What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-09 · 409 added, 692 removed, 608 unchanged (64% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

($ in thousands) September 30,

($ in thousands) March 31,

2022 (unaudited) December 31,

6 unchanged sentences

Presold mortgages in process of settlement at fair value 5,672 19,257

SBA loans held for sale 1,518 6,077

SBA and other loans held for sale 3,630 61,003

Loans 6,064,698 6,081,715

27 unchanged sentences

Issued & outstanding:

none and none

none as of March 31, 2022 and December 31, 2021

Common stock, no par value per share.

1 unchanged sentence

Issued & outstanding:

28,524,480 and 28,579,335 shares

35,639,889 shares and 35,629,177 shares as of March 31, 2022 and December 31, 2021, respectively

723,441 722,671

2 unchanged sentences

Rabbi trust obligation 1,814 1,803

Accumulated other comprehensive income (loss) 2,218 14,350

Accumulated other comprehensive loss ( 164,955 ) ( 24,970 )

Total shareholders’ equity 1,117,490 1,230,575

3 unchanged sentences

Consolidated Statements of Income

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

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Three Months Ended March 31,

($ in thousands, except share data) (unaudited)

INTEREST INCOME

12 unchanged sentences

Net interest income 76,878 55,238

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

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

Provision for credit losses 3,500 —

Reversal of provision for unfunded commitments ( 1,500 ) —

Total provision for credit losses 2,000 —

8 unchanged sentences

Bank-owned life insurance income 976 620

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

Other gains (losses), net 1,622 ( 34 )

8 unchanged sentences

Intangibles amortization expense 1,017 897

Foreclosed property losses, net 23 90 7 284

Foreclosed property (gains) losses, net ( 80 ) 157

Other operating expenses 13,324 10,357

13 unchanged sentences

Consolidated Statements of Comprehensive Income

($ in thousands-unaudited) Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Three Months Ended

($ in thousands) (unaudited)

Net income $ 33,969 28,194

Other comprehensive income (loss):

Unrealized gains (losses) on securities available for sale:

Unrealized holding gains (losses) arising during the period, pretax 3,673 19 ( 16,236 ) 23,556

Tax (expense) benefit ( 844 ) ( 4 ) 3,731 ( 5,413 )

Reclassification to realized (gains) losses

— — — ( 8,024 )

Tax expense — — — 1,844

Other comprehensive loss:

Unrealized losses on securities available for sale:

Unrealized holding losses arising during the period, pretax ( 181,795 ) ( 24,235 )

Tax benefit 41,776 5,569

Postretirement Plans:

Amortization of unrecognized net actuarial loss 44 171

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

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

Comprehensive income $ 30,586 23,430 72,990 70,185

Tax benefit ( 10 ) ( 40 )

Other comprehensive loss ( 139,985 ) ( 18,535 )

Comprehensive (loss) income $ ( 106,016 ) 9,659

See accompanying notes to unaudited consolidated financial statements.

8 unchanged sentences

Shares Amount

Three Months Ended September 30, 2020

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

Net income 23,297 23,297

Cash dividends declared ($ 0.18 per common share)

( 5,155 ) ( 5,155 )

Change in Rabbi Trust obligation ( 13 ) 13 —

Equity issued related to acquisition earnout 24 494 494

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

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

Stock-based compensation — 605 605

Other comprehensive income (loss) 133 133

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

Three Months Ended September 30, 2021

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

Net income 27,643 27,643

Cash dividends declared ($ 0.20 per common share)

( 5,700 ) ( 5,700 )

Change in Rabbi Trust obligation 137 ( 137 ) —

Stock withheld for payment of taxes ( 6 ) ( 182 ) ( 182 )

Stock-based compensation 38 536 536

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

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

See accompanying notes to unaudited consolidated financial statements.

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

Earnings Stock in

Acquisition Rabbi

Obligation Accumulated

Comprehensive

Shareholders’

Shares Amount

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

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

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

Net income 28,194 28,194

2 unchanged sentences

Change in Rabbi Trust obligation ( 13 ) 13 —

Equity issued related to acquisition earnout 24 494 494

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

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

Stock-based compensation 20 651 651

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

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

Nine Months Ended September 30, 2021

Other comprehensive loss ( 18,535 ) ( 18,535 )

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

Three Months Ended March 31, 2022

Balances, January 1, 2022 35,629 $ 722,671 532,874 ( 1,803 ) 1,803 ( 24,970 ) 1,230,575

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

Net income 33,969 33,969

2 unchanged sentences

Change in Rabbi Trust obligation ( 11 ) 11 —

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

Stock withheld for payment of taxes ( 3 ) ( 117 ) ( 117 )

Stock-based compensation 14 887 887

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

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

Other comprehensive loss ( 139,985 ) ( 139,985 )

Balances, March 31, 2022 35,640 $ 723,441 559,004 ( 1,814 ) 1,814 ( 164,955 ) 1,117,490

See accompanying notes to unaudited consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

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

Three Months Ended March 31,

($ in thousands-unaudited) 2022 2021

Cash Flows From Operating Activities

1 unchanged sentence

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

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

Provision for credit losses 2,000 —

Net security premium amortization 3,437 2,876

2 unchanged sentences

Foreclosed property (gains) losses and write-downs, net ( 80 ) 157

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

Other (gains) losses ( 1,533 ) 157

Other (gains) losses, net ( 1,622 ) 34

(Decrease) increase in net deferred loan fees ( 776 ) 2,845

10 unchanged sentences

Origination of SBA loans for sale ( 39,807 ) ( 37,359 )

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

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

Proceeds from sales of SBA and other loans 88,895 32,467

Decrease in accrued interest receivable 1,168 1,620

Decrease (increase) in other assets 3,509 ( 5,242 )

Increase in net deferred income tax asset ( 42 ) ( 8,638 )

Decrease (increase) in net deferred income tax asset 1,160 ( 4,596 )

Decrease in accrued interest payable ( 31 ) ( 163 )

6 unchanged sentences

Proceeds from maturities/issuer calls of securities held to maturity 2,684 5,780

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

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

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

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

(Purchases) redemptions of FRB and FHLB stock, net ( 9,818 ) 1,836

Net decrease in loans 29,927 110,212

Proceeds from sales of foreclosed properties 520 1,183

1 unchanged sentence

Proceeds from sales of premises and equipment 99 218

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

Bank-owned life insurance death benefits 3,595 —

Net cash used by investing activities ( 249,025 ) ( 318,053 )

1 unchanged sentence

Net increase in deposits 260,752 459,906

Net decrease in short-term borrowings — ( 148,000 )

Proceeds from long-term borrowings — 150,000

Payments on long-term borrowings ( 33 ) ( 531 )

9 unchanged sentences

Cash paid during the period for income taxes — 9,585

Unrealized (loss) gain on securities available for sale, net of taxes ( 12,505 ) 18,143

Unrealized loss on securities available for sale, net of taxes ( 140,019 ) ( 18,666 )

Foreclosed loans transferred to other real estate 119 727

Accrued dividends at end of period 7,839 5,688

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

Equity issued related to acquisitions — 494

Loans acquired — 14,633

Other assets acquired — 451

Borrowings assumed — 11,671

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

See accompanying notes to consolidated financial statements.

1 unchanged sentence

Notes to Consolidated Financial Statements

(unaudited) For the Period Ended September 30, 2021

Note 1 - Basis of Presentation

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

Note 1 - Organization and 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 three wholly owned subsidiaries that are fully consolidated, SBA Complete, Inc.

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

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

All significant intercompany accounts and transactions have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, they do not include all information and notes necessary for complete financial statements in accordance with GAAP.

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of March 31, 2022, the consolidated results of operations for the three months ended March 31, 2022 and 2021, and the consolidated cash flows for the three months ended March 31, 2022 and 2021.

Any such adjustments were of a normal, recurring nature.

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

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

These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes in the Annual Report on Form 10-K for the year ended December 31, 2021.

Operating results for interim period are not necessarily indicative of the results that may be expected for the full year.

Reference is made to Note 1 of the 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for a discussion of accounting policies and other relevant information with respect to the financial statements.

To maintain consistency and comparability, certain amounts from prior periods have been reclassified to conform to current period presentation with no effect on net income or shareholders' equity as previously reported.

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

Recent Developments:

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

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

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

Small Business Administration ("SBA").

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

During the first nine months of 2021, the Company funded $ 112 million in PPP loans, while also processing $ 286 million in forgiveness payments related to both 2020 and 2021 PPP loan originations.

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

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

Impact of COVID-19

Our market areas and local economies continue to show signs of recovery from the impact of the COVID-19 pandemic.

However, the current pandemic is ongoing and dynamic in nature, and there are many related uncertainties, including, among other things, its severity and new variants that may arise;

its ultimate duration and infection spikes that may occur;

the impact on our customers, employees and vendors;

the impact on the financial services and banking industry;

and the ongoing impact on the economy as a whole.

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

Note 2 – Accounting Policies

Note 1 to the 2020 Annual Report on Form 10-K filed with the SEC contains a description of the accounting policies followed by the Company and a discussion of recent accounting pronouncements.

The following paragraphs update that information as necessary.

Note 2 – Accounting Pronouncements

Accounting Standards Adopted in 2022

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

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

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

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

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

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

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

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

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

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

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

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

The adoption of CECL had an insignificant impact on the Company's held to maturity and available for sale securities portfolios.

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

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

The Company did not elect the option.

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

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

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

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

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

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

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

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

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

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

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

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

Accounting Policy Updates

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

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

Interest income includes amortization of purchase premiums or discounts.

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

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

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

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

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

Accrued interest receivable on held to maturity debt securities totaled $ 2.0 million at September 30, 2021 and was excluded from the estimate of credit losses.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Accrued interest receivable on available for sale debt securities totaled $ 4.0 million at September 30, 2021 and was excluded from the estimate of credit losses.

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

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

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

Interest income is accrued on the unpaid principal balance.

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

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

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

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

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

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

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

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

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

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

In those cases, the Company will consider internal loan grades, delinquency status and other relevant factors in assessing whether purchased loans are PCD.

PCD loans are recorded at the amount paid.

An initial allowance for credit losses is determined using the same methodology as other loans held for investment, but with no impact to earnings.

The initial allowance for credit losses determined on a collective basis is allocated to individual loans.

The sum of the loan's purchase price and allowance for credit losses becomes its initial amortized cost basis.

The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan.

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

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

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

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

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

The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Equipment and inventory obsolescence can also pose a risk.

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

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

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

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

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

Real estate - mortgage - residential (1-4 family) first - Residential mortgage loans are susceptible to weakening general economic conditions and increases in unemployment rates and declining real estate values.

Real estate - mortgage - home equity loans / lines of credit - Risks common to home equity loans and lines of credit are general economic conditions, including an increase in unemployment rates, and declining real estate values which reduce or eliminate the borrower’s home equity.

Real estate - mortgage - commercial and other - Loans in this category are susceptible to declines in occupancy rates, business failure and general economic conditions.

Also, declines in real estate values and lack of suitable alternative use for the properties are risks for loans in this category.

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

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

When the discounted cash flow method is used to determine the allowance for credit losses, management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments.

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

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

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

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

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

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

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

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

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

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

Note 3 – Stock-Based Compensation

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

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

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

As of September 30, 2021, the Equity Plan had 485,695 shares remaining available for grant.

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

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

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

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

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

Upon forfeiture, any previously recognized compensation cost is reversed.

Upon a change in control (as defined in the Equity Plan), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested.

Certain of the Company’s equity grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period.

The Company recognizes compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for each incremental award.

Compensation expense is based on the estimated number of stock awards that will ultimately vest.

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

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

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

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

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

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

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

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

Long-Term Restricted Stock

Number of Units Weighted-Average

Grant-Date Fair Value

Nonvested at January 1, 2021 172,105 $ 33.80

Granted during the period 63,950 37.29

Vested during the period ( 43,166 ) 41.27

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

Nonvested at September 30, 2021 184,878 $ 33.08

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

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

Note 4 – Earnings Per Common Share

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

For the Three Months Ended September 30,

($ in thousands except per

share amounts) Income

(Numerator) Shares

(Denominator) Per Share

Amount Income

(Numerator) Shares

(Denominator) Per Share

Net income $ 27,643 $ 23,297

income allocated to participating securities ( 125 ) ( 67 )

Basic EPS per common share $ 27,518 28,385,912 $ 0.97 $ 23,230 28,857,111 $ 0.81

Net income $ 27,643 28,385,912 $ 23,297 28,857,111

Effect of Dilutive Securities — 129,416 — 82,907

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

For the Nine Months Ended September 30,

($ in thousands except per

share amounts) Income

(Numerator) Shares

(Denominator) Per Share

Amount Income

(Numerator) Shares

(Denominator) Per Share

Net income $ 85,122 $ 57,829

income allocated to participating securities $ ( 466 ) $ ( 279 )

Basic EPS per common share $ 84,656 28,358,393 $ 2.99 $ 57,550 28,962,576 $ 1.99

Net income $ 85,122 28,358,393 $ 57,829 28,962,576

Effect of Dilutive Securities — 156,012 — 140,377

Diluted EPS per common share $ 85,122 28,514,405 $ 2.99 $ 57,829 29,102,953 $ 1.99

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

The Company did not adopt any accounting standards during the first three months of 2022.

Accounting Standards Pending Adoption

ASU 2022-02, "Financial Instruments-Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures." This Accounting Standards Update ("ASU") eliminates the accounting guidance for troubled debt restructurings by creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty.

This ASU also requires entities to disclose current period gross write-offs by year of origination for financing receivables and net investment in leases.

The amendments in this ASU will be effective for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years and early adoption is permitted.

The entity must have adopted the amendments in ASU 2016-13 ("CECL") to adopt the amendments in this ASU.

The Company is currently evaluating the impact of

adopting the new guidance on the consolidated financial statements but does not expect it to have a material effect on its financial statements.

Note 3 – Securities

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

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

The book values and approximate fair values of investment securities at March 31, 2022 and December 31, 2021 are summarized as follows:

($ in thousands) March 31, 2022 December 31, 2021

Value Unrealized Amortized

2 unchanged sentences

Securities available for sale:

US Treasuries $ 149,534 149,391 — ( 143 ) $ — — — —

Government-sponsored enterprise securities 71,953 64,168 — ( 7,785 ) 71,951 69,179 — ( 2,772 )

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Total held to maturity $ 546,090 492,307 20 ( 53,803 ) 513,825 511,699 3,540 ( 5,666 )

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

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

($ in thousands) Securities in an Unrealized

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 $ 0.9 million as of March 31, 2022 and December 31, 2021, respectively.

The following table presents information regarding securities with unrealized losses at March 31, 2022:

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

US Treasuries $ 149,391 143 — — 149,391 143

Government-sponsored enterprise securities 19,855 2,104 44,313 5,681 64,168 7,785

4 unchanged sentences

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

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Total unrealized loss position $ 2,023,736 30,297 487,570 18,031 2,511,306 48,328

As of September 30, 2021 and December 31, 2020, the Company's security portfolio held 171 securities and 69 securities that were in an unrealized loss position, respectively.

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

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

As of March 31, 2022 and December 31, 2021, the Company's security portfolio held 600 securities of which 371 securities were in an unrealized loss position.

In the above tables, all of the securities that were in an unrealized loss position at March 31, 2022 and December 31, 2021 are bonds that the Company has determined are in a loss position due primarily to interest rate factors and not credit quality concerns.

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

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

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

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

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

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

At March 31, 2022 and December 31, 2021, the Company determined that expected credit losses associated with held to maturity debt securities was insignificant.

The book values and approximate fair values of investment securities at March 31, 2022, by contractual maturity, are summarized in the table below.

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

8 unchanged sentences

Total securities $ 2,898,910 2,685,048 546,090 492,307

At September 30, 2021 and December 31, 2020, investment securities with carrying values of $ 861,827,000 and $ 630,303,000 , respectively, were pledged as collateral for public deposits.

Included in “other assets” in the Consolidated Balance Sheets are investments in Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank of Richmond (“FRB”) stock totaling $ 21,735,000 and $ 23,526,000 at September 30, 2021 and December 31, 2020, respectively.

At March 31, 2022 and December 31, 2021 investment securities with carrying values of $ 852.8 million and $ 951.4 million, respectively, were pledged as collateral for public deposits.

At March 31, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than US Government and its agencies or government sponsored enterprises, in an amount greater than 10% of shareholders equity.

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 $ 32.2 million and $ 22.3 million at March 31, 2022 and December 31, 2021, respectively.

These investments do not have readily determinable fair values.

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

The FRB stock had a cost and fair value of $ 17,765,000 and $ 17,671,000 at September 30, 2021 and December 31, 2020, respectively, and is a requirement for FRB member bank qualification.

The FHLB stock had a cost and fair value of $ 5.3 million and $ 4.6 million at March 31, 2022 and December 31, 2021, 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 $ 26.8 million and $ 17.8 million at March 31, 2022 and December 31, 2021, respectively, and is a requirement for FRB member bank qualification.

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

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

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

The conversion rate at March 31, 2022 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 .

2 unchanged sentences

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

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

($ in thousands) March 31, 2022 December 31, 2021

Amount Percentage Amount Percentage

8 unchanged sentences

Total loans $ 6,064,698 $ 6,081,715

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

Included in the line item "Commercial, financial, and agricultural" in the table above are Paycheck Protection Program ("PPP") loans totaling $ 15.6 million and $ 39.0 million at March 31, 2022 and December 31, 2021, respectively.

PPP loans are fully guaranteed by the SBA.

Included in unamortized net deferred loan fees are approximately $ 4.3 million and $ 6.0 million at September 30, 2021 and December 31, 2020, respectively, in unamortized net deferred loan fees associated with PPP loans.

Included in unamortized net deferred loan fees are approximately $ 1.3 million and $ 2.6 million at March 31, 2022 and December 31, 2021, respectively, in unamortized net deferred loan fees associated with PPP loans.

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

Accelerated amortization is recorded in the periods in which principal amounts are forgiven in accordance with the terms of the program.

Included in the table above are credit card balances outstanding totaling $ 38.8 million and $ 37.9 million at March 31, 2022 and December 31, 2021, respectively.

At March 31, 2022, approximately 57 % of total credit card balances are business credit cards included in "commercial, financial and agricultural" above and the remaining 43 % are personal credit cards included in consumer loans in the table above.

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

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

($ in thousands) March 31, 2022 December 31, 2021

Guaranteed portions of non-PPP SBA loans included in table above $ 33,024 48,377

1 unchanged sentence

Total non-PPP SBA loans included in the table above $ 159,960 171,149

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

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

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

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

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

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

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

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

Balance at beginning of period $ 4,149

Accretion ( 927 )

Reclassification from (to) nonaccretable difference 400

Other, net ( 481 )

Balance at end of period 3,141

During the first nine months of 2020, the Company received $ 446,000 in payments that exceeded the carrying amount of the related PCI loans, of which $ 352,000 was recognized as loan discount accretion income, $ 80,000 was recorded as additional loan interest income, and $ 14,000 was recorded as a recovery.

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

Sold portions of SBA loans with servicing retained - not included in tables above $ 426,601 414,240

At March 31, 2022 and December 31, 2021, there was a remaining unaccreted discount on the retained portion of sold non-PPP SBA loans amounting to $ 5.9 million and $ 6.0 million, respectively.

Loans in the amount of $ 5.4 billion and $ 4.3 billion were pledged as collateral for certain borrowings at March 31, 2022 and December 31, 2021, respective ly.

The loans above also include loans to executive officers and directors serving the Company at March 31, 2022 and to their related persons, totaling approximately $ 6.5 million and $ 0.6 million at March 31, 2022 and December 31, 2021, respectively.

There were $ 5.8 million in new loans due to the addition of new directors, there was $ 36,000 in advances on loans in the first three months of 2022, and repayments amounted to $ 21,000 .

The loans were made on terms and conditions applicable to similarly situated borrowers and management does not believe these loans involve more than the normal risk of collectability or present other unfavorable features.

As of March 31, 2022 and December 31, 2021, unamortized discounts on all acquired loans totaled $ 15.6 million and $ 17.2 million, respectively.

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

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

Nonperforming assets are summarized as follows.

($ in thousands) September 30,

($ in thousands) March 31,

2022 December 31,

Nonperforming assets

Nonaccrual loans $ 33,460 34,696

4 unchanged sentences

Total nonperforming assets $ 48,937 52,637

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

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

CECL Incurred Loss

($ in thousands) September 30,

2021 December 31,

Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Nonaccrual Loans

At March 31, 2022 and December 31, 2021, the Company had $ 1.0 million and $ 1.5 million, respectively, in residential mortgage loans in process of foreclosure, respectively.

The following table is a summary of the Company’s nonaccrual loans by major categories as of March 31, 2022.

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

Commercial, financial, and agricultural $ 3,911 8,661 12,572

5 unchanged sentences

Total $ 13,351 20,109 33,460

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

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

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

The following table is a summary of the Company’s nonaccrual loans by major categories as of December 31, 2021.

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

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

4 unchanged sentences

Consumer loans — 89 89

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

Total $ 12,948 21,748 34,696

There was no interest income recognized during the three month period ended March 31, 2022 or the year ended December 31, 2021 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 each period indicated:

($ in thousands) For the Three Months Ended March 31, 2022 For the Year Ended December 31, 2021 For the Three Months Ended March 31, 2021

Commercial, financial, and agricultural $ 8 195 64

Real estate – construction, land development & other land loans 12 6 —

Real estate – mortgage – residential (1-4 family) first mortgages 10 31 5

Real estate – mortgage – home equity loans / lines of credit 2 14 4

Real estate – mortgage – commercial and other 100 453 220

Consumer loans — — —

Total $ 132 699 293

The following table presents an analysis of the payment status of the Company’s loans as of March 31, 2022.

($ in thousands) Accruing

22 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

2 unchanged sentences

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

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

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 September 30, 2021.

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

The following table presents an analysis of collateral-dependent loans of the Company as of March 31, 2022.

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

Commercial, financial, and agricultural $ — 9,508 — — 9,508

1 unchanged sentence

Real estate – mortgage – residential (1-4 family) first mortgages 161 — — — 161

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

Real estate – mortgage – commercial and other — — — 11,081 11,081

Consumer loans — — — — — —

Total $ 161 9,508 928 11,081 21,678

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 – commercial and other — — — 10,743 10,743

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.

3 unchanged sentences

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

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

For real estate collateral that is in industries which may be undergoing heightened stress due to economic or other external factors, the Company may reduce the collateral values by an additional 10 - 25 % to recognize 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 allowance for loan losses for all loans for the three and nine months ended September 30, 2021 (under the CECL methodology).

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

The following table presents the activity in the Allowance for Credit Losses ("ACL") on loans for each of the periods indicated.

($ in thousands) Commercial,

5 unchanged sentences

and Other Consumer Loans Unallocated Total

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

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

Charge-offs ( 899 ) — ( 24 ) — ( 4 ) ( 178 ) — ( 1,105 )

Recoveries 398 98 176 311 79 49 — 1,111

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

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

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

As of and for the three months ended March 31, 2022

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

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

Charge-offs ( 790 ) — — ( 41 ) ( 45 ) ( 167 ) — ( 1,043 )

2 unchanged sentences

Ending balance $ 16,013 16,057 8,159 2,074 37,327 2,439 — 82,069

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,

7 unchanged sentences

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

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

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

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

Ending balances as of December 31, 2020:

Allowance for loan losses

Individually evaluated for impairment $ 3,546 30 800 — 2,175 — — 6,551

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

Purchased credit impaired $ 28 — 107 — — 3 — 138

Loans receivable as of December 31, 2020:

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

Unamortized net deferred loan fees ( 3,698 )

Total loans $ 4,731,315

Ending balances as of December 31, 2020:

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 three and nine months ended September 30, 2020 (under the Incurred Loss methodology).

($ in thousands) Commercial,

5 unchanged sentences

and Other Consumer Loans Unallocated Total

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

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

Charge-offs ( 325 ) ( 6 ) ( 4 ) ( 23 ) — ( 310 ) — ( 668 )

Recoveries 126 213 279 207 482 125 — 1,432

Provisions 2,986 388 82 ( 83 ) 2,369 308 70 6,120

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

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

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

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

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

Charge-offs ( 1,438 ) ( 66 ) ( 38 ) ( 131 ) ( 510 ) ( 134 ) — ( 2,317 )

Recoveries 514 294 87 11 262 35 — 1,203

Provisions 7,876 3,491 4,748 1,364 12,629 830 70 31,008

Provisions/(Reversals) 147 ( 1,589 ) ( 1,685 ) ( 526 ) 3,409 244 — —

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

Ending balance as of September 30, 2020:

Allowance for loan losses

Individually evaluated for impairment $ 1,814 56 820 — 1,624 — — 4,314

Collectively evaluated for impairment $ 6,921 6,216 7,760 2,460 19,982 1,342 70 44,751

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

Loans receivable as of September 30, 2020

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

Unamortized net deferred loan fees ( 5,439 )

Total loans $ 4,813,736

Ending balances as of September 30, 2020:

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

Collectively evaluated for impairment $ 797,654 652,117 1,002,254 309,911 1,963,303 50,141 — 4,775,380

Purchased credit impaired $ 176 150 5,176 96 3,970 48 — 9,616

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

($ in thousands) Recorded

Investment Unpaid

Balance Related

Allowance Average

Impaired loans with no related allowance recorded:

Commercial, financial, and agricultural $ 3,688 4,325 — 750

Real estate – mortgage – construction, land development & other land loans 554 694 — 308

Real estate – mortgage – residential (1-4 family) first mortgages 4,115 4,456 — 4,447

Real estate – mortgage –home equity loans / lines of credit 15 27 — 264

Real estate – mortgage –commercial and other 11,763 13,107 — 9,026

Consumer loans 4 4 — 1

Total impaired loans with no allowance $ 20,139 22,613 — 14,796

Impaired loans with an allowance recorded:

Commercial, financial, and agricultural $ 4,012 4,398 3,546 5,139

Real estate – mortgage – construction, land development & other land loans 123 131 30 502

Real estate – mortgage – residential (1-4 family) first mortgages 5,188 5,361 800 5,186

Real estate – mortgage –home equity loans / lines of credit — — — 21

Real estate – mortgage –commercial and other 6,819 7,552 2,175 5,786

Consumer loans — — — —

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

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

Credit Quality Indicators

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

17 unchanged sentences

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

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

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

Special Mention:

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

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

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

5 unchanged sentences

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

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

In the tables that follow, 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 tables below present the Company’s recorded investment in loans by credit quality indicators by year of origination or renewal as of the periods indicated.

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

Term Loans by Year of Origination

($ in thousands) 2022 2021 2020 2019 2018 Prior Revolving Total

As of March 31, 2022

Commercial, financial, and agricultural

31 unchanged sentences

Total loans 6,064,698

At September 30, 2021, as derived from the table above, the Company had $ 40.7 million in loans graded as Special Mention and $ 53.3 million in loans graded as Classified, which includes all nonaccrual loans.

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

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

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

($ in thousands) Pass Special

Mention Loans Classified

Accruing Loans Classified

Term Loans by Year of Origination

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

As of December 31, 2021

Commercial, financial, and agricultural

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

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

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

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

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

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

4 unchanged sentences

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

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

The vast majority of the Company’s TDRs modified during the periods ended March 31, 2022 and March 31, 2021 related to interest rate reductions combined with extension of terms.

The Company does not generally grant principal forgiveness.

1 unchanged sentence

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

As of September 30, 2021, the Company had granted short-term deferrals related to the COVID-19 pandemic for $1.8 million of loans that were otherwise performing prior to modification.

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

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

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

Contracts Pre-

Balances Post-

Balances Number of

Contracts Pre-

Balances Post-

TDRs – Accruing

Commercial, financial, and agricultural — $ — $ — — $ — $ —

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

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

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

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

Consumer loans — — — — — —

TDRs – Nonaccrual

Commercial, financial, and agricultural — — — — — —

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

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

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

Real estate – mortgage – commercial and other — — — 1 2,344 2,344

Consumer loans — — — — — —

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

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

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

At March 31, 2022 there were two loans with immaterial commitments to lend additional funds to debtors whose loans were modified as a TDR.

At December 31, 2021, there were no commitments to lend additional funds to debtors whose loans were modified as a TDR.

The following table presents information related to loans modified in a TDR during the three months ended March 31, 2022 and 2021.

($ in thousands) For the three months ended March 31, 2022 For the three months ended March 31, 2021

Contracts Pre-

4 unchanged sentences

TDRs – Accruing

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

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

Real estate – mortgage – residential (1-4 family) first mortgages 1 36 36 — — —

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

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

Consumer loans — — — — — —

TDRs – Nonaccrual

Commercial, financial, and agricultural 1 41 41 1 111 108

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

Real estate – mortgage – residential (1-4 family) first mortgages 1 36 36 — — —

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

Real estate – mortgage – commercial and other 1 540 540 — — —

Consumer loans — — — — — —

Total TDRs arising during period 4 $ 653 $ 653 2 $ 271 $ 268

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

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

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

Contracts Recorded

Investment Number of

Contracts Recorded

Accruing TDRs that subsequently defaulted

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

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

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

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

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

Contracts Recorded

Investment Number of

Contracts Recorded

Accruing TDRs that subsequently defaulted

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

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

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

There were no accruing TDRs that were modified in the previous twelve months and that defaulted during the three months ended March 31, 2022 or 2021.

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 89 % 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 allowance for credit losses on loans, the Company maintains an allowance for lending-related commitments such as unfunded loan commitments and letters of credit.

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

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

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

The allowance for credit losses for unfunded loan commitments of $ 11.1 million and $ 0.6 million at September 30, 2021 and December 31, 2020, respectively, is separately classified on the balance sheet within the line items "Other Liabilities".

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

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 unfunded commitments expense.

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.

The allowance for credit losses for unfunded loan commitments of $ 12.0 million and $ 13.5 million at March 31, 2022 and December 31, 2021, respectively, is separately classified on the Consolidated Balance Sheets within "Other liabilities".

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2022.

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

Beginning balance at December 31, 2021 $ 13,506

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

Charge-offs —

Provisions for credit losses on unfunded commitments 2,988

Ending balance at September 30, 2021 $ 11,074

Reversal of provision for unfunded commitments ( 1,500 )

Ending balance at March 31, 2022 $ 12,006

Allowance for Credit Losses - Securities Held to Maturity

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

The allowance for credit losses for securities held to maturity was immaterial at March 31, 2022 and December 31, 2021.

Note 5 – Goodwill and Other Intangible Assets

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

September 30, 2021 December 31, 2020

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of March 31, 2022 and December 31, 2021, and the carrying amount of unamortized intangible assets as of those same dates.

March 31, 2022 December 31, 2021

($ in thousands) Gross Carrying

5 unchanged sentences

Core deposit intangibles 29,050 18,972 29,050 18,076

SBA servicing asset 11,687 5,792 9,976 4,188

SBA servicing assets 12,677 7,086 11,932 6,460

Other 100 40 100 33

4 unchanged sentences

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

SBA servicing asset amortization expense is recorded within noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions, and fees." As derived from the table above, the Company had a SBA servicing asset at September 30, 2021 with a remaining book value of $ 5,895,000 .

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

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

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

At September 30, 2021 and December 31, 2020, the Company serviced for others SBA loans totaling $ 424.7 million and $ 395.4 million, respectively.

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

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

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

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

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

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

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

SBA servicing asset amortization expense is recorded within noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions, and fees." As derived from the table above, the Company had a SBA servicing asset at March 31, 2022 with a remaining book value of $ 5.6 million.

The Company recorded $ 0.7 million and $ 0.6 million in new servicing assets associated with the guaranteed portion of SBA loans sold during the first three months of 2022 and 2021, respectively.

During the first three months of 2022 and 2021, the Company recorded $ 0.6 million and $ 0.5 million, respectively, in related servicing asset amortization expense.

A t March 31, 2022 and December 31, 2021, the Company serviced SBA loans totali ng $ 426.6 million a nd $ 414.2 million, respectively, for others.

There were no other loans serviced in any period presented.

Amortization expense of all other intangible assets, excluding the SBA servicing assets, totaled $ 1.0 million and $ 0.9 million for the three months ended March 31, 2022 and 2021, respectively.

There were no changes to the carrying amounts of goodwill for the three months ended March 31, 2022 .

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

The Company performed the required annual impairment testing in the fourth quarter of 2021.

Management evaluated the events and circumstances in the first quarter of 2022 that could indicate that goodwill might be impaired and concluded that a subsequent interim test was not necessary.

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

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

These estimates are subject to change in future

periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortized intangible assets.

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

($ in thousands) Estimated Amortization

October 1, 2021 to December 31, 2021 $ 642

April 1, 2022 to December 31, 2022 $ 2,666

Thereafter 2,088

Total $ 11,337

Note 6 - Borrowings

The following tables present information regarding the Company’s outstanding borrowings at March 31, 2022 and December 31, 2021 (dollars are in thousands):

Description Due date Call Feature March 31, 2022 Interest Rate

FHLB Principal Reducing Credit 7/24/2023 None $ 68 1.00 % fixed

FHLB Principal Reducing Credit 12/22/2023 None 942 1.25 % fixed

FHLB Principal Reducing Credit 6/26/2028 None 222 0.25 % fixed

FHLB Principal Reducing Credit 7/17/2028 None 42 0.00 % fixed

FHLB Principal Reducing Credit 8/18/2028 None 164 1.00 % fixed

FHLB Principal Reducing Credit 8/22/2028 None 164 1.00 % fixed

FHLB Principal Reducing Credit 12/20/2028 None 339 0.50 % fixed

Trust Preferred Securities 1/23/2034 Quarterly by Company

beginning 1/23/2009 20,620 3.00 % at 03/31/22

adjustable rate

3 month LIBOR + 2.70 %

Trust Preferred Securities 6/15/2036 Quarterly by Company

beginning 6/15/2011 25,774 2.22 % at 03/31/22

adjustable rate

3 month LIBOR + 1.39 %

Trust Preferred Securities 1/7/2035 Quarterly by Company

beginning 1/7/2010 10,310 2.24 % at 03/31/22

adjustable rate

3 month LIBOR + 2.00 %

Trust Preferred Securities 9/20/2034 Quarterly by Company

beginning 9/20/2009 12,372 3.08 % at 03/31/22

adjustable rate

3 month LIBOR + 2.15 %

Total borrowings / weighted average rate as of March 31, 2022

$ 71,017 2.56 %

Unamortized discount on acquired borrowings ( 3,602 )

Total borrowings $ 67,415

Description Due date Call Feature December 31, 2021 Interest Rate

FHLB Principal Reducing Credit 7/24/2023 None $ 79 1.00 % fixed

FHLB Principal Reducing Credit 12/22/2023 None 952 1.25 % fixed

FHLB Principal Reducing Credit 6/26/2028 None 225 0.25 % fixed

FHLB Principal Reducing Credit 7/17/2028 None 44 0.00 % fixed

FHLB Principal Reducing Credit 8/18/2028 None 166 1.00 % fixed

FHLB Principal Reducing Credit 8/22/2028 None 166 1.00 % fixed

FHLB Principal Reducing Credit 12/20/2028 None 342 0.50 % fixed

Trust Preferred Securities 1/23/2034 Quarterly by Company

beginning 1/23/2009 20,620 2.83 % at 12/31/21

adjustable rate

3 month LIBOR + 2.70 %

Trust Preferred Securities 6/15/2036 Quarterly by Company

beginning 6/15/2011 25,774 1.59 % at 12/31/21

adjustable rate

3 month LIBOR + 1.39 %

Trust Preferred Securities 1/7/2035 Quarterly by Company

beginning 1/7/2010 10,310 2.12 % at 12/31/21

adjustable rate

3 month LIBOR + 2.00 %

Trust Preferred Securities 9/20/2034 Quarterly by Company

beginning 9/20/2009 12,372 2.72 % 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 %

Unamortized discount on acquired borrowings ( 3,664 )

Total borrowings $ 67,386

Note 7 – Leases

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

As of March 31, 2022, the Company leased 17 branch offices for which the land and buildings are leased and nine 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 April 2022 through May 2076, some of which include options for multiple five - and ten-year extensions.

The weighted average remaining life of the lease term for these leases was 19.4 years as of March 31, 2022.

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.

Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term.

Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

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

The weighted average discount rate for leases was 2.88 % as of March 31, 2022.

Total operating lease expense was $ 0.9 million and $ 0.7 million for the three months ended March 31, 2022 and 2021, respectively.

The right-of-use assets and lease liabilities were $ 20.4 million and $ 20.9 million as of March 31, 2022, respectively, and were $ 20.7 million and $ 21.2 million as of December 31, 2021, respectively.

Future undiscounted lease payments for operating leases with initial terms of one year or more as of March 31, 2022 are as follows.

($ in thousands)

April 1, 2022 to December 31, 2022 $ 1,747

Thereafter 19,988

Total undiscounted lease payments 29,649

Less effect of discounting ( 8,746 )

Present value of estimated lease payments (lease liability) $ 20,903

Note 8 – Pension Plans

1 unchanged sentence

Effective December 31, 2012, the Company froze both plans for all participants.

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

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

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

The Company recorded periodic pension cost totaling $ 51,000 and $ 191,000 for the three months ended March 31, 2022 and 2021, respectively.

The following table contains the components of the pension cost.

For the Three Months Ended September 30,

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

Service cost $ — — — — — —

Interest cost 283 303 30 55 313 358

Expected return on plan assets ( 264 ) ( 325 ) — — ( 264 ) ( 325 )

Amortization of net (gain)/loss 106 194 3 ( 41 ) 109 153

Net periodic pension cost $ 125 172 33 14 158 186

Nine Months Ended September 30, 2021

For the Three Months Ended March 31,

($ in thousands) 2022 Pension Plan 2021 Pension Plan 2022 SERP 2021 SERP 2022 Total Both Plans 2021 Total Both Plans

6 unchanged sentences

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

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

The Company did no t contribute to the Pension Plan in the first three months of 2022 and does no t expect to contribute to the Pension Plan in the remainder of 2022.

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

Note 9 – Accumulated Other Comprehensive Income (Loss)

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

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

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

Deferred tax asset (liability) ( 968 ) ( 4,699 )

Net unrealized gain (loss) on securities available for sale 3,244 15,749

Postretirement plans asset (liability) ( 1,332 ) ( 1,817 )

Deferred tax asset (liability) 306 418

Net postretirement plans asset (liability) ( 1,026 ) ( 1,399 )

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

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

($ in thousands) Unrealized Gain

Available for Sale Postretirement Plans Asset

(Liability) Total

Beginning balance at January 1, 2021 $ 15,749 ( 1,399 ) 14,350

Other comprehensive income (loss) before reclassifications ( 12,505 ) — ( 12,505 )

Amounts reclassified from accumulated other comprehensive income

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

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

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

($ in thousands) Unrealized Gain

Available for Sale Postretirement Plans Asset

(Liability) Total

Beginning balance at January 1, 2020 $ 7,504 ( 2,381 ) 5,123

Other comprehensive income (loss) before reclassifications 18,143 — 18,143

Amounts reclassified from accumulated other comprehensive income

( 6,180 ) 393 ( 5,787 )

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

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

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

Amounts reclassified from accumulated other comprehensive income for Postretirement Plans Asset (Liability) represent amortization of amounts included in Accumulated Other Comprehensive Income, net of taxes, and are recorded in the "Other operating expenses" line item of the Consolidated Statements of Income.

Note 9 – Fair Value

5 unchanged sentences

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

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

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at March 31, 2022.

($ in thousands)

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

Description of Financial Instruments

Fair Value at March 31, 2022 Quoted Prices in

Active Markets for

5 unchanged sentences

Securities available for sale:

US Treasury $ 149,391 — 149,391 —

Government-sponsored enterprise securities 64,168 — 64,168 —

4 unchanged sentences

Individually evaluated loans $ 12,590 — — 12,590

Foreclosed real estate 462 — — 462

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

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 Assets Fair Value at December 31, 2020 Quoted Prices in

Description of Financial Instruments

Fair Value at December 31, 2021 Quoted Prices in

Active Markets

9 unchanged sentences

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 364 — — 364

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

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

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

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Most of the fair values for the Company’s Level 2 securities are determined by our third-party bond accounting provider using matrix pricing.

Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

For the Company, Level 2 securities include mortgage-backed securities, commercial mortgage-backed obligations, government-sponsored enterprise securities, and corporate bonds.

benchmark quoted securities.

For the Company, Level 2 securities include U.S.

Treasury bonds, mortgage-backed securities, commercial mortgage-backed obligations, government-sponsored enterprise securities, and corporate bonds.

In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

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

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

Collateral-dependent loans — Fair values for collateral-dependent loans are measured on a non-recurring basis and are based on (1) the underlying collateral values securing the loans, adjusted for estimated selling costs, or (2) 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.

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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.

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 credit losses.

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

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

($ in thousands)

Description Fair Value at September 30, 2021 Valuation

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2022, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands) Fair Value at March 31, 2022 Valuation

Technique Significant Unobservable

2 unchanged sentences

Individually evaluated loans - cash-flow dependent 5,681 PV of expected cash flows Discount rates used in the calculation of the present value ("PV") of expected cash flows 4 %- 11 % ( 6.50 %)

Foreclosed real estate 462 Appraised value Discounts for estimated costs to sell 10 %

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

($ in thousands)

Description Fair Value at December 31, 2020 Valuation

($ in thousands) Fair Value at December 31, 2021 Valuation

Technique Significant Unobservable

Inputs Range (Weighted Average)

Impaired loans - valued at collateral value $ 16,000 Appraised value Discounts applied for estimated costs to sell 10 %

Impaired loans - valued at PV of expected cash flows 6,142 PV of expected cash flows Discount rates used in the calculation of PV of expected cash flows 4 %- 11 % ( 6.21 %)

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

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

September 30, 2021 December 31, 2020

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 applied for estimated costs to sell 10 %

The carrying amounts and estimated fair values of financial instruments not carried at fair value at March 31, 2022 and December 31, 2021 are as follows:

March 31, 2022 December 31, 2021

($ in thousands) Level in Fair

6 unchanged sentences

Securities held to maturity Level 2 546,090 492,307 513,825 511,699

SBA loans held for sale Level 2 1,518 1,766 6,077 7,465

SBA and other loans held for sale Level 2 3,630 4,010 61,003 62,044

Total loans, net of allowance Level 3 5,982,629 5,957,829 6,002,926 5,990,235

5 unchanged sentences

Accrued interest payable Level 2 576 576 607 607

Commitments to extend credit Level 3 — 11,074 — 461

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.

6 unchanged sentences

In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Note 10 – Stock-Based Compensation

The Company recorded total stock-based compensation expense of $ 547,000 and $ 397,000 for the three months ended March 31, 2022 and 2021, respectively.

In addition, the Company recog nized $ 126,000 an d $ 91,000 of income tax benefits related to stock-based compensation expense for the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022, the sole equity-based compensation plan for the Company is the First Bancorp 2014 Equity Plan (the "Equity Plan"), which was approved by shareholders on May 8, 2014.

As of March 31, 2022, the Equity Plan had 431,852 shares remaining available for grant.

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

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

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

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

Upon forfeiture, any previously recognized compensation cost is reversed.

Upon a change in control (as defined in the Equity Plan), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested.

Certain of the Company’s equity grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period.

The Company recognizes compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for each incremental award.

Compensation expense is based on the estimated number of stock awards that will ultimately vest.

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

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 13 in total) in June of each year.

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

The following table presents information regarding the activity for the first three months of 2022 related to the Company’s outstanding restricted stock awards:

Long-Term Restricted Stock Awards

Number of Units Weighted-Average

Grant-Date Fair Value

Nonvested at January 1, 2022 206,331 $ 35.25

Granted during the period 20,494 45.88

Vested during the period ( 6,997 ) 36.05

Forfeited or expired during the period ( 7,115 ) 31.50

Nonvested at March 31, 2022 212,713 $ 36.33

Total unrecognized compensation expense as of March 31, 2022 amounted to $ 4.2 million with a weighted-average remaining term of 2.3 years.

For the nonvested awards that are outstanding at March 31, 2022, the Company expects to record $ 2.1 million in compensation expense in the next twelve months, $ 1.6 million of which is expected to be recorded in the remaining quarters of 2022.

Note 11 - Shareholders' Equity

Stock Repurchases

During the first three months of 2022, the Company did no t repurchase any shares of the Company's common stock.

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

Note 12 – Earnings Per Share

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

For the Three Months Ended March 31,

($ in thousands except per

share amounts) Income

(Numerator) Shares

(Denominator) Per Share

Amount Income

(Numerator) Shares

(Denominator) Per Share

Net income $ 33,969 $ 28,194

income allocated to participating securities ( 198 ) ( 178 )

Basic EPS per common share $ 33,771 35,433,739 $ 0.95 $ 28,016 28,357,809 $ 0.99

Net income $ 33,969 35,433,739 $ 28,194 28,357,809

Effect of Dilutive Securities — 207,239 — 180,044

Diluted EPS per common share $ 33,969 35,640,978 $ 0.95 $ 28,194 28,537,853 $ 0.99

Note 13 – Accumulated Other Comprehensive Income (Loss)

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

($ in thousands) March 31, 2022 December 31, 2021

Unrealized loss on securities available for sale $ ( 213,862 ) ( 32,067 )

Deferred tax asset 49,145 7,369

Net unrealized loss on securities available for sale ( 164,717 ) ( 24,698 )

Postretirement plans liability ( 309 ) ( 353 )

Deferred tax asset 71 81

Net postretirement plans liability ( 238 ) ( 272 )

Total accumulated other comprehensive loss $ ( 164,955 ) ( 24,970 )

The following table discloses the changes in accumulated other comprehensive loss for the three months ended March 31, 2022 (all amounts are net of tax).

($ in thousands) Unrealized Loss on

Available for Sale Postretirement Plans Asset

(Liability) Total

Beginning balance at January 1, 2022 $ ( 24,698 ) ( 272 ) ( 24,970 )

Other comprehensive loss before reclassifications ( 140,019 ) — ( 140,019 )

Amounts reclassified from accumulated other comprehensive income

Net current-period other comprehensive (loss) income ( 140,019 ) 34 ( 139,985 )

Ending balance at March 31, 2022 $ ( 164,717 ) ( 238 ) ( 164,955 )

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

($ in thousands) Unrealized Gain

Available for Sale Postretirement Plans Asset

(Liability) Total

Beginning balance at January 1, 2021 $ 15,749 ( 1,399 ) 14,350

Other comprehensive loss before reclassifications ( 18,666 ) — ( 18,666 )

Amounts reclassified from accumulated other comprehensive income

Net current-period other comprehensive (loss) income ( 18,666 ) 131 ( 18,535 )

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

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.

Note 14 – Revenue from Contracts with Customers

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

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

The following table presents the Company’s sources of noninterest income for the three months ended March 31, 2022 and 2021.

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

For the Three Months Ended For the Nine Months Ended

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

For the Three Months Ended

($ in thousands) March 31, 2022 March 31, 2021

Noninterest Income:

3 unchanged sentences

Other service charges, commissions, and fees:

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

Interchange income 4,711 3,524

Other service charges and fees 2,263 1,998

2,059 2,582 6,144 5,303

Commissions from sales of insurance and financial products:

Insurance income — 1,326

70 1,477 2,789 4,058

Wealth management income 945 864

1,128 880 3,065 2,457

SBA consulting fees 780 2,764

1,128 1,956 6,079 6,722

Noninterest income (in-scope of ASC 606) 12,240 13,209

11,999 13,070 39,181 36,313

Noninterest income (out-of-scope of ASC 606) 7,011 7,460

4,512 8,382 19,373 25,037

Total noninterest income $ 19,251 20,669

16 unchanged sentences

Commissions from the sale of insurance and financial products:

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

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.

2 unchanged sentences

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

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

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.

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 recognized the revenue.

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

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

SBA consulting fees:

1 unchanged sentence

Fees are based on a percentage of the dollar amount of the originated loans and are recorded when the performance obligation has been satisfied.

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

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

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

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

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

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

The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from the above-described contracts with customers.

Note 12 – Leases

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

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

The Company also leases office space for several operational departments.

All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from May 2022 through May 2076, some of which include options for multiple five - and ten-year extensions.

The weighted average remaining life of the lease term for these leases was 21.2 years as of September 30, 2021.

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

Leases are classified as either operating or finance leases at the lease commencement date, and as previously noted, all of the Company's leases have been determined to be operating leases.

Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term.

Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

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

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

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

The right-of-use assets and lease liabilities were $ 16.9 million and $ 17.3 million as of September 30, 2021, respectively, and were $ 17.5 million and $ 17.9 million as of December 31, 2020, respectively.

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

($ in thousands)

October 1, 2021 to December 31, 2021 $ 421

Thereafter 19,051

Total undiscounted lease payments 25,805

Less effect of discounting ( 8,482 )

Present value of estimated lease payments (lease liability) $ 17,323

Note 13 - Shareholders' Equity

Stock Repurchases

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

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

Note 14 - Borrowings

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

Description Due date Call Feature September 30, 2021 Interest Rate

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

FHLB Principal Reducing Credit 12/22/2023 None 962 1.25 % fixed

FHLB Principal Reducing Credit 1/15/2026 None 4,500 1.98 % fixed

FHLB Principal Reducing Credit 6/26/2028 None 227 0.25 % fixed

FHLB Principal Reducing Credit 7/17/2028 None 45 0.00 % fixed

FHLB Principal Reducing Credit 8/18/2028 None 168 1.00 % fixed

FHLB Principal Reducing Credit 8/22/2028 None 168 1.00 % fixed

FHLB Principal Reducing Credit 12/20/2028 None 345 0.50 % fixed

Trust Preferred Securities 1/23/2034 Quarterly by Company

beginning 1/23/2009 20,620 2.83 % at 9/30/21

adjustable rate

3 month LIBOR + 2.70 %

Trust Preferred Securities 6/15/2036 Quarterly by Company

beginning 6/15/2011 25,774 1.51 % at 9/30/21

adjustable rate

3 month LIBOR + 1.39 %

Trust Preferred Securities 1/7/2035 Quarterly by Company

beginning 1/7/2010 10,310 2.13 % at 9/30/21

adjustable rate

3 month LIBOR + 2.00 %

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

Unamortized discount on acquired borrowings ( 2,446 )

Total borrowings $ 60,764

Description Due date Call Feature December 31, 2020 Interest Rate

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

FHLB Principal Reducing Credit 12/22/2023 None 991 1.25 % fixed

FHLB Principal Reducing Credit 1/15/2026 None 5,500 1.98 % fixed

FHLB Principal Reducing Credit 6/26/2028 None 235 0.25 % fixed

FHLB Principal Reducing Credit 7/17/2028 None 49 0.00 % fixed

FHLB Principal Reducing Credit 8/18/2028 None 174 1.00 % fixed

FHLB Principal Reducing Credit 8/22/2028 None 174 1.00 % fixed

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

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

Trust Preferred Securities 1/23/2034 Quarterly by Company

beginning 1/23/2009 20,620 2.91 % at 12/31/2020

adjustable rate

3 month LIBOR + 2.70 %

Trust Preferred Securities 6/15/2036 Quarterly by Company

beginning 6/15/2011 25,774 1.61 % at 12/31/2020

adjustable rate

3 month LIBOR + 1.39 %

Trust Preferred Securities 1/7/2035 Quarterly by Company

beginning 1/7/2010 10,310 2.24 % at 12/31/2020

adjustable rate

3 month LIBOR + 2.00 %

Total borrowings / weighted average rate as of December 31, 2020 $ 64,409 2.22 %

Unamortized discount on acquired borrowings ( 2,580 )

Total borrowings $ 61,829

Note 15 - Disposition

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

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

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

Note 16 - Subsequent Event

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

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

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

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

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

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

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

What changed 10-Q

Item 1. Financial Statements