 31, 2020, 2) a $ 100 million federal funds line of credit with a correspondent bank, of which none was outstanding at December 31, 2021 or 2020, and 3) an approximately $ 138 million line of credit through the Federal Reserve discount window, of which none was outstanding at December 31, 2021 or 2020.

The Company’s line of credit with the FHLB totaling approximately $ 866 million can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity needs and is secured by the Company’s FHLB stock and a blanket lien on most of its real estate loan portfolio.

The Company’s correspondent bank relationship allows the Company to purchase up to $ 100 million in federal funds on an overnight, unsecured basis (federal funds purchased).

The Company had no borrowings outstanding under this line at December 31, 2021 or 2020.

The Company has a line of credit with the FRB discount window.

The Company has a line of credit with the Federal Reserve discount window.

This line is secured by a blanket lien on a portion of the Company’s commercial and consumer loan portfolio (excluding real estate).

2 unchanged sentences

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

As of December 31, 2020, the Company leased nine branch offices for which the land and buildings are leased and eight branch offices for which the land is leased but the building is owned.

As of December 31, 2021, the Company leased 17 branch offices for which the land and buildings are leased and 10 branch offices for which the land is leased but the building is owned.

The Company also leases office space for several operational departments.

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

All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from March 2022 through May 2076, some of which include options for multiple five - and ten-year extensions.

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

The weighted average remaining life of the lease term for these leases was 19.4 years as of December 31, 2021.

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

Certain of the Company's lease agreements include variable lease payments based on changes in inflation, with the impact of that factor being insignificant to the Company's total lease expense.

As permitted by applicable accounting standards, the Company has elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's Consolidated Balance Sheets.

The short-term lease cost for each period presented was insignificant.

Leases are classified as either operating or finance leases at the lease commencement date, and as previously noted, all of the Company's leases have been determined to be operating leases.

5 unchanged sentences

The right-of-use assets and lease liabilities were $ 20.7 million and $ 21.2 million as of December 31, 2021, respectively, and were $ 17.5 million and $ 17.9 million as of December 31, 2020, respectively.

Prior to 2019, the accounting standards did not require assets or liabilities to be recorded for operating leases.

Total operating lease expense charged to operations under all operating lease agreements was $ 2.6 million in 2021, $ 2.9 million in 2020, and $ 2.6 million in 2019.

17 unchanged sentences

Pension Plan .

Historically, the Company offered a noncontributory defined benefit retirement plan (the “Pension Plan”) that qualified under Section 401(a) of the Internal Revenue Code.

Historically, the Company offered a noncontributory defined benefit retirement plan (the “Pension Plan”) that qualified under Section 401(a) of the IRC.

The Pension Plan provided for a monthly payment, at normal retirement age of 65, equal to one-twelfth of the sum of (i) 0.75 % of Final Average Annual Compensation ( five highest consecutive calendar years’ earnings out of the last ten years of employment) multiplied by the employee’s years of service not in excess of 40 years, and (ii) 0.65 % of Final Average Annual Compensation in excess of the average social security wage base multiplied by years of service not in excess of 35 years.

11 unchanged sentences

Interest cost 981 1,223 1,482

Actuarial loss (gain) 3,788 5,492 ( 1,160 )

Actuarial (gain) loss ( 2,041 ) 3,788 5,492

Benefits paid ( 2,033 ) ( 1,853 ) ( 1,736 )

7 unchanged sentences

Funded status at end of year $ 3,247 3,417 2,232

The accumulated benefit obligation related to the Pension Plan was $ 44,750,000 , $ 41,592,000 , and $ 36,354,000 at December 31, 2020, 2019, and 2018, respectively.

The accumulated benefit obligation related to the Pension Plan was $ 41.7 million, $ 44.8 million, and $ 41.6 million at December 31, 2021, 2020, and 2019, respectively.

The following table presents information regarding the amounts recognized in the Consolidated Balance Sheets at December 31, 2021 and 2020 as it relates to the Pension Plan, excluding the related deferred tax assets.

12 unchanged sentences

$ ( 1,364 ) ( 2,866 )

Net gain (loss) arising during period 1,107 ( 664 )

Net (loss) gain arising during period ( 247 ) 1,107

Amortization of unrecognized actuarial loss

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Net periodic pension cost $ 499 766 897

The estimated net loss for the Pension Plan that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $ 590,000 .

The following table is an estimate of the benefits that will be paid in accordance with the Pension Plan during the indicated time periods, assuming the Pension Plan is operated on an ongoing basis.

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The Plan seeks to allocate plan assets in a manner that is closely duration-matched with the actuarial projected cash flows of the Plan liabilities, consistent with prudent standards for preservation of capital, tolerance of investment risk, and maintenance of liquidity.

Assets of the Plan are held by Fidelity Investments (the “Trustee”).

In 2018, the Plan adopted a liability-driven investment (“LDI”) approach to help meet these objectives.

The LDI strategy employs a structured fixed-income portfolio designed to reduce volatility in the Plan’s future funding requirements and funding status.

Assets of the Plan are held by Fidelity Investments as Trustee.

In 2018, the Pension Plan adopted a liability-driven investment strategy to help meet these objectives.

This strategy employs a structured fixed-income portfolio designed to reduce volatility in the Plan’s future funding requirements and funding status.

This is accomplished by using a blend of high quality corporate and government fixed-income securities, with both intermediate and long-term durations.

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The purpose of the SERP was to provide additional monthly pension benefits to ensure that each such senior management executive would receive lifetime monthly pension benefits equal to 3 % of his or her final average compensation multiplied by his or her years of service (maximum of 20 years) to the Company or its subsidiaries, subject to a maximum of 60 % of his or her final average compensation.

The amount of a participant’s monthly SERP benefit is reduced by (i) the amount payable under the Company’s qualified Pension Plan (described above), and (ii) 50 % of the participant’s primary social security benefit.

The amount of a participant’s monthly SERP benefit is reduced by (i) the amount payable under the Company’s Pension Plan (described above), and (ii) 50 % of the participant’s primary social security benefit.

Final average compensation means the average of the five highest consecutive calendar years of earnings during the last ten years of service prior to termination of employment.

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Funded status at end of year $ ( 4,660 ) ( 5,982 ) ( 5,638 )

The accumulated benefit obligation related to the SERP was $ 5,982,000 , $ 5,638,000 , and $ 5,794,000 at December 31, 2020, 2019, and 2018, respectively.

The accumulated benefit obligation related to the SERP was $ 4.7 million, $ 6.0 million, and $ 5.6 million at December 31, 2021, 2020, and 2019, respectively.

The following table presents information regarding the amounts recognized in the Consolidated Balance Sheets at December 31, 2021 and 2020 as it relates to the SERP, excluding the related deferred tax assets.

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($ in thousands) 2021 2020

Net (loss) gain $ ( 46 ) 629

Net gain (loss) $ 1,088 ( 46 )

Prior service cost — —

Amount recognized in AOCI before tax effect 1,088 ( 46 )

Tax expense 11 ( 145 )

Tax (expense) benefit ( 250 ) 11

Net amount recognized as (decrease) increase to AOCI $ 838 ( 35 )

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Accumulated other comprehensive income (loss) at beginning of fiscal year $ ( 35 ) 484

Net (loss) gain arising during period ( 517 ) ( 22 )

Net gain (loss) arising during period 1,119 ( 517 )

Prior service cost — —

Amortization of unrecognized actuarial gain ( 157 ) ( 163 )

Amortization of unrecognized actuarial (loss) gain 15 ( 157 )

Amortization of prior service cost and transition obligation — —

Tax expense related to changes during the year, net 155 45

Tax (expense) benefit related to changes during the year, net ( 261 ) 155

Accumulated other comprehensive income (loss) at end of fiscal year $ 838 ( 35 )

11 unchanged sentences

Net periodic pension cost $ 134 1 56

The estimated net loss for the SERP that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $ 15,000 .

The following table is an estimate of the benefits that will be paid in accordance with the SERP during the indicated time periods:

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The discount rate policy for the SERP is to use the FTSE yield curve that matches the expected cash flows of the SERP.

Commitments, Contingencies, and Concentrations of Credit Risk

Commitments and Contingencies

See Note 10 with respect to future obligations under operating leases.

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The following table presents the Company’s outstanding loan commitments at December 31, 2021 and December 31, 2020.

($ in thousands) December 31, 2020 December 31, 2019

Type of Commitment Fixed Rate Variable Rate Total Fixed Rate Variable Rate Total

December 31, 2021 December 31, 2020

($ in thousands) Fixed Rate Variable Rate Total Fixed Rate Variable Rate Total

Loan commitments

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The standby letters of credit are generally for terms for one year, at which time they may be renewed for another year if both parties agree.

The payment of the guarantees would generally be triggered by a continued nonpayment of an obligation owed by the customer to the supplier.

The maximum potential amount of future payments (undiscounted) the Company could be required to make under the guarantees in the event of nonperformance by the parties to whom credit or financial guarantees have been extended is represented by the contractual amount of the standby letter of credit.

In the event that the Company is required to honor a standby letter of credit, a note, already executed with the customer, is triggered which provides repayment terms and any collateral.

Over the past two years, the Company has only had to honor a minimal amount of standby letters of credit, which have been or are being repaid by the borrower without any loss to the Company.

Management expects any draws under existing commitments to be funded through normal operations.

The Company is not involved in any legal proceedings which, in management’s opinion, could have a material effect on the consolidated financial position of the Company.

The Bank grants primarily commercial and installment loans to customers throughout its market area, which consists of branch locations in 36 counties across all regions of North Carolina and three counties in northeastern South Carolina.

The real estate loan portfolio can be affected by the condition of the local real estate market.

The commercial and installment loan portfolios can be affected by local economic conditions.

The Company’s loan portfolio is not concentrated in loans to any single borrower or to a relatively small number of borrowers.

Additionally, management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.

In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries and geographic regions, the Company monitors exposure to credit risk that could arise from potential concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g.

principal deferral periods, loans with initial interest-only periods, etc.), and loans with high loan-to-value ratios.

Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course of a loan’s life.

For example, the Bank makes variable rate loans and fixed rate principal-amortizing loans with maturities prior to the loan being fully paid (i.e.

balloon payment loans).

These loans are underwritten and monitored to manage the associated risks.

The Company has determined that there is no concentration of credit risk associated with its lending policies or practices.

The Company’s investment portfolio consists principally of obligations of government-sponsored enterprises, mortgage-backed securities guaranteed by government-sponsored enterprises, corporate bonds, and general obligation municipal securities.

The Company also holds stock with the Federal Reserve Bank and the Federal Home Loan Bank as a requirement for membership in the system.

The following are the fair values at December 31, 2020 of securities to any one issuer/guarantor that exceed $ 5.0 million, with such amounts representing the maximum amount of credit risk that the Company would incur if the issuer did not repay the obligation.

( $ in thousands )

Amortized Cost Fair Value

Fannie Mae – mortgage-backed securities $ 571,245 585,035

Freddie Mac – mortgage-backed securities 549,811 552,830

Ginnie Mae – mortgage-backed securities 234,780 237,159

Federal Farm Credit Bank – bonds 40,015 40,356

Federal Home Loan Bank system - bonds 30,000 29,850

Small Business Administration securities 22,150 22,436

Federal Reserve Bank - common stock 17,671 17,671

First Citizens Bank – corporate bonds 11,000 10,999

Bank of America corporate bonds 7,000 7,409

Citigroup, Inc.

corporate bonds 6,014 6,346

Federal Home Loan Bank of Atlanta - common stock 5,855 5,855

Loudoun County, Virginia - municipal bond 5,599 5,735

Goldman Sachs Group Inc.

corporate bond 5,037 5,319

JP Morgan Chase corporate bond 5,009 5,294

The Company also periodically invests in limited partnerships, limited liability companies (“LLCs”), and other privately held companies.

The Company maintains an ACL for unfunded loan commitments which is included in the balance of other liabilities in the Consolidated Balance Sheets.

The ACL for unfunded loan commitments is determined as part of the quarterly ACL analysis.

See Note 1 for further detail.

The Company also periodically invests in limited partnerships and LLCs primarily for the purposes of fulfilling CRA requirements and obtaining tax credits.

As of December 31, 2021, the Company had a remaining funding commitments of $ 27.4 million related to these investments.

The Company primarily places its deposits and correspondent accounts with the Federal Home Loan Bank of Atlanta, the Federal Reserve Bank, and Pacific Coast Bankers Bank (“PCBB”).

At December 31, 2020, the Company had deposits in the Federal Home Loan Bank of Atlanta totaling $ 42.6 million, deposits of $ 230.7 million in the Federal Reserve Bank, and deposits of $ 2.8 million in PCBB.

None of the deposits held at the Federal Home Loan Bank of Atlanta or the Federal Reserve Bank are FDIC-insured, however the Federal Reserve Bank is a government entity and therefore risk of loss is minimal.

The deposits held at PCBB are FDIC-insured up to $ 250,000 .

The Company, in the normal course of business, may be subject to various pending and threatened lawsuits in which claims for monetary damages are asserted.

The Company is not involved in any legal proceedings which, in management’s opinion, could have a material effect on the consolidated financial position of the Company.

Fair Value of Financial Instruments

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Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active;

Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data.

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

($ in thousands)

Description of Financial Instruments Fair Value at December 31,

Description of Financial Instruments ($ in thousands)

Fair Value at December 31,

2021 Quoted Prices in

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Presold mortgages in process of settlement $ 19,257 19,257 — —

Impaired loans

$ 22,142 — — 22,142

Individually evaluated loans $ 11,583 — — 11,583

Foreclosed real estate

1,484 — — 1,484

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

($ in thousands)

Description of Financial Instruments Fair Value at December 31,

Description of Financial Instruments ($ in thousands)

Fair Value at December 31,

2020 Quoted Prices in

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Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

For the Company, Level 2 securities include mortgage-backed securities, commercial mortgage-backed obligations, government-sponsored enterprise securities, and corporate

For the Company, Level 2 securities include mortgage-backed securities, commercial mortgage-backed obligations, government-sponsored enterprise securities, and corporate bonds.

In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

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

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

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

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

The vast majority of the collateral is real estate.

The value of real estate collateral is determined using an income or market valuation approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3).

The value of real estate collateral is generally determined by third-party appraisers using an income or market valuation approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3).

The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower’s financial statements if not considered significant.

Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3).

Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

Appraisals used in this analysis are generally obtained at least annually based on when the loans first became impaired, and thus the appraisals are not necessarily as of the period ends presented.

Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income.

Foreclosed real estate – Foreclosed real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value.

Fair value is measured on a non-recurring basis and is based upon independent market prices or current appraisals that are generally prepared using an income or market valuation approach and conducted by an independent, licensed third party appraiser, adjusted for estimated selling costs (Level 3).

Appraisals used in this analysis are generally obtained at least annually based on when the assets were acquired, and thus the appraisals are not necessarily as of the period ends presented.

At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses.

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

($ in thousands)

Description Fair Value at December 31,

($ in thousands) Fair Value at December 31,

2021 Valuation

1 unchanged sentence

Inputs Range (Weighted Average)

Impaired loans - valued at collateral value $ 16,000 Appraised value Discounts applied for estimated costs to sell 10 %

Impaired loans - valued at PV of expected cash flows $ 6,142 PV of expected cash flows Discount rates used in the calculation of PV of expected cash flows 4-11% (6.21%)

Individually evaluated loans - collateral-dependent $ 7,326 Appraised value Discounts applied for estimated costs to sell 10 %

Individually evaluated loans - cash-flow dependent 4,257 PV of expected cash flows Discount rates used in the calculation of PV of expected cash flows 4 % - 11 % ( 6.22 %)

Foreclosed real estate 364 Appraised value Discounts for estimated costs to sell 10 %

For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands)

Description Fair Value at December 31,

($ in thousands) Fair Value at December 31,

2020 Valuation

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Level 2 513,825 511,699 167,551 170,734

SBA loans held for sale Level 2 6,077 7,465 — —

Loans held for sale Level 2 61,003 62,044 6,077 7,465

Total loans, net of allowance

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Level 2 607 607 904 904

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.

These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.

Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.

These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.

Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.

Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as deferred income taxes, prepaid expense accounts, income taxes currently payable, and other various accrued expenses.

In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Stock-Based Compensation

The Company recorded total stock-based compensation expense of $ 2,540,000 , $ 2,270,000 and $ 1,569,000 for the years ended December 31, 2020, 2019, and 2018, respectively.

The Company recognized $ 584,000 , $ 522,000 , and $ 367,000 of income tax benefits related to stock-based compensation expense in the income statement for the years ended December 31, 2020, 2019, and 2018, respectively.

The Company recorded total stock-based compensation expense of $ 2.3 million, $ 2.5 million, and $ 2.3 million for the years ended December 31, 2021, 2020, and 2019, respectively.

The Company recognized $ 0.5 million, $ 0.6 million, and $ 0.5 million of income tax benefits related to stock-based compensation expense in its income statement for the years ended December 31, 2021, 2020, and 2019, respectively.

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

As of December 31, 2021, the Equity Plan had 445,231 shares remaining available for grant.

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

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

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

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

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

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

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

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

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

In addition to employee equity awards, the Company's practice is to grant common shares, valued at approximately $ 32,000 , to each non-employee director (currently 11 in total) in June of each year.

In addition to employee equity awards, the Company's practice is to grant unrestricted common shares, valued at approximately $ 32,000 , to each non-employee director (currently 13 in total) in June of each year.

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

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

On June 1, 2019, the Company granted 9,030 shares of common stock to non-employee directors ( 903 shares per director), at a fair market value of $ 35.41 per share, which was the closing price of the Company’s common stock on that date, which resulted in $ 320,000 in expense.

On June 1, 2021, the Company granted 7,050 shares of common stock to non-employee directors ( 705 shares per director), at a fair market value of $ 45.41 per share, which was the closing price of the Company’s common stock on that date, which resulted in $ 0.3 million in expense.

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

15 unchanged sentences

Nonvested at December 31, 2021 206,331 $ 35.25

Total unrecognized compensation expense as of December 31, 2020 amounted to $ 2,554,000 with a weighted average remaining term of 1.8 years.

The Company expects to record $ 1,577,000 of compensation expense in the next twelve months related to these nonvested awards that are outstanding at December 31, 2020.

Total unrecognized compensation expense as of December 31, 2021 amounted to $ 4.3 million with a weighted average remaining term of 2.4 years.

The Company expects to record $ 2.0 million of compensation expense in the next twelve months related to these nonvested awards that are outstanding at December 31, 2021.

Prior to 2010, stock options were the primary form of stock-based compensation utilized by the Company.

At December 31, 2019, 2020, and 2021, there were no stock options outstanding.

The following table presents information regarding the activity since January 1, 2018 related to all of the Company’s stock options outstanding:

Options Outstanding

Shares Weighted-

Price Weighted-

Term (years) Aggregate

Balance at January 1, 2018 38,689 $ 16.09

Exercised ( 29,689 ) 16.61 $ 659,743

Forfeited — —

Balance at December 31, 2018 9,000 $ 14.35

Exercised ( 9,000 ) 14.35 $ 203,963

Forfeited — —

Balance at December 31, 2019 — $ —

Exercised — — $ —

Forfeited — —

Outstanding at December 31, 2020 — $ — — $ —

Exercisable at December 31, 2020 — $ — — $ —

In 2019 and 2018, the Company received $ 129,000 and $ 324,000 , respectively, as a result of stock option exercises.

In 2019, the Company received $ 0.1 million as a result of stock option exercises, as 9,000 shares of stock options were exercised with a weighted average exercise price of $ 14.35 .

Regulatory Restrictions

The Company is regulated by the Board of Governors of the Federal Reserve and is subject to securities registration and public reporting regulations of the Securities and Exchange Commission.

The Company is regulated by the Federal Reserve and is subject to securities registration and public reporting regulations of the Securities and Exchange Commission.

The Bank is regulated by the Federal Reserve and the North Carolina Commissioner of Banks.

The primary source of funds for the payment of dividends by the Company is dividends received from its subsidiary, the Bank.

The Bank, as a North Carolina banking corporation, may declare dividends so long as such dividends do not reduce its capital below its applicable required capital (typically, the level of capital required to be deemed “adequately capitalized.”) As of December 31, 2020, approximately $ 590,672,000 of the Company’s investment in the Bank is restricted as to transfer to the Company without obtaining prior regulatory approval.

The average reserve balance maintained by the Bank under the requirements of the FRB was approximately $ 1,099,000 for the year ended December 31, 2020.

As of December 31, 2021, approximately $ 894.4 million of the Company’s investment in the Bank is restricted as to transfer to the Company without obtaining prior regulatory approval.

There was no average reserve balance requirement under the requirements of the Federal Reserve for the year ended December 31, 2021.

The Company and the Bank must comply with regulatory capital requirements established by the FRB.

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The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

In 2013, the FRB approved final rules implementing the Basel Committee on Banking Supervision capital guidelines, referred to a “Basel III.” The final rules established a new “Common Equity Tier I” ratio;

capital ratio requirements, including a capital conservation buffer;

narrowed the definitions of capital;

imposed new operating restrictions on banking organizations with insufficient capital buffers;

and increased the risk weighting of certain assets.

The final rules became effective January 1, 2015 for the Company.

The capital conservation buffer requirement was phased in beginning January 1, 2016, at 0.625% of risk weighted assets, and increased each year until fully implemented at 2.5% in January 1, 2019.

The capital conservation buffer requirement at December 31, 2020 was 2.5%.

As of December 31, 2020, the capital standards require the Company to maintain minimum ratios of “Common Equity Tier I” capital to total risk-weighted assets, “Tier I” capital to total risk-weighted assets, and total capital to risk-weighted assets of 4.50%, 6.00% and 8.00%, respectively.

Common Equity Tier I capital 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 Common Equity Tier I 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 is our allowance for loan losses.

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

In addition to the risk-based capital requirements described above, the Company and the Bank are subject to a leverage capital requirement, which calls for a minimum ratio of Tier I capital (as defined above) to quarterly average total assets of 3.00% to 5.00%, depending upon the institution’s composite ratings as determined by its regulators.

The Federal Reserve has not advised the Company of any requirement specifically applicable to it.

In addition to the minimum capital requirements described above, the regulatory framework for prompt corrective action also contains specific capital guidelines applicable to banks for classification as “well capitalized,” which are presented with the minimum ratios, the Company’s ratios and the Bank’s ratios as of December 31, 2020 and 2019 in the following table.

Based on the most recent notification from its regulators, the Bank is well capitalized under the framework.

There are no conditions or events since that notification that management believes have changed the Company’s classification.

The Company’s and the Bank’s respective regulatory capital ratios as of December 31, 2021 and 2020, along with the minimum amounts required for capital adequacy purposes and to be well capitalized under prompt corrective action in effect at such times are presented below.

There are no conditions or events since year-end that management believes have changed the Company’s or the Bank's classification.

Actual Fully Phased-In Regulatory

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Other service charges, commissions, and fees – interchange fees, net $ 18,480 14,142 13,814

Other operating expenses – dues and subscriptions (includes software subscriptions)

4,764 4,250 3,431

Other operating expenses – software costs 5,133 5,035 4,326

Other operating expenses – data processing expense

3,619 2,904 2,787

Other operating expenses – credit card rewards expense 3,431 2,391 1,903

Other operating expenses – telephone and data line expense

3,026 2,893 3,057

Other operating expenses – marketing

1,960 2,727 3,065

Condensed Parent Company Information

Condensed financial data for First Bancorp (parent company only) follows:

Condensed financial data for the Company (parent company only) follows:

CONDENSED BALANCE SHEETS As of December 31,

26 unchanged sentences

$ 95,644 81,477 92,046

$ 81,477 92,046 89,289

CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31,

7 unchanged sentences

23,012 66,381 20,705

Investing Activities:

Net cash received in acquisitions 7,379 — —

Total - investing activities

Financing Activities:

13 unchanged sentences

Shareholders’ Equity

Rabbi Trust Obligation

With the acquisition of Carolina Bank in March 2017, the Company assumed a deferred compensation plan for certain members of Carolina Bank’s board of directors that is fully funded by Company stock, which was valued at $ 7.7 million on the date of acquisition.

Subsequent to the acquisition in 2017, approximately $ 5.5 million of the deferred compensation has been paid to the plan participants.

Rabbi Trust Obligations

With the acquisition of Carolina Bank in March 2017, the Company assumed a deferred compensation plan structured as a Rabbi Trust for certain members of Carolina Bank’s board of directors that is fully funded by Company common stock, which was valued at $ 7.7 million on the date of acquisition.

Subsequent to this acquisition, approximately $ 5.9 million of the deferred compensation has been paid to the plan participants.

The balances of the related asset and liability were each $ 1.8 million and $ 2.2 million at December 31, 2021 and December 31, 2020, respectively, both of which are presented as components of shareholders’ equity.

Equity Issuances

On May 5, 2016, the Company acquired SBA Complete, Inc.

(“SBA Complete”), a firm that provides services to financial institutions across the country related to Small Business Administration (“SBA”) loan origination and servicing.

Per the terms of the acquisition agreement, the former owners of SBA Complete were eligible for a contingent earn-out payment to be paid in shares of Company stock based on achieving predetermined profitability goals over a cumulative three year period.

The Company initially valued the earn-out at $ 3.0 million and adjusted the value quarterly thereafter based on updated estimates.

On May 5, 2019, the three year earn-out period concluded, and based on the terms of the earn-out, the Company issued 78,353 shares of common stock with a value of $ 3.1 million, which increased shareholders' equity and decreased a previously recorded liability.

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

The transaction value was approximately $ 10.0 million with the Company paying $ 9.5 million in cash and issuing 24,096 shares of its common stock, which had a value of approximately $ 0.5 million.

In the acquisition of Select on October 15, 2021, the Company assumed a deferred compensation plan structured as a Rabbi Trust for certain members of Select’s board of directors that is fully funded by Company common stock, which was valued at $ 5.1 million on the date of acquisition.

This plan was fully liquidated during the fourth quarter of 2021 by distributing the shares to the participants.

Stock Repurchases

During 2021, the Company repurchased approximately 106,744 shares of the Company’s common stock at an average price of $ 37.81 , which totaled $ 4.0 million, under a $ 20 million repurchase authorization publicly announced in November 2020, which expired on December 31, 2021.

During 2020, the Company repurchased approximately 1,117,208 shares of the Company’s common stock at an average price of $ 28.53 , which totaled $ 31.9 million, under a $ 40 million repurchase authorization publicly announced in November 2019.

During 2019, the Company repurchased approximately 282,000 shares of the Company’s common stock at an average price of $ 35.51 , which totaled $ 10 million, under a $ 25 million repurchase authorization publicly announced in February 2019.

As of December 31, 2020, the Board of Directors has authorized a continuation of its share repurchase program with a maximum repurchase amount of $ 20 million and an expiration date of December 31, 2021.

See Note 22 for disclosure of a share repurchase program authorized in 2022.

Earnings Per Share

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

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

For Years Ended December 31,

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Accumulated Other Comprehensive Income (Loss)

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

The components of AOCI for the Company are as follows:

($ in thousands) December 31,

14 unchanged sentences

$ ( 24,970 ) 14,350 5,123

The following table discloses the changes in accumulated other comprehensive income (loss) for the years ended December 31, 2020, 2019, and 2018 (all amounts are net of tax).

The following table discloses the changes in AOCI for the years ended December 31, 2021, 2020, and 2019 (all amounts are net of tax).

($ in thousands) Unrealized Gain

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Amounts reclassified from accumulated other comprehensive income

( 75 ) 614 539

Net current-period other comprehensive income (loss) 16,998 86 17,084

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Net current-period other comprehensive income (loss) 8,245 982 9,227

Ending balance at Ending balance at December 31, 2019 7,504 ( 2,381 ) 5,123

Ending balance at at December 31, 2020 15,749 ( 1,399 ) 14,350

Other comprehensive income (loss) before reclassifications

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Ending balance at December 31, 2021 $ ( 24,698 ) ( 272 ) ( 24,970 )

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

Amounts reclassified from accumulated other comprehensive income for Postretirement Plans Asset (Liability) represent amortization of amounts included in Accumulated Other Comprehensive Income, net of taxes, and are recorded in the "Other operating expenses" line item of the Consolidated Statements of Income.

Amounts reclassified from AOCI for Unrealized Gain (Loss) on Securities AFS represent realized securities gains or losses, net of tax effects.

Amounts reclassified from AOCI for Postretirement Plans Asset (Liability) represent amortization of amounts included in AOCI, net of taxes, and are recorded in the "Other operating expenses" line item of the Consolidated Statements of Income.

Revenue from Contracts with Customers

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Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month, representing the period over which the Company satisfies the performance obligation.

Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request.

Transaction-based fees, which include services such as automated teller machine usage fees, stop payment charges, statement rendering, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request.

Service charges on deposits are withdrawn from the customer’s account balance.

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Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Interchange expenses were presented on a gross basis prior to the adoption of ASC 606 and are presented on a net basis.

The 2018 income for this item was originally reported on a gross basis, but is presented net of $ 2.6 million in interchange expenses in these financial statements.

Interchange fees are offset with interchange expenses and are presented on a net basis.

Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, ATM surcharge fees, and other services.

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Commissions from the sale of insurance and financial products:

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

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

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

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

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

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

The Company earns commissions from the sale of wealth management products and also earned commissions from the sale of insurance policies until the sale of First Bank Insurance Services on June 30, 2021.

Wealth management income primarily consists of commissions received on financial product sales, such as annuities.

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

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

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

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

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

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

See Note 2 regarding the Company's sale of First Bank Insurance Services, Inc.

SBA Consulting fees:

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

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

Accordingly, the Company recorded deferred revenue for approximately one-half of the fees received, which amounted to $ 1.6 million.

During 2020, the Company realized approximately $ 0.2 million of this deferred revenue related to fulfilling a portion of the forgiveness services.

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

Accordingly, the Company recorded deferred revenue for in these cases, which amounted to $ 1.6 million.

During 2021 and 2020, the Company realized approximately $ 1.3 million and $ 0.2 million, respectively, of this deferred revenue related to fulfilling a portion of the forgiveness services.

At December 31, 2021, the remaining amount of deferred revenue was $ 0.1 million.

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The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from the above-described contracts with customers.

Subsequent Events

On February 7, 2022, the Company announced an increase in its quarterly dividend rate to $ 0.22 per share, from the prior rate of $ 0.20 per share, and the authorization of a share repurchase program, pursuant to which the Company may purchase shares of its common stock for an aggregate repurchase price not to exceed $ 40 million.

This program has an initial expiration date of December 31, 2022 and does not obligate the Company to purchase any shares.

The Consolidated Balance Sheet at December 31, 2021 included $ 61.0 million in SBA and other loans held for sale.

Approximately $ 9.6 million of these loans were SBA loans that were sold in the ordinary course of business subsequent to December 31, 2021.

The remaining $ 51.4 million were comprised of Select loans that did not align with the Company's strategy or were out-of-market and were thus designated for sale.

Subsequent to December 31, 2021, these loans were sold at a price that approximated the December 31, 2021 carrying value.

Report of Independent Registered Public Accounting Firm

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of First Bancorp and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 26, 2021 expressed an unqualified opinion thereon.

We have audited the accompanying consolidated balance sheets of First Bancorp (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses

As described in Notes 1 and 4 to the Company's consolidated financial statements, the Company had a gross loan portfolio of approximately $4.7 billion and related allowance for loan losses of approximately $52.4 million as of December 31, 2020.

The allowance for loan losses includes a reserve for loans collectively evaluated for impairment of approximately $45.7 million and loans individually evaluated for impairment of approximately $6.7

In calculating the collectively evaluated component of the allowance for loan losses, management considers both quantitative and qualitative loss factors.

The evaluation of the qualitative loss factors involves subjective estimates and assumptions, which require a high degree of management’s judgment.

These estimates and assumptions are affected by changes in loan volume, evaluation of the loan portfolio, current economic conditions (including the impact of COVID-19), historical loan loss experience and other risk factors.

We identified management’s evaluation of the qualitative loss factors within the collectively evaluated component of the allowance for loan losses as a critical audit matter.

Management’s assessment of the qualitative loss factors for collectively evaluated loans requires significant judgments related to current economic conditions, specifically local, state, and national economic outlooks (including the impact of COVID-19), trends in loan volume, mix and size of loans, levels and trends of delinquencies, industry concentrations, changes in property values, and credit administration practices.

Auditing these judgments and assumptions involved especially challenging auditor judgment due to the nature and extent of effort required, including the extent of specialized skill or knowledge needed.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses

As described in Notes 1 and 4 to the Company's consolidated financial statements, the Company had a gross loan portfolio of approximately $6.1 billion and related allowance for credit losses of approximately $78.8 million as of December 31, 2021.

The allowance for credit losses consists of quantitative and qualitative components.

The Company considers historical loss experience, current economic and business conditions, as well as reasonable and supportable forecasts to develop the quantitative component.

This quantitative component is then adjusted for

qualitative risk factors that involve significant estimates and subjective assumptions that require a high degree of management’s judgment.

We identified management’s significant judgments and assumptions used in the determination of the qualitative factors and the selection of the relevant macroeconomic forecasts to be used in the reasonable and supportable forecast period of the allowance for credit losses as a critical audit matter.

Auditing these complex judgments and assumptions involved especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill and knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of internal controls over management’s review of the qualitative risk factors, and the resulting reserve for loans collectively evaluated for impairment, including controls related to:

(i) the accuracy of data inputs used in the determination of adjustments made to the qualitative loss factors, and (ii) management’s review of the conclusions reached related to the qualitative loss factors and the resulting allocation to the allowance.

• Assessing the reasonableness of management’s assumptions related to current economic conditions (including the impact of COVID-19), evaluation of the loan portfolio and other risk factors used in identifying the qualitative risk factors for collectively evaluated loans and determining whether such assumptions were relevant, reliable, and reasonable for the purpose used.

• Evaluating the reasonableness of assumptions and data used by management in developing the qualitative factors by comparing these data points to internally developed and third-party sources, and other audit evidence gathered.

• Testing the design and operating effectiveness of internal controls over management’s review of qualitative factors, including controls related to the accuracy of data inputs used in the determination of adjustments made to the qualitative factors, and

• Assessing the reasonableness of management’s significant judgments and assumptions related to evaluation of the loan portfolio and other qualitative factors for collectively evaluated loans.

• Evaluating the relevance and reliability of data used in determining the qualitative factors by verifying the data to internally developed and third-party sources, and other audit evidence gathered.

• Utilizing personnel with specialized skill and knowledge to assist with evaluating the reasonableness of the macroeconomic forecasts used in the reasonable and supportable forecast period.

Acquisition of Select Bancorp, Inc.

As described in Note 2 to the Company’s consolidated financial statements, the Company completed its acquisition of Select Bancorp, Inc.

for a total purchase consideration of $325.8 million, with total assets acquired of $1.8 billion, liabilities assumed of $1.6 billion and resulting goodwill of $132.4 million on October 15, 2021.

Determination of the acquisition date fair values of the assets acquired and liabilities assumed requires the Company to make significant estimates and assumptions.

The fair value determination of a loan portfolio requires greater levels of estimates and assumptions than the remainder of purchased assets or assumed liabilities.

In determining the fair values of loans, the Company must determine projected credit losses and discount rates, among other assumptions.

We identified the determination of the projected credit loss and discount rate assumptions in the valuation of acquired loans as a critical audit matter.

Auditing these significant assumptions involved especially challenging and subjective auditor judgement due to the nature and extent of audit effort required to address these matters, including specialized skill and knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Testing the completeness and accuracy of the loan level data utilized in the valuation of the acquisition date fair value by (i) evaluating the reliability of data utilized in the valuation of loans and (ii) confirming certain data with the borrower on a sample basis.

• Utilizing personnel with specialized skill and knowledge in valuation to assist with (i) assessing the appropriateness of the valuation methodology and (ii) evaluating and testing the reasonableness of projected credit loss and discount rate assumptions used in the valuation of the acquired loans.

This includes utilizing information obtained from market participants and recent market activity on other recent acquisitions to test the Company’s assumptions and identify potential sources of contrary information.

/s/ BDO USA, LLP

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Raleigh, North Carolina

February 26, 2021

March 1, 2022

Report of Independent Regist ered Public Accounting Firm

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of First Bancorp and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and our report dated February 26, 2021 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated March 1, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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We believe that our audit provides a reasonable basis for our opinion.

As indicated in the accompanying 9A, Management’s Report on Internal Control over Financial Reporting , management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Select Bancorp, Inc.

and its subsidiary Select Bank & Trust Company (together, “Select”), which was acquired on October 15, 2021, and which is included in the consolidated balance sheets of the Company as of December 31, 2021, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year then ended.

Select constituted 17.5% and 25.4% of total assets and total shareholders’ equity, respectively, as of December 31, 2021.

Select contributed 4.4% of total revenues for the year ended December 31, 2021 and contributed a net loss which equated to 12.8% of the total net income for the year then ended.

Management did not assess the effectiveness of internal control over financial reporting of Select because of the timing of the acquisition which was completed on October 15, 2021.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Select.

Definition and Limitations of Internal Control over Financial Reporting

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A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance

with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may

become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

Raleigh, North Carolina

February 26, 2021

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of First Bancorp

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year ended December 31, 2018, and the related notes to the consolidated financial statements (collectively, the financial statements) of First Bancorp and its subsidiaries (the Company).

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Elliott Davis, PLLC

We served as the Company's auditor from 2005 to 2019.

Charlotte, North Carolina

March 1, 2022

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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 8. Financial Statements and Supplementary Data