FIRST BANCORP /NC/ 10-Q

Item 1 - Financial Statements First Bancorp and Subsidiaries Consolidated Balance Sheets ($ in thousands - unaudited) September 30, 2023 December 31, 2022 ASSETS Cash and due from banks, noninterest-bearing $ 95,257 101,133 Due from banks, interest-bearing 178,332 169,185 Total cash and cash equivalents 273,589 270,318 Securities available for sale 2,100,406 2,314,493 Securities held to maturity (fair values of $ 410,321 and $ 432,528 ) 535,460 541,700 Presold mortgages and SBA loans in process of settlement 8,060 1,282 Loans 8,027,037 6,665,145 Allowance for credit losses on loans ( 108,198 ) ( 90,967 ) Net loans 7,918,839 6,574,178 Premises and equipment 151,981 134,187 Operating right-of-use lease assets 17,604 18,733 Accrued interest receivable 34,414 29,710 Goodwill 478,750 364,263 Other intangible assets 34,879 12,675 Bank-owned life insurance 182,764 164,592 Other assets 241,214 198,918 Total assets $ 11,977,960 10,625,049 LIABILITIES Deposits: Noninterest-bearing deposits $ 3,503,050 3,566,003 Interest-bearing deposits 6,732,353 5,661,526 Total deposits 10,235,403 9,227,529 Borrowings 401,843 287,507 Accrued interest payable 5,511 2,738 Operating lease liabilities 18,348 19,391 Other liabilities 59,172 56,288 Total liabilities 10,720,277 9,593,453 Commitments and contingencies SHAREHOLDERS’ EQUITY Preferred stock, no par value per share. Authorized: 5,000,000 shares Issued & outstanding: none as of September 30, 2023 and December 31, 2022 — — Common stock, no par value per share. Authorized: 60,000,000 shares Issued & outstanding: 41,085,498 shares and 35,704,154 shares as of September 30, 2023 and December 31, 2022, respectively 962,644 725,153 Retained earnings 695,791 648,418 Stock in rabbi trust assumed in acquisition ( 1,375 ) ( 1,585 ) Rabbi trust obligation 1,375 1,585 Accumulated other comprehensive loss ( 400,752 ) ( 341,975 ) Total shareholders’ equity 1,257,683 1,031,596 Total liabilities and shareholders’ equity $ 11,977,960 10,625,049 See accompanying notes to unaudited consolidated financial statements. Page 4 Index First Bancorp and Subsidiaries Consolidated Statements of Income Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands, except share data - unaudited) 2023 2022 2023 2022 INTEREST INCOME Interest and fees on loans $ 106,514 72,239 308,857 201,518 Interest on investment securities: Taxable interest income 12,936 13,450 39,415 40,045 Tax-exempt interest income 1,118 1,115 3,368 3,267 Other, principally overnight investments 3,283 1,486 10,546 3,016 Total interest income 123,851 88,290 362,186 247,846 INTEREST EXPENSE Interest on deposits 32,641 1,848 78,887 5,204 Interest on borrowings 6,508 1,108 19,125 2,160 Total interest expense 39,149 2,956 98,012 7,364 Net interest income 84,702 85,334 264,174 240,482 Provision for loan losses 1,200 5,100 16,351 8,600 (Reversal of) provision for unfunded commitments ( 1,200 ) 300 ( 1,487 ) ( 1,200 ) Total provision for credit losses — 5,400 14,864 7,400 Net interest income after provision for credit losses 84,702 79,934 249,310 233,082 NONINTEREST INCOME Service charges on deposit accounts 4,661 4,166 13,012 11,407 Other service charges and fees 5,450 6,312 16,677 21,200 Fees from presold mortgage loans 325 376 1,288 1,951 Commissions from sales of financial products 1,207 1,391 3,926 3,487 SBA consulting fees 478 479 1,408 1,963 SBA loan sale gains 1,101 479 2,052 4,581 Bank-owned life insurance income 1,104 962 3,216 2,880 Other gains, net 851 2,747 1,369 5,958 Total noninterest income 15,177 16,912 42,948 53,427 NONINTEREST EXPENSE Salaries expense 29,394 24,416 87,391 71,669 Employee benefits expense 6,539 4,156 19,097 16,044 Total personnel expense 35,933 28,572 106,488 87,713 Occupancy expense 3,409 3,175 10,644 9,681 Equipment related expenses 1,594 1,672 4,398 4,490 Merger and acquisition expenses — 548 13,506 4,769 Intangibles amortization expense 1,953 889 6,147 2,859 Other operating expenses 19,335 13,844 56,809 40,051 Total noninterest expenses 62,224 48,700 197,992 149,563 Income before income taxes 37,655 48,146 94,266 136,946 Income tax expense 7,762 10,197 19,809 28,443 Net income $ 29,893 37,949 74,457 108,503 Earnings per common share: Basic $ 0.73 1.06 1.82 3.04 Diluted 0.73 1.06 1.81 3.04 Dividends declared per common share $ 0.22 0.22 0.66 0.66 Weighted average common shares outstanding: Basic 40,744,042 35,469,001 40,691,751 35,474,239 Diluted 41,199,058 35,703,446 41,149,990 35,662,527 See accompanying notes to unaudited consolidated financial statements. Page 5 Index First Bancorp and Subsidiaries Consolidated Statements of Comprehensive Income Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands - unaudited) 2023 2022 2023 2022 Net income $ 29,893 37,949 74,457 108,503 Other comprehensive income (loss): Unrealized losses on securities available for sale: Unrealized losses arising during the period ( 81,515 ) ( 141,155 ) ( 77,597 ) ( 432,573 ) Tax benefit 18,871 32,437 18,719 99,405 Postretirement Plans: Amortization of unrecognized net actuarial loss 44 44 132 132 Tax expense ( 10 ) ( 10 ) ( 31 ) ( 30 ) Other comprehensive loss ( 62,610 ) ( 108,684 ) ( 58,777 ) ( 333,066 ) Comprehensive (loss) income $ ( 32,717 ) ( 70,735 ) 15,680 ( 224,563 ) See accompanying notes to unaudited consolidated financial statements. Page 6 Index First Bancorp and Subsidiaries Consolidated Statements of Shareholders’ Equity ($ in thousands, except share data - unaudited) Common Stock Retained Earnings Stock in Rabbi Trust Assumed in Acquisition Rabbi Trust Obligation Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Amount Three Months Ended September 30, 2022 Balances, July 1, 2022 35,684 $ 723,956 587,739 ( 1,573 ) 1,573 ( 249,352 ) 1,062,343 Net income 37,949 37,949 Cash dividends declared ($ 0.22 per common share) ( 7,849 ) ( 7,849 ) Change in Rabbi Trust Obligation ( 12 ) 12 — Stock-based compensation 28 738 738 Other comprehensive loss ( 108,684 ) ( 108,684 ) Balances, September 30, 2022 35,712 $ 724,694 617,839 ( 1,585 ) 1,585 ( 358,036 ) 984,497 Three Months Ended September 30, 2023 Balances, July 1, 2023 41,083 $ 960,851 674,933 ( 1,365 ) 1,365 ( 338,142 ) 1,297,642 Net income 29,893 29,893 Cash dividends declared ($ 0.22 per common share) ( 9,035 ) ( 9,035 ) Change in Rabbi Trust Obligation ( 10 ) 10 — Stock options exercised 2 66 66 Stock-based compensation — 1,727 1,727 Other comprehensive loss ( 62,610 ) ( 62,610 ) Balances, September 30, 2023 41,085 $ 962,644 695,791 ( 1,375 ) 1,375 ( 400,752 ) 1,257,683 See accompanying notes to unaudited consolidated financial statements. Page 7 Index First Bancorp and Subsidiaries Consolidated Statements of Shareholders’ Equity ($ in thousands, except share data - unaudited) Common Stock Retained Earnings Stock in Rabbi Trust Assumed in Acquisition Rabbi Trust Obligation Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Amount Nine Months Ended September 30, 2022 Balances, January 1, 2022 35,629 $ 722,671 532,874 ( 1,803 ) 1,803 ( 24,970 ) 1,230,575 Net income 108,503 108,503 Cash dividends declared ($ 0.66 per common share) ( 23,538 ) ( 23,538 ) Change in Rabbi Trust Obligation 218 ( 218 ) — Stock withheld for payment of taxes ( 17 ) ( 603 ) ( 603 ) Stock-based compensation 100 2,626 2,626 Other comprehensive loss ( 333,066 ) ( 333,066 ) Balances, September 30, 2022 35,712 $ 724,694 617,839 ( 1,585 ) 1,585 ( 358,036 ) 984,497 Nine Months Ended September 30, 2023 Balances, January 1, 2023 35,704 725,153 648,418 ( 1,585 ) 1,585 ( 341,975 ) 1,031,596 Net income 74,457 74,457 Cash dividends declared ($ 0.66 per common share) ( 27,084 ) ( 27,084 ) Change in Rabbi Trust Obligation 210 ( 210 ) — Equity issued pursuant to acquisition 5,033 229,489 229,489 Stock options exercised 195 3,769 3,769 Stock withheld for payment of taxes ( 6 ) ( 186 ) ( 186 ) Stock-based compensation 159 4,419 4,419 Other comprehensive loss ( 58,777 ) ( 58,777 ) Balances, September 30, 2023 41,085 $ 962,644 695,791 ( 1,375 ) 1,375 ( 400,752 ) 1,257,683 See accompanying notes to unaudited consolidated financial statements. Page 8 Index First Bancorp and Subsidiaries Consolidated Statements of Cash Flows Nine Months Ended September 30, ($ in thousands-unaudited) 2023 2022 Cash Flows From Operating Activities Net income $ 74,457 108,503 Reconciliation of net income to net cash provided by operating activities: Provision for credit losses and unfunded commitments, net 14,864 7,400 Net security premium amortization 7,082 9,431 Decrease in net deferred tax asset ( 2,839 ) ( 465 ) Loan discount accretion ( 10,354 ) ( 4,736 ) Other purchase accounting amortization and accretion, net 3,241 ( 335 ) Foreclosed property net gains ( 131 ) ( 372 ) Other gains, net ( 1,402 ) ( 5,958 ) Bank-owned life insurance income ( 3,216 ) ( 2,880 ) Decrease in net deferred loan fees ( 1,087 ) ( 570 ) Depreciation of premises and equipment 5,583 5,152 Amortization of operating lease right-of-use assets 1,559 1,489 Repayments of lease obligations ( 1,473 ) ( 1,345 ) Stock-based compensation expense 3,972 2,286 Amortization of intangible assets 6,147 2,859 Amortization and impairment of SBA servicing assets 952 2,239 Fees/gains from sale of presold mortgages and SBA loans ( 3,340 ) ( 6,532 ) Origination of presold mortgage loans in process of settlement ( 64,379 ) ( 96,589 ) Proceeds from sales of presold mortgage loans in process of settlement 61,636 114,133 Origination of SBA loans for sale ( 43,499 ) ( 62,190 ) Proceeds from sales of SBA and other loans 30,526 109,608 Decrease in accrued interest receivable 1,033 564 Decrease in other assets 3,253 5,925 Increase in accrued interest payable 2,391 274 Increase (decrease) in other liabilities 793 ( 8,682 ) Net cash provided by operating activities 85,769 179,209 Cash Flows From Investing Activities Purchases of securities available for sale — ( 354,765 ) Purchases of securities held to maturity — ( 39,004 ) Proceeds from maturities, calls and principal repayments of securities available for sale 133,341 208,438 Proceeds from maturities, calls and principal repayments of securities held to maturity 2,807 5,158 Proceeds from sales of securities available for sale 111,863 — Purchases of Federal Reserve and FHLB stock, net ( 15,790 ) ( 13,826 ) Proceeds from bank owned life insurance death benefits 136 5,827 Net increase in loans ( 347,419 ) ( 422,655 ) Proceeds from sales of foreclosed properties 554 2,904 Purchases of premises and equipment ( 3,201 ) ( 3,749 ) Proceeds from sales of premises and equipment 59 158 Net cash received in acquisition activities 22,610 — Net cash used by investing activities ( 95,040 ) ( 611,514 ) Cash Flows From Financing Activities Net (decrease) increase in deposits ( 40,040 ) 105,166 Advances from other borrowings 1,665,000 328,000 Repayment of other borrowings ( 1,590,099 ) ( 169,099 ) Cash dividends paid – common stock ( 25,902 ) ( 22,806 ) Proceeds from stock option exercises 3,769 — Payment of taxes related to stock withheld ( 186 ) ( 603 ) Net cash provided by financing activities 12,542 240,658 Increase (decrease) in cash and cash equivalents 3,271 ( 191,647 ) Cash and cash equivalents, beginning of period 270,318 461,162 Cash and cash equivalents, end of period $ 273,589 269,515 (Continued) Page 9 Index First Bancorp and Subsidiaries Consolidated Statements of Cash Flows Nine Months Ended September 30, ($ in thousands-unaudited) 2023 2022 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for interest $ 92,383 7,425 Cash paid during the period for income taxes 21,856 29,091 Non-cash: Unrealized loss on securities available for sale, net of taxes ( 58,878 ) ( 333,168 ) Non-cash: Foreclosed loans transferred to other real estate 1,000 119 Non-cash: Accrued dividends at end of period 9,039 7,857 Non-cash: Initial recognition of operating lease right-of-use assets and operating lease liabilities 260 — Non-cash: Revision of operating lease right-of-use assets and operating lease liabilities ( 562 ) — Acquisition of GrandSouth Bancorporation See Note 2 — See accompanying notes to consolidated financial statements. Page 10 Index First Bancorp and Subsidiaries Notes to Consolidated Financial Statements (unaudited) 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 September 30, 2023, the consolidated results of operations for the three and nine months ended September 30, 2023 and 2022, and the consolidated cash flows for the nine months ended September 30, 2023 and 2022. Any such adjustments were of a normal, recurring nature. 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, 2022. 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 2022 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. Certain reclassifications have been made to the September 30, 2022 and December 31, 2022 consolidated financial statements to be comparable to September 30, 2023. These reclassifications had no effect on net income. The Company has evaluated all subsequent events through the date the financial statements were issued. Accounting Standards Adopted in 2023 ASU 2022-02, "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage D isclosures ." The amendments contained in this Accounting Standards Update ("ASU") eliminate the accounting guidance for troubled debt restructurings ("TDR") 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. The Company adopted ASU 2022-02 effective January 1, 2023 using a modified retrospective transition approach for the amendments related to the recognition and measurement of TDRs. The impact of the adoption resulted in an immaterial change to the allowance for credit losses ("ACL"), thus no adjustment to retained earnings was recorded. Disclosures have been updated to reflect information on loan modifications given to borrowers experiencing financial difficulty as presented in Note 4. TDR disclosures are presented for comparative periods only and are not required to be updated in current periods. Additionally, the current year vintage disclosure included in Note 4 has been updated to reflect gross charge-offs by year of origination for the nine months ended September 30, 2023. ASU 2022-03, "Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." This ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security, and, therefore, is not considered in measuring fair value. The Company adopted ASU 2022-03 January 1, 2023 with no material impact on its financial statements. ASU 2022-06 , " Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ." In 2020, the Financial Accounting Standards Board ("FASB") issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provided optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform. The objective of the guidance in Topic 848 was to provide relief during the temporary transition period and the FASB included a sunset provision based on expectations of when the London Interbank Offered Rate ("LIBOR") would cease being Page 11 Index published. The United Kingdom Financial Conduct Authority has extended the intended LIBOR cessation date from December 31, 2021 to June 30, 2023. As such, ASU 2022-06 deferred the sunset date previously set to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848; moreover, it applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2022-06 was adopted upon issuance. The Company will continue to elect various optional expedients for contract modifications affected by rate reference reform through the effective date of this guidance with no material effect on its financial statements. Accounting Standards Pending Adoption ASU 2023-02 , “ Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ” permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. This update is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The adoption of ASU 2023-02 is not expected to have a significant impact on the Company's consolidated financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. Note 2 – Acquisitions On January 1, 2023, the Company completed its acquisition of GrandSouth Bancorporation ("GrandSouth"), in an all-stock transaction pursuant to the Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), dated June 21, 2022, between the Company and GrandSouth. At the closing of the transaction, GrandSouth merged into the Company. Following the merger of the Company and GrandSouth, GrandSouth Bank, a wholly-owned subsidiary of GrandSouth, merged into the Bank with the Bank being the surviving entity. The results of GrandSouth are included beginning on the January 1, 2023 acquisition date. Pursuant to the Merger Agreement, each share of common and preferred stock of GrandSouth issued and outstanding immediately prior to the effective time of the acquisition was converted into 0.91 shares of the Company's common stock. As a result, the Company issued 5,032,834 shares of the Company common stock effective January 1, 2023. In addition, GrandSouth common stock options outstanding at the merger effective time were converted to options to acquire 0.91 shares of the Company's common stock resulting in 542,345 options with an average exercise price of approximately $ 20.14 . The total consideration transferred at the close of the transaction was $ 229.5 million which was determined based on the number of shares issued and the closing market price of the Company's stock immediately prior to the merger effective time of $ 42.84 . In addition to the stock issued, the fair value of the converted stock options calculated in accordance with FASB Accounting Standards Codification ("ASC") 805-30-55 was included in the total consideration of the transaction. As a result of the merger, eight branches in South Carolina were added to the Company's branch network. The acquisition accomplished the Company's strategic initiative to expand its presence in South Carolina, specifically in the high-growth markets of the state including Greenville, Charleston and Columbia. Significant synergies were anticipated to be gained from the acquisition, with asset growth and revenue enhancement opportunities from the new markets and expanded customer base. Accordingly, the Company recognized goodwill in the transaction related primarily to the reasons noted, as well as the positive earnings of GrandSouth. This transaction was accounted for using the acquisition method of accounting for business combinations, and accordingly, the assets acquired, intangible assets identified, and liabilities assumed of GrandSouth were recorded based on estimates of fair values as of January 1, 2023. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. Estimated fair values were based on management’s best estimates, using the information available at the date of acquisition, including the use of third-party valuation specialists. Management has finalized the valuations of all acquired assets and liabilities assumed in the GrandSouth acquisition. The following table summarizes the estimated fair value of acquired assets, identified intangible assets, and liabilities assumed as of January 1, 2023. Following the table is a discussion of valuation approaches utilized in Page 12 Index estimating the fair values in accordance with ASC 805-10, " Business Combinations ." The $ 114.5 million in goodwill that resulted from this transaction is non-deductible for tax purposes. ($ in thousands) Fair Value Estimate Assets acquired: Cash and cash equivalents $ 22,610 Securities available for sale 112,363 Loans, gross 996,833 Allowance for loan losses ( 5,610 ) Premises and equipment 20,268 Core deposit intangible 28,840 Operating right-of-use lease assets 732 Other assets 27,163 Total 1,203,199 Liabilities assumed: Deposits 1,045,308 Borrowings 38,800 Other liabilities 4,089 Total 1,088,197 Net identifiable assets acquired 115,002 Less: Total consideration 229,489 Goodwill recorded related to acquisition of GrandSouth $ 114,487 The following is a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed included in the table above. Cash and cash equivalents: This consists primarily of cash and due from banks, and interest-bearing deposits with banks. The carrying amount of these assets was a reasonable estimate of fair value based on the short-term nature of these assets. Securities available for sale: Fair value of securities was measured based on quoted market prices, where available. If a quoted market price was not available, fair value was estimated using quoted market prices for similar securities and adjusted for differences between the quoted instrument and the instrument being valued. Substantially all of the securities acquired from GrandSouth were liquidated at their recorded fair value upon close of the transaction or shortly thereafter. There was no gain or loss recorded on the sale of acquired securities. Loans: Fair value of loans acquired was based on a discounted cash flow methodology that considered factors including loan type and related collateral, classification status, remaining term of the loan, fixed or variable interest rate, amortization status, and current discount rates. Expected cash flows were derived using inputs consistent with management's assessment of credit risk for allowance measurement, including estimated future credit losses and estimated prepayments. A total fair value mark of $ 29.5 million was recorded. Purchased loans with financial deterioration ("PCD loans") were determined based primarily on internal grades, delinquency status, and other evidence of credit deterioration. The Company calculated the "Day 1" allowance of $ 5.6 million on PCD loans in accordance with its current expected credit loss model ("CECL") and reclassified that amount from the fair value mark to establish the initial ACL on PCD loans. The following table presents additional information related to the acquired loan portfolio at the acquisition date: Page 13 Index ($ in thousands) January 1, 2023 PCD Loans: Par value $ 152,487 Allowance for credit losses ( 5,610 ) Non-credit discount ( 1,370 ) Purchase price 145,507 Non-PCD Loans: Fair Value 845,716 Gross contractual amounts receivable 865,132 Estimate of contractual cash flows not expected to be collected 22,542 Premises: Land and buildings held for use were valued at appraised values, which reflected considerations of recent disposition values for similar property types with adjustments for characteristics of individual properties. Intangible assets: Core deposit intangible ("CDI") asset represents the value of the relationships with deposit customers. The fair value for the core deposit intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of deposit base, net maintenance cost attributable to customer deposits and an estimate of the cost associated with alternative funding sources. The discount rates used for CDI assets were based on market rates. The CDI is being amortized over 10 years utilizing the sum of the months digits accelerated method, which results in a weighted-average amortization period of approximately 41 months. Lease Assets and Lease Liabilities: Lease assets and lease liabilities were measured using a methodology that involved estimating the future lease payments over the remaining lease term with discounting using a discount rate. The lease term was determined for individual leases based on management's assessment of the probability of exercising existing renewal options. Deposits: The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the acquisition date. Fair values for time deposits were estimated using a discounted cash flow analysis applying interest rates currently offered to the contractual interest rates on such time deposits. Borrowings: The fair values of long-term debt instruments were estimated based on quoted market prices for instrument if available, or for similar instruments if not available. Supplemental Pro Forma Financial Information The following table presents certain pro forma information as if GrandSouth had been acquired on January 1, 2022. These results combine the historical results of GrandSouth with the Company’s results and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2022. Merger-related costs related to this acquisition of $ 13.5 million for the nine months ended September 30, 2023 were recorded by the Company and were excluded from the pro forma information below. There were no merger costs for the three months ended September 30, 2023. In addition, no adjustments have been made to such pro forma information to eliminate the provision for loan losses recorded by GrandSouth in the amount of $ 1.1 million and $ 1.5 million for the three and nine months ended September 30, 2022. Pro forma information for the three and nine months ended September 30, 2023 was adjusted to eliminate the following: 1) the non-PCD provision for loan losses recorded on the acquisition date of $ 12.2 million and 2) the initial recording of a provision for credit losses associated with GrandSouth’s unfunded commitments of $ 1.9 million. If the GrandSouth acquisition had occurred at the beginning of 2022, the acquisition date credit loss reserve amounts would have been included in the fair value measurements of GrandSouth and also included in the goodwill calculation. The following table also discloses the impact of the acquisition of GrandSouth from the acquisition date of January 1, 2023 through September 30, 2023. These amounts are included in the Company’s consolidated financial Page 14 Index statements as of and for the three and nine months ended September 30, 2023. Merger-related costs have been excluded from these amounts and the provisions for credit loss amounts associated with non-PCD loans and unfunded commitments that were discussed above have also been excluded. ($ in thousands) For the three months ended For the nine months ended September 30, 2023 September 30, 2023 Revenue Net Income Revenue Net Income Actual GrandSouth results included in statement of income since acquisition date $ 14,209 $ 4,940 $ 43,516 $ 15,891 ($ in thousands) For the three months ended For the nine months ended September 30, 2022 September 30, 2022 Revenue Net Income Revenue Net Income Supplemental consolidated pro forma for the Company as if GrandSouth had been acquired on January 1, 2022 118,385 41,921 339,057 119,134 Note 3 – Securities The book values and approximate fair values of investment securities at September 30, 2023 and December 31, 2022 are summarized as follows: ($ in thousands) September 30, 2023 December 31, 2022 Amortized Cost Fair Value Unrealized Amortized Cost Fair Value Unrealized Gains (Losses) Gains (Losses) Securities available for sale: U.S. Treasuries $ 174,693 170,859 — ( 3,834 ) 174,420 168,758 — ( 5,662 ) Government-sponsored enterprise securities 71,962 56,904 — ( 15,058 ) 71,957 57,456 — ( 14,501 ) Mortgage-backed securities 2,355,736 1,854,448 — ( 501,288 ) 2,467,839 2,045,000 4 ( 422,843 ) Corporate bonds 19,675 18,195 — ( 1,480 ) 44,340 43,279 — ( 1,061 ) Total available for sale $ 2,622,066 2,100,406 — ( 521,660 ) 2,758,556 2,314,493 4 ( 444,067 ) Securities held to maturity: Mortgage-backed securities $ 12,755 11,674 — ( 1,081 ) 15,150 14,221 — ( 929 ) State and local governments 522,705 398,647 — ( 124,058 ) 526,550 418,307 7 ( 108,250 ) Total held to maturity $ 535,460 410,321 — ( 125,139 ) 541,700 432,528 7 ( 109,179 ) All of the Company’s mortgage-backed securities were issued by government-sponsored enterprises ("GSE"), except for private mortgage-backed securities with a fair value of $ 0.8 million as of September 30, 2023 and December 31, 2022. The following table presents information regarding all securities with unrealized losses at September 30, 2023: Page 15 Index Securities in an Unrealized Loss Position for Less than 12 Months Securities in an Unrealized Loss Position for More than 12 Months Total ($ in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasuries $ — — 170,859 3,834 170,859 3,834 Government-sponsored enterprise securities — — 56,904 15,058 56,904 15,058 Mortgage-backed securities 1,974 12 1,863,253 502,357 1,865,227 502,369 Corporate bonds 400 18 16,045 1,462 16,445 1,480 State and local governments 5,398 278 393,249 123,780 398,647 124,058 Total unrealized loss position $ 7,772 308 2,500,310 646,491 2,508,082 646,799 The following table presents information regarding all securities with unrealized losses at December 31, 2022: Securities in an Unrealized Loss Position for Less than 12 Months Securities in an Unrealized Loss Position for More than 12 Months Total ($ in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses US Treasury securities $ 168,758 5,662 — — 168,758 5,662 Government-sponsored enterprise securities — — 57,456 14,501 57,456 14,501 Mortgage-backed securities 221,006 18,215 1,835,958 405,557 2,056,964 423,772 Corporate bonds 40,644 947 886 114 41,530 1,061 State and local governments 48,385 8,323 368,897 99,927 417,282 108,250 Total unrealized loss position $ 478,793 33,147 2,263,197 520,099 2,741,990 553,246 As of September 30, 2023, the Company's securities portfolio held 656 securities of which 652 securities were in an unrealized loss position. As of December 31, 2022, the Company's securities portfolio held 666 securities of which 644 securities were in an unrealized loss position. In the above tables, all of the securities that were in an unrealized loss position at September 30, 2023 and December 31, 2022 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 state and local government investments are comprised almost entirely of highly-rated municipal bonds issued by state and local governments throughout the nation. The Company has no significant concentrations of bond holdings from one state or local government entity. Nearly all of our mortgage-backed securities were issued by Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA"), Government National Mortgage Association ("GNMA"), or the Small Business Administration ("SBA"), each of which is a government agency or GSE and guarantees the repayment of the securities. 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. At September 30, 2023 and December 31, 2022, the Company determined that expected credit losses associated with held to maturity debt securities were insignificant. The book values and approximate fair values of investment securities at September 30, 2023, 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. Page 16 Index Securities Available for Sale Securities Held to Maturity ($ in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Due within one year $ 127,331 124,793 — — Due after one year but within five years 59,869 56,553 1,998 1,727 Due after five years but within ten years 78,130 63,691 122,111 96,588 Due after ten years 1,000 921 398,596 300,332 Mortgage-backed securities 2,355,736 1,854,448 12,755 11,674 Total securities $ 2,622,066 2,100,406 535,460 410,321 At September 30, 2023 and December 31, 2022, investment securities with carrying values of $ 1.6 billion and $ 758.0 million, respectively, were pledged as collateral for public deposits or at the Federal Reserve Bank of Richmond ("Federal Reserve") as security on lines of credit. At September 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than U.S. Government and its agencies or GSEs, in an amount greater than 10% of shareholders' equity. There were no sales of investment securities during the three or nine months ended September 30, 2023 with the exception of securities acquired from GrandSouth as discussed in Note 2. There was no gain or loss associated with the sale of acquired securities. Included in “Other assets” in the Consolidated Balance Sheets are investments in Federal Home Loan Bank (“FHLB”) and Federal Reserve stock totaling $ 55.4 million and $ 39.6 million at September 30, 2023 and December 31, 2022, respectively. These investments do not have readily determinable fair values. The FHLB stock had a cost and fair value of $ 22.6 million and $ 14.7 million at September 30, 2023 and December 31, 2022, respectively, and serves as part of the collateral for the Company’s line of credit with the FHLB and is also a requirement for membership in the FHLB system. The Federal Reserve stock had a cost and fair value of $ 32.8 million and $ 24.9 million at September 30, 2023 and December 31, 2022, respectively, and is a requirement for Federal Reserve member bank qualification. Periodically, both the FHLB and Federal Reserve recalculate the Company’s required level of holdings, and the Company either buys more stock or redeems a portion of the stock at cost. The Company determined that neither stock was impaired at either period end. The Company owns 12,356 Class B shares of Visa, Inc. (“Visa”) stock that were received upon Visa’s initial public offering. These shares are expected to convert into Class A Visa shares subsequent to the settlement of certain litigation against Visa, to which the Company is not a party. The Class B shares have transfer restrictions, and the conversion rate into Class A shares is periodically adjusted as Visa settles litigation. The conversion rate at September 30, 2023 was 1.5875 , which means the Company would have received approximately 19,615 Class A shares if the stock had converted on that date. This Class B stock does not have a readily determinable fair value and is carried at zero . If a readily determinable fair value becomes available for the Class B shares, or upon their conversion to Class A shares, the Company will adjust the carrying value of the stock to its market value with a credit to earnings. Page 17 Index Note 4 – Loans, Allowance for Credit Losses, and Asset Quality Information The following is a summary of the major categories of total loans outstanding: ($ in thousands) September 30, 2023 December 31, 2022 Amount Percentage Amount Percentage Commercial and industrial $ 893,910 11 % $ 641,941 9 % Construction, development & other land loans 1,008,289 13 % 934,176 14 % Commercial real estate - owner occupied 1,252,259 16 % 1,036,270 16 % Commercial real estate - non owner occupied 2,509,317 31 % 2,123,811 32 % Multi-family real estate 405,161 5 % 350,180 5 % Residential 1-4 family real estate 1,560,140 19 % 1,195,785 18 % Home equity loans/lines of credit 331,108 4 % 323,726 5 % Consumer loans 67,169 1 % 60,659 1 % Subtotal 8,027,353 100 % 6,666,548 100 % Unamortized net deferred loan fees ( 316 ) ( 1,403 ) Total loans $ 8,027,037 $ 6,665,145 Also included in the table above are various SBA loans, generally originated under the SBA 7A program, with additional information on these loans presented in the table below. ($ in thousands) September 30, 2023 December 31, 2022 Guaranteed portions of SBA loans included in table above $ 40,849 31,893 Unguaranteed portions of SBA loans included in table above 113,081 116,910 Total SBA loans included in the table above $ 153,930 148,803 Sold portions of SBA loans with servicing retained - not included in tables above $ 364,859 392,370 At September 30, 2023 and December 31, 2022, there were remaining unaccreted discounts on the retained portion of sold SBA loans amounting to $ 3.6 million and $ 4.3 milion, respectively. At September 30, 2023 and December 31, 2022, l oans in the amount of $ 6.4 billion and $ 5.3 billion, respectively, were pledged as collateral for certain borrowings. At September 30, 2023 and December 31, 2022, total loans included loans to executive officers and directors of the Company, and their associates, totaling approximately $ 5.5 million and $ 6.0 million, respectively. There were two new loans and advances on existing loans totaling approximately $ 45,000 for the nine months ended September 30, 2023 and repayments amounted to $ 0.5 million for that period. Available credit on related party loans totaled $ 1.3 million and $ 1.2 million at September 30, 2023 and December 31, 2022, respectively. Management does not believe these loans involve more than the normal risk of collectability or present other unfavorable features. As of September 30, 2023 and December 31, 2022, unamortized discounts on all acquired loans totaled $ 26.5 million and $ 11.6 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 ("NPA") are defined as nonaccrual loans, modifications to borrowers in financial distress, loans past due 90 or more days and still accruing interest, foreclosed real estate, and prior to the adoption of ASU 2022-02 on January 1, 2023, TDRs. Page 18 Index The following table summarizes the NPAs for each period presented. ($ in thousands) September 30, 2023 December 31, 2022 Nonaccrual loans $ 26,884 28,514 Modifications to borrowers in financial distress 10,723 — TDRs - accruing — 9,121 Total nonperforming loans 37,607 37,635 Foreclosed real estate 1,235 658 Total nonperforming assets $ 38,842 38,293 At September 30, 2023 and December 31, 2022, the Company had $ 3.2 million and $ 0.8 million, respectively, in residential mortgage loans in the process of foreclosure. At September 30, 2023, there were two loans with a commitment to lend additional funds of $ 0.1 million to borrowers whose loans were nonperforming. As of December 31, 2022, there was one such loan for an immaterial commitment to lend additional funds to the borrower whose loan was nonperforming. The following table is a summary of the Company’s nonaccrual loans by major categories as of September 30, 2023: ($ in thousands) Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Commercial and industrial $ 1,485 8,303 9,788 Construction, development & other land loans — 115 115 Commercial real estate - owner occupied 879 7,110 7,989 Commercial real estate - non owner occupied 1,941 1,127 3,068 Multi-family real estate — — — Residential 1-4 family real estate — 2,979 2,979 Home equity loans/lines of credit 538 2,242 2,780 Consumer loans — 165 165 Total $ 4,843 22,041 26,884 The following table is a summary of the Company’s nonaccrual loans by major categories as of December 31, 2022: ($ in thousands) Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Commercial and industrial $ 3,855 6,374 10,229 Construction, development & other land loans — 1,009 1,009 Commercial real estate - owner occupied 3,903 5,770 9,673 Commercial real estate - non owner occupied 1,107 1,725 2,832 Multi-family real estate — — — Residential 1-4 family real estate 157 3,132 3,289 Home equity loans/lines of credit — 1,397 1,397 Consumer loans — 85 85 Total $ 9,022 19,492 28,514 There was no interest income recognized during the periods presented 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. Page 19 Index The following table represents the accrued interest receivables written off by reversing interest income during each period indicated: ($ in thousands) Nine Months Ended September 30, 2023 For the Year Ended December 31, 2022 Nine Months Ended September 30, 2022 Commercial and industrial $ 182 102 56 Construction, development & other land loans 2 16 16 Commercial real estate - owner occupied 105 123 106 Commercial real estate - non owner occupied 8 15 2 Multi-family real estate — 1 — Residential 1-4 family real estate 29 45 32 Home equity loans/lines of credit 39 20 17 Consumer loans 2 2 2 Total $ 367 324 231 The following table presents an analysis of the payment status of the Company’s loans as of September 30, 2023: ($ in thousands) Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing 90 Days or More Past Due Nonaccrual Loans Accruing Current Total Loans Receivable Commercial and industrial $ 1,326 155 — 9,788 882,641 893,910 Construction, development & other land loans 693 339 — 115 1,007,142 1,008,289 Commercial real estate - owner occupied 1,864 — — 7,989 1,242,406 1,252,259 Commercial real estate - non owner occupied 76 — — 3,068 2,506,173 2,509,317 Multi-family real estate — — — — 405,161 405,161 Residential 1-4 family real estate 2,200 1,349 — 2,979 1,553,612 1,560,140 Home equity loans/lines of credit 720 111 — 2,780 327,497 331,108 Consumer loans 270 136 — 165 66,598 67,169 Total $ 7,149 2,090 — 26,884 7,991,230 8,027,353 Unamortized net deferred loan fees ( 316 ) Total loans 8,027,037 Page 20 Index The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2022: ($ in thousands) Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Accruing 90 Days or More Past Due Nonaccrual Loans Accruing Current Total Loans Receivable Commercial and industrial $ 438 565 — 10,229 630,709 641,941 Construction, development & other land loans 238 1,687 — 1,009 931,242 934,176 Commercial real estate - owner occupied 124 48 — 9,673 1,026,425 1,036,270 Commercial real estate - non owner occupied 496 49 — 2,832 2,120,434 2,123,811 Multi-family real estate — — — — 350,180 350,180 Residential 1-4 family real estate 3,415 25 — 3,289 1,189,056 1,195,785 Home equity loans/lines of credit 457 371 — 1,397 321,501 323,726 Consumer loans 249 66 — 85 60,259 60,659 Total $ 5,417 2,811 — 28,514 6,629,806 6,666,548 Unamortized net deferred loan fees ( 1,403 ) Total loans 6,665,145 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 $ 500,000 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 $ 500,000 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 ACL. The following table presents an analysis of collateral dependent loans of the Company as of September 30, 2023: ($ in thousands) Residential Property Business Assets Land Commercial Property Total Collateral-Dependent Loans Commercial and industrial $ — 2,542 — — 2,542 Commercial real estate - owner occupied — — — 1,228 1,228 Commercial real estate - non owner occupied — — — 1,941 1,941 Home equity loans/lines of credit 538 — — — 538 Total $ 538 2,542 — 3,169 6,249 The following table presents an analysis of collateral dependent loans of the Company as of December 31, 2022: ($ in thousands) Residential Property Business Assets Land Commercial Property Total Collateral-Dependent Loans Commercial and industrial $ — 6,394 — — 6,394 Commercial real estate - owner occupied — — — 4,578 4,578 Commercial real estate - non owner occupied — — — 2,145 2,145 Residential 1-4 family real estate 157 — — — 157 Total $ 157 6,394 — 6,723 13,274 Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the ACL based on the fair value of collateral. The ACL is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. The Company's policy is to obtain third-party appraisals on any significant pieces of collateral. For loans secured by real estate, the Company's policy is to write nonaccrual loans down to 90 % of the appraised value, which considers estimated selling costs that are usually incurred when disposing of real estate collateral. 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 % of appraised value to recognize additional Page 21 Index 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 excess collateral for any of the loan types noted above. The following tables presents the activity in the ACL on loans for each of the periods indicated. Fluctuations in the ACL each period are based on loan mix and growth, changes in the levels of nonperforming loans, economic forecasts impacting loss drivers, other assumptions and inputs to the CECL model, and as occurred in 2023, adjustments for acquired loan portfolios. Much of the change to the level of ACL during the nine months ended September 30, 2023 is attributed to the acquisition of GrandSouth. In addition to the "Day 1" allowance recorded for PCD loans of $ 5.6 million, the Company recorded a "Day 2" initial provision of $ 12.2 million related to the non-PCD loans in the GrandSouth portfolio. The balance of the change was a result of loan growth during the period and updated prepayment speed estimates in the CECL model. The higher rate environment has resulted in slower prepayments, thus increasing the projected ACL required. ($ in thousands) Beginning balance "Day 1" ACL for acquired PCD loans Charge-offs Recoveries Provisions / (Reversals) Ending balance As of and for the three months ended September 30, 2023 Commercial and industrial $ 23,442 — ( 2,650 ) 450 1,202 22,444 Construction, development & other land loans 18,477 — ( 120 ) 54 ( 4,761 ) 13,650 Commercial real estate - owner occupied 16,381 — ( 24 ) 34 1,873 18,264 Commercial real estate - non owner occupied 26,274 — — 302 ( 1,240 ) 25,336 Multi-family real estate 3,946 — — 3 ( 481 ) 3,468 Residential 1-4 family real estate 14,305 — — 50 4,374 18,729 Home equity loans/lines of credit 3,717 — — 11 ( 431 ) 3,297 Consumer loans 2,688 — ( 409 ) 67 664 3,010 Total $ 109,230 — ( 3,203 ) 971 1,200 108,198 As of and for the nine months ended September 30, 2023 Commercial and industrial $ 17,718 5,197 ( 6,361 ) 1,216 4,674 22,444 Construction, development & other land loans 15,128 49 ( 120 ) 277 ( 1,684 ) 13,650 Commercial real estate - owner occupied 14,972 191 ( 24 ) 104 3,021 18,264 Commercial real estate - non owner occupied 22,780 51 ( 235 ) 734 2,006 25,336 Multi-family real estate 2,957 — — 10 501 3,468 Residential 1-4 family real estate 11,354 113 — 275 6,987 18,729 Home equity loans/lines of credit 3,158 8 ( 2 ) 85 48 3,297 Consumer loans 2,900 1 ( 833 ) 144 798 3,010 Total $ 90,967 5,610 ( 7,575 ) 2,845 16,351 108,198 Page 22 Index ($ in thousands) Beginning balance Charge-offs Recoveries Provisions / (Reversals) Ending balance As of and for the year ended December 31, 2022 Commercial and industrial $ 16,249 ( 2,519 ) 756 3,232 17,718 Construction, development & other land loans 16,519 — 480 ( 1,871 ) 15,128 Commercial real estate - owner occupied 12,317 ( 214 ) 691 2,178 14,972 Commercial real estate - non owner occupied 16,789 ( 849 ) 1,281 5,559 22,780 Multi-family real estate 1,236 — 11 1,710 2,957 Residential 1-4 family real estate 8,686 — 17 2,651 11,354 Home equity loans/lines of credit 4,337 ( 43 ) 600 ( 1,736 ) 3,158 Consumer loans 2,656 ( 840 ) 207 877 2,900 Total $ 78,789 ( 4,465 ) 4,043 12,600 90,967 ($ in thousands) Beginning balance Charge-offs Recoveries Provisions / (Reversals) Ending balance As of and for the three months ended September 30, 2022 Commercial and industrial $ 15,450 ( 512 ) 166 2,482 17,586 Construction, development & other land loans 16,171 — 109 ( 1,352 ) 14,928 Commercial real estate - owner occupied 14,921 ( 52 ) 25 ( 436 ) 14,458 Commercial real estate - non owner occupied 20,124 ( 418 ) 85 991 20,782 Multi-family real estate 2,149 — 2 383 2,534 Residential 1-4 family real estate 8,650 — 1 2,064 10,715 Home equity loans/lines of credit 2,086 ( 2 ) 85 597 2,766 Consumer loans 2,630 ( 221 ) 38 371 2,818 Total $ 82,181 ( 1,205 ) 511 5,100 86,587 As of and for the nine months ended September 30, 2022 Commercial and industrial $ 16,249 ( 2,030 ) 636 2,731 17,586 Construction, development & other land loans 16,519 — 376 ( 1,967 ) 14,928 Commercial real estate - owner occupied 12,317 ( 70 ) 585 1,626 14,458 Commercial real estate - non owner occupied 16,789 ( 1,263 ) 974 4,282 20,782 Multi-family real estate 1,236 — 8 1,290 2,534 Residential 1-4 family real estate 8,686 — 16 2,013 10,715 Home equity loans/lines of credit 4,337 ( 43 ) 446 ( 1,974 ) 2,766 Consumer loans 2,656 ( 602 ) 165 599 2,818 Total $ 78,789 ( 4,008 ) 3,206 8,600 86,587 Page 23 Index Credit Quality Indicators The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type. The following describes the Company’s internal risk grades in ascending order of likelihood of loss: Risk Grade Description Pass: 1 Loans with virtually no risk, including cash secured loans. 2 Loans with documented significant overall financial strength. These loans have minimum chance of loss due to the presence of multiple sources of repayment – each clearly sufficient to satisfy the obligation. 3 Loans with documented satisfactory overall financial strength. These loans have a low loss potential due to presence of at least two clearly identified sources of repayment – each of which is sufficient to satisfy the obligation under the present circumstances. 4 Loans to borrowers with acceptable financial condition. These loans could have signs of minor operational weaknesses, lack of adequate financial information, or loans supported by collateral with questionable value or marketability. 5 Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management. Collateral is generally required and felt to provide reasonable coverage with realizable liquidation values in normal circumstances. Repayment performance is satisfactory. P (Pass) Consumer loans that are of satisfactory credit quality with borrowers who exhibit good personal credit history, average personal financial strength and moderate debt levels. These loans generally conform to Bank policy, but may include approved mitigated exceptions to the guidelines. Special Mention: 6 Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank. Classified: 7 An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. 8 Loans that have a well-defined weakness that make the collection or liquidation in full highly questionable and improbable. Loss appears imminent, but the exact amount and timing is uncertain. 9 Loans that are considered uncollectible and are in the process of being charged-off. This grade is a temporary grade assigned for administrative purposes until the charge-off is completed. F (Fail) Consumer loans 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. 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 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. Page 24 Index Term Loans by Year of Origination ($ in thousands) 2023 2022 2021 2020 2019 Prior Revolving Total As of September 30, 2023 Commercial and industrial Pass $ 112,558 176,542 117,495 79,161 42,202 64,829 284,368 877,155 Special Mention 550 171 115 206 968 864 2,867 5,741 Classified 1,507 482 620 1,606 1,354 4,695 750 11,014 Total commercial and industrial 114,615 177,195 118,230 80,973 44,524 70,388 287,985 893,910 Gross charge-offs, YTD — 1,036 691 249 672 1,196 2,517 6,361 Construction, development & other land loans Pass 414,163 335,922 146,919 18,035 12,146 7,942 70,770 1,005,897 Special Mention 693 368 60 — — 97 22 1,240 Classified 204 717 77 8 13 133 — 1,152 Total construction, development & other land loans 415,060 337,007 147,056 18,043 12,159 8,172 70,792 1,008,289 Gross charge-offs, YTD — — — — — 120 — 120 Commercial real estate - owner occupied Pass 161,535 322,115 310,113 204,501 97,149 110,290 17,842 1,223,545 Special Mention 710 2,550 471 1,057 5,778 2,525 344 13,435 Classified 4,545 1,514 1,624 261 2,299 4,952 84 15,279 Total commercial real estate - owner occupied 166,790 326,179 312,208 205,819 105,226 117,767 18,270 1,252,259 Gross charge-offs, YTD — — 22 — — 2 — 24 Commercial real estate - non owner occupied Pass 372,435 765,188 776,052 316,590 141,693 96,404 25,430 2,493,792 Special Mention 295 199 38 4,617 1,190 6,069 — 12,408 Classified 883 390 15 — 634 1,195 — 3,117 Total commercial real estate - non owner occupied 373,613 765,777 776,105 321,207 143,517 103,668 25,430 2,509,317 Gross charge-offs, YTD — — 235 — — — — 235 Multi-family real estate Pass 36,999 150,089 137,123 44,428 12,425 10,847 13,138 405,049 Special Mention — — — — — — — — Classified — 112 — — — — — 112 Total multi-family real estate 36,999 150,201 137,123 44,428 12,425 10,847 13,138 405,161 Gross charge-offs, YTD — — — — — — — — Residential 1-4 family real estate Pass 224,015 438,604 321,353 193,916 96,780 269,201 2,273 1,546,142 Special Mention 689 42 190 71 597 2,007 18 3,614 Classified 535 258 352 505 520 8,214 — 10,384 Total residential 1-4 family real estate 225,239 438,904 321,895 194,492 97,897 279,422 2,291 1,560,140 Gross charge-offs, YTD — — — — — — — — Home equity loans/lines of credit Pass 1,891 1,507 1,341 228 584 1,427 313,746 320,724 Special Mention 167 — 121 — — — 73 361 Classified 252 7 148 92 104 123 9,297 10,023 Total home equity loans/lines of credit 2,310 1,514 1,610 320 688 1,550 323,116 331,108 Gross charge-offs, YTD — — — — — — 2 2 Consumer loans Pass 13,809 14,457 5,781 2,595 575 669 28,963 66,849 Special Mention — — — — — — — — Classified 87 112 49 20 3 1 48 320 Total consumer loans 13,896 14,569 5,830 2,615 578 670 29,011 67,169 Gross charge-offs, YTD 184 38 59 4 — — 548 833 Total loans $ 1,348,522 2,211,346 1,820,057 867,897 417,014 592,484 770,033 8,027,353 Unamortized net deferred loan fees ( 316 ) Total loans, net of deferred loan fees 8,027,037 Total gross charge-offs, year to date $ 184 1,074 1,007 253 672 1,318 3,067 7,575 Page 25 Index Term Loans by Year of Origination ($ in thousands) 2022 2021 2020 2019 2018 Prior Revolving Total As of December 31, 2022 Commercial and industrial Pass $ 185,167 107,747 85,110 51,274 590 76,588 120,590 627,066 Special Mention 342 166 648 1,312 — 990 332 3,790 Classified 734 1,909 808 1,384 — 5,762 488 11,085 Total commercial and industrial 186,243 109,822 86,566 53,970 590 83,340 121,410 641,941 Construction, development & other land loans Pass 550,752 267,096 42,421 30,973 — 12,722 19,519 923,483 Special Mention 5,128 5 3,679 — — 100 13 8,925 Classified 656 107 38 899 — 44 24 1,768 Total construction, development & other land loans 556,536 267,208 46,138 31,872 — 12,866 19,556 934,176 Commercial real estate - owner occupied Pass 258,025 305,324 190,464 96,495 179 141,053 15,499 1,007,039 Special Mention 1,170 1,070 4,042 6,926 — 3,277 665 17,150 Classified 3,060 208 84 1,572 — 6,790 367 12,081 Total commercial real estate - owner occupied 262,255 306,602 194,590 104,993 179 151,120 16,531 1,036,270 Commercial real estate - non owner occupied Pass 718,696 747,653 319,708 141,284 — 168,096 21,159 2,116,596 Special Mention 545 44 394 1,363 — 1,180 — 3,526 Classified 420 1,057 — 884 — 1,328 — 3,689 Total commercial real estate - non owner occupied 719,661 748,754 320,102 143,531 — 170,604 21,159 2,123,811 Multi-family real estate Pass 119,922 133,701 59,452 9,669 — 15,212 12,224 350,180 Special Mention — — — — — — — — Classified — — — — — — — — Total multi-family real estate 119,922 133,701 59,452 9,669 — 15,212 12,224 350,180 Residential 1-4 family real estate Pass 317,282 274,756 186,102 98,559 185 301,885 1,379 1,180,148 Special Mention 1,189 127 110 470 — 2,416 — 4,312 Classified 763 251 221 359 — 9,072 659 11,325 Total residential 1-4 family real estate 319,234 275,134 186,433 99,388 185 313,373 2,038 1,195,785 Home equity loans/lines of credit Pass 869 1,091 349 237 — 2,020 309,786 314,352 Special Mention 175 — — — — 18 1,072 1,265 Classified 106 156 94 87 — 213 7,453 8,109 Total home equity loans/lines of credit 1,150 1,247 443 324 — 2,251 318,311 323,726 Consumer loans Pass 35,406 7,946 3,610 1,056 3 1,250 10,953 60,224 Special Mention — — — — — — — — Classified 320 31 3 1 — 25 55 435 Total consumer loans 35,726 7,977 3,613 1,057 3 1,275 11,008 60,659 Total loans $ 2,200,727 1,850,445 897,337 444,804 957 750,041 522,237 6,666,548 Unamortized net deferred loan fees ( 1,403 ) Total loans, net of deferred loan fees 6,665,145 Page 26 Index Loan Modifications to Borrowers Experiencing Financial Difficulty Effective January 1, 2023, we adopted ASU 2022-02 which eliminated the accounting guidance for TDRs and requires disclosures for certain loan modifications when a borrower is experiencing financial difficulty. Occasionally, the Company modifies loans to borrowers in financial distress as a part of our loss mitigation activities. Various types of modification may be offered including principal forgiveness, term extension, payment delays, or interest rate reductions. In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession may be granted. For loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The followings tables present the amortized cost basis at September 30, 2023 of the loans modified during the three and nine months then ended for borrowers experiencing financial difficulty, by loan category and type of concession granted. ($ in thousands) Payment Delay Term Extension Combination - Interest Rate Reduction and Term Extension Total Percent of Total Class of Loans As of and for the three months ended September 30, 2023 Commercial and industrial $ 1,142 117 — 1,259 0.14 % Construction, development & other land loans — 594 — 594 0.06 % Commercial real estate - owner occupied — 4,023 — 4,023 0.32 % Commercial real estate - non owner occupied — 131 — 131 0.01 % Residential 1-4 family real estate — 245 — 245 0.02 % Home equity loans/lines of credit 24 401 99 524 0.16 % Consumer loans — 9 — 9 0.01 % Total $ 1,166 5,520 99 6,785 0.08 % As of and for the nine months ended September 30, 2023 Commercial and industrial $ 2,589 216 — 2,805 0.31 % Construction, development & other land loans — 594 10 604 0.06 % Commercial real estate - owner occupied 185 4,302 — 4,487 0.36 % Commercial real estate - non owner occupied — 219 — 219 0.01 % Residential 1-4 family real estate — 750 — 750 0.05 % Home equity loans/lines of credit 24 1,669 99 1,792 0.54 % Consumer loans — 66 — 66 0.10 % Total $ 2,798 7,816 109 10,723 0.13 % For the three and nine months ended September 30, 2023, there were no modifications for borrowers experiencing financial difficulty with principal forgiveness concessions. The following tables describes the financial effect for the three and nine months ended September 30, 2023 of the modifications made for borrowers experiencing financial difficulty: Page 27 Index Financial Effect of Modification to Borrowers Experiencing Financial Difficulty Weighted Average Interest Rate Reduction Weighted Average Payment Delay (in months) Weighted Average Term Extension (in months) For the three months ended September 30, 2023 Commercial and industrial — % 6 26 Construction, development & other land loans — % 0 8 Commercial real estate - owner occupied — % 0 32 Commercial real estate - non owner occupied — % 0 11 Residential 1-4 family real estate — % 0 23 Home equity loans/lines of credit 2.61 % 24 84 Consumer loans — % 0 24 For the nine months ended September 30, 2023 Commercial and industrial — % 4 20 Construction, development & other land loans 1.53 % 0 9 Commercial real estate - owner occupied — % 12 34 Commercial real estate - non owner occupied — % 0 13 Residential 1-4 family real estate — % 0 24 Home equity loans/lines of credit 2.61 % 24 55 Consumer loans — % 0 9 The Company closely monitors the performance of the loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the last 12 months as of September 30, 2023: Payment Status (Amortized Cost Basis) ($ in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Commercial and industrial $ 2,805 — — — Construction, development & other land loans 604 — — — Commercial real estate - owner occupied 4,487 — — — Commercial real estate - non owner occupied 219 — — — Residential 1-4 family real estate 670 80 — — Home equity loans/lines of credit 1,792 — — — Consumer loans 66 — — — $ 10,643 80 — — None of the modifications made for borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023 are considered to have had a payment default. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount. TDR Disclosures Prior to the Adoption of ASU 2022-02 The restructuring of a loan was considered a TDR if both (i) the borrower was experiencing financial difficulties and (ii) the creditor had granted a concession. Concessions may have included 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 three and nine months ended September 30, 2022 related to interest rate reductions combined with extension of terms. The Company does not generally grant principal forgiveness. Page 28 Index The Company’s TDRs are classified as either nonaccrual or accruing based on the loan’s payment status. The TDRs that were nonaccrual were reported within the nonaccrual loan totals presented previously. The following table presents information related to loans modified in a TDR during the three and nine months ended September 30, 2022. For the three months ended September 30, 2022 For the nine months ended September 30, 2022 ($ in thousands) Number of Contracts Pre-Modification Restructured Balances Post-Modification Restructured Balances Number of Contracts Pre-Modification Restructured Balances Post-Modification Restructured Balances TDRs - Accruing Commercial and industrial — $ — — 1 $ 161 161 Construction, development & other land loans — — — 1 131 131 Residential 1-4 family real estate — — — 1 36 36 Home equity loans/lines of credit 1 176 176 3 379 379 TDRs - Nonaccrual Commercial and industrial 1 327 327 4 627 627 Commercial real estate - owner occupied — — — 2 784 784 Residential 1-4 family real estate — — — 1 36 36 Total TDRs arising during period 2 $ 503 503 13 $ 2,154 2,154 The Company considered a TDR loan to have defaulted when it became 90 or more days delinquent under the modified terms, had been transferred to nonaccrual status, or had been transferred to foreclosed real estate. There were no accruing TDRs that were modified in the twelve months preceding September 30, 2022 and that defaulted during the three and nine months ended September 30, 2022. Concentration of Credit Risk Most of the Company's business activity is with customers located within the markets where it has banking operations. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy within its markets. Approximately 88 % of the Company's loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations. Allowance for Unfunded Loan Commitments In addition to the ACL on loans, the Company maintains an allowance for lending-related commitments such as unfunded loan commitments and letters of credit. 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. 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 ACL on loans. The allowance for unfunded loan commitments of $ 11.8 million and $ 13.3 million at September 30, 2023 and December 31, 2022, respectively, were separately classified on the Consolidated Balance Sheets within "Other liabilities." The following table presents the balance and activity in the allowance for unfunded loan commitments for the nine months ended September 30, 2023 and 2022 and for the twelve months ended December 31, 2022: Page 29 Index ($ in thousands) September 30, 2023 December 31, 2022 September 30, 2022 Beginning balance $ 13,306 13,506 13,506 "Day 2" provision for credit losses on unfunded commitments acquired from GrandSouth 1,921 — — Charge-offs — — — Recoveries — — — Reversal of provision for unfunded commitments ( 3,408 ) ( 200 ) ( 1,200 ) Ending balance $ 11,819 13,306 12,306 Allowance for Credit Losses - Securities Held to Maturity The ACL for securities held to maturity was insignificant at September 30, 2023 and December 31, 2022. Note 5 – Goodwill and Other Intangible Assets The following is a summary of the gross carrying amount, accumulated amortization and net amount of amortizable intangible assets as of September 30, 2023 and December 31, 2022, and the carrying amount of unamortized intangible assets as of those same dates. September 30, 2023 December 31, 2022 ($ in thousands) Gross Carrying Amount Accumulated Amortization Net Amount Gross Carrying Amount Accumulated Amortization Net Amount Amortizable intangible assets: Customer lists $ 2,700 2,087 613 2,700 1,847 853 Core deposit intangibles 57,890 27,162 30,728 29,050 21,274 7,776 Other intangibles 100 77 23 100 58 42 Intangibles before servicing assets 60,690 29,326 31,364 31,850 23,179 8,671 SBA servicing assets 13,728 10,213 3,515 13,264 9,260 4,004 Total amortizable intangible assets $ 74,418 39,539 34,879 45,114 32,439 12,675 Unamortizable intangible assets: Goodwill $ 478,750 364,263 Customer lists are generally amortized over five years and core deposit intangibles are generally amortized over 10 years, both at an accelerated rate. Amortization expense of all other intangible assets, excluding the SBA servicing assets, totaled $ 2.0 million and $ 0.9 million for the three months ended September 30, 2023 and 2022, respectively, and $ 6.1 million and $ 2.9 million for the nine months ended September 30, 2023 and 2022, respectively. SBA servicing assets are recorded for the portions of SBA loans that the Company has sold but continues to service for a fee. Servicing assets are initially recorded at fair value and amortized over the expected lives of the related loans and are tested for impairment on a quarterly basis. SBA servicing asset amortization expense is recorded within noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions, and fees." Page 30 Index The following table presents the changes in the SBA servicing assets and SBA servicing income for the three and nine months ended September 30, 2023 and 2022: Three months ended September 30, Nine months ended September 30, ($ in thousands) 2023 2022 2023 2022 Beginning balance, net $ 3,781 4,967 4,004 5,472 Add: New servicing assets 191 131 464 1,158 Less: Amortization and impairment expense 457 707 953 2,239 Ending balance, net $ 3,515 4,391 3,515 4,391 SBA guaranteed servicing income $ 846 1,120 2,693 2,901 A t September 30, 2023 and December 31, 2022, the Company serviced SBA loans totali ng $ 364.9 million a nd $ 392.4 million, respectively, for others. There were no other loans serviced in any period presented. Goodwill is evaluated for impairment on at least an annual basis, with the annual evaluation occurring as of October 31 of each year. Goodwill is also evaluated for impairment any time there is a triggering event indicating that impairment may have occurred. No triggering events were identified during 2023 to date or in 2022, and therefore, the Company did not perform interim impairment evaluations in either of those periods. The Company's most recent evaluation of goodwill, which occurred in the fourth quarter of 2022, indicated that there was no goodwill impairment. The following table presents the changes in carrying amounts of goodwill: ($ in thousands) Total Goodwill Balance at December 31, 2021 $ 364,263 Net activity during 2022 — Balance at December 31, 2022 364,263 Additions from acquisition of GrandSouth 114,487 Balance at September 30, 2023 $ 478,750 In connection with the GrandSouth acquisition on January 1, 2023, the Company recorded $ 28.8 million in core deposit intangibles. The following table presents the estimated amortization expense schedule related to acquisition-related amortizable intangible assets, excluding the SBA servicing 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. ($ in thousands) Estimated Amortization Expense October 1, 2023 to December 31, 2023 $ 1,856 2024 6,604 2025 5,672 2026 4,705 2027 3,951 Thereafter 8,576 Total $ 31,364 Page 31 Index Note 6 - Borrowings The following tables present information regarding the Company’s outstanding borrowings at September 30, 2023 and December 31, 2022 (dollars in thousands): Description Due date Call Feature Balance at September 30, 2023 Interest Rate FHLB Principal Reducing Credit 12/22/2023 None $ 880 1.25 % fixed FHLB Principal Reducing Credit 6/26/2028 None 206 0.25 % fixed FHLB Principal Reducing Credit 7/17/2028 None 33 0.00 % fixed FHLB Principal Reducing Credit 8/18/2028 None 153 1.00 % fixed FHLB Principal Reducing Credit 8/22/2028 None 153 1.00 % fixed FHLB Principal Reducing Credit 12/20/2028 None 319 0.50 % fixed FHLB Fixed Rate Credit 10/13/2023 None 100,000 5.46 % fixed FHLB Fixed Rate Credit 10/20/2023 None 25,000 5.46 % fixed FHLB Fixed Rate Credit 10/30/2023 None 50,000 5.48 % fixed FHLB Fixed Rate Credit 11/13/2023 None 100,000 5.50 % fixed FHLB Daily Rate Credit 9/16/2024 None 25,000 5.57 % fixed Trust Preferred Securities 1/23/2034 Quarterly by Company beginning 1/23/2009 10,310 8.28 % at 9/30/23 adjustable rate 3 month CME Term SOFR+ 2.91 % Trust Preferred Securities 1/23/2034 Quarterly by Company beginning 1/23/2009 10,310 8.38 % at 9/30/23 adjustable rate 3 month CME Term SOFR + 3.01 % Trust Preferred Securities 9/20/2034 Quarterly by Company beginning 9/20/2009 12,372 7.81 % at 9/30/23 adjustable rate 3 month CME Term SOFR + 2.41 % Trust Preferred Securities 1/7/2035 Quarterly by Company beginning 1/7/2010 10,310 7.57 % at 9/30/23 adjustable rate 3 month CME Term SOFR + 2.00 % Trust Preferred Securities 6/15/2036 Quarterly by Company beginning 6/15/2011 25,774 7.06 % at 9/30/23 adjustable rate 3 month CME Term SOFR + 1.65 % Trust Preferred Securities 6/23/2036 Quarterly by the Company beginning 6/23/2011 8,248 7.51 % at 9/30/23 adjustable rate 3 month CME Term SOFR + 2.11 % Subordinated Debentures 11/30/2028 Continuous by Company beginning 11/30/2023 10,000 6.50 % fixed Subordinated Debentures 11/15/2030 Continuous by Company beginning 11/15/2025 18,000 4.38 % fixed Total borrowings / weighted average rate as of September 30, 2023 407,068 5.85 % Unamortized discount on acquired borrowings ( 5,225 ) Total borrowings $ 401,843 Page 32 Index Description Due date Call Feature Balance at December 31, 2022 Interest Rate FHLB Principal Reducing Credit 7/24/2023 None $ 32 1.00 % fixed FHLB Principal Reducing Credit 12/22/2023 None 912 1.25 % fixed FHLB Principal Reducing Credit 6/26/2028 None 214 0.25 % fixed FHLB Principal Reducing Credit 7/17/2028 None 38 0.00 % fixed FHLB Principal Reducing Credit 8/18/2028 None 158 1.00 % fixed FHLB Principal Reducing Credit 8/22/2028 None 159 1.00 % fixed FHLB Principal Reducing Credit 12/20/2028 None 329 0.50 % fixed FHLB Daily Rate Credit 8/23/2023 None 40,000 4.57 % fixed FHLB Fixed Rate Credit 1/9/2023 None 50,000 4.15 % fixed FHLB Fixed Rate Credit 2/1/2023 None 80,000 4.25 % fixed FHLB Fixed Rate Credit 2/9/2023 None 50,000 4.35 % fixed Trust Preferred Securities 1/23/2034 Quarterly by Company beginning 1/23/2009 10,310 7.06 % at 12/31/22 adjustable rate 3 month LIBOR + 2.65 % Trust Preferred Securities 1/23/2034 Quarterly by Company beginning 1/23/2009 10,310 7.16 % at 12/31/22 adjustable rate 3 month LIBOR + 2.75 % Trust Preferred Securities 6/15/2036 Quarterly by Company beginning 6/15/2011 25,774 6.16 % at 12/31/22 adjustable rate 3 month LIBOR + 1.39 % Trust Preferred Securities 9/20/2034 Quarterly by Company beginning 9/20/2009 12,372 6.90 % at 12/31/22 adjustable rate 3 month LIBOR + 2.15 % Trust Preferred Securities 1/7/2035 Quarterly by Company beginning 1/7/2010 10,310 6.08 % at 12/31/22 adjustable rate 3 month LIBOR + 2.00 % Total borrowings / weighted average rate as of December 31, 2022 290,918 4.82 % Unamortized discount on acquired borrowings ( 3,411 ) Total borrowings $ 287,507 Note 7 – Leases The Company enters into leases in the normal course of business. As of September 30, 2023, the Company leased 17 bank branch offices for which the land and buildings are leased and ten branch offices for which the land is leased but the buildings are owned. The Company also leases office space for several operational departments. All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from January 2024 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 19.6 years as of September 30, 2023. 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 twelve 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 applicable 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 Page 33 Index 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 3.16 % as of September 30, 2023. Total operating lease expenses were $ 0.8 million and $ 0.7 million for the three months ended September 30, 2023 and 2022, respectively, and $ 2.3 million for the nine months ended September 30, 2023 and 2022. The right-of-use assets and lease liabilities were $ 17.6 million and $ 18.3 million as of September 30, 2023, respectively, and were $ 18.7 million and $ 19.4 million as of December 31, 2022, respectively. Future undiscounted lease payments for operating leases with initial terms of great than one year as of September 30, 2023 are as follows. ($ in thousands) October 1, 2023 to December 31, 2023 $ 661 2024 2,446 2025 1,914 2026 1,633 2027 1,359 Thereafter 18,476 Total undiscounted lease payments 26,489 Less effect of discounting ( 8,141 ) Present value of estimated lease payments (lease liability) $ 18,348 Note 8 – Pension Plans The Company sponsored two defined benefit pension plans – a qualified retirement plan (the “Pension Plan”) which was generally available to all employees, and a Supplemental Executive Retirement Plan (the “SERP”) which was for the benefit of certain senior management executives of the Company. Effective December 31, 2012, the Company froze both plans for all participants. Although no previously accrued benefits were lost, no additional accruals of benefits under these plans for service subsequent to 2012 have been made. The Company recorded periodic pension cost totaling $ 51,000 for the three months ended September 30, 2023 and 2022, and $ 152,000 and $ 153,000 for the nine months ended September 30, 2023 and 2022, respectively. The following table contains the components of the pension cost: For the Three Months Ended September 30, 2023 2022 ($ in thousands) Pension Plan SERP Total Both Plans Pension Plan SERP Total Both Plans Service cost $ — — — — — — Interest cost 267 28 295 267 28 295 Expected return on plan assets ( 288 ) — ( 288 ) ( 288 ) — ( 288 ) Amortization of net loss (gain) 180 ( 136 ) 44 180 ( 136 ) 44 Net periodic pension cost $ 159 ( 108 ) 51 159 ( 108 ) 51 For the Nine Months Ended September 30, 2023 2022 ($ in thousands) Pension Plan SERP Total Both Plans Pension Plan SERP Total Both Plans Service cost $ — — — — — — Interest cost 800 84 884 801 84 885 Expected return on plan assets ( 864 ) — ( 864 ) ( 864 ) — ( 864 ) Amortization of net (gain)/loss 540 ( 408 ) 132 540 ( 408 ) 132 Net periodic pension cost $ 476 ( 324 ) 152 477 ( 324 ) 153 Page 34 Index The service cost component of net periodic pension cost is included in salaries and benefits expense and all other components of net periodic pension cost are included in other noninterest expense. The Company’s funding policy with respect to the SERP is to fund the related benefits from the operating cash flow of the Company. 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 not contribute to the Pension Plan in the first nine months of 2023 and does not expect to contribute to the Pension Plan in the remainder of 2023. On March 27, 2023, the Company’s Board of Directors approved termination of the Pension Plan to be effective during the calendar year 2023 and a termination cost estimate of $ 2.4 million was recorded in the first quarter of 2023 in the accompanying Consolidated Statements of Income. On July 31, 2023, the Pension Plan was amended to terminate the Plan as of that date. The Company is in the process of taking appropriate actions necessary to liquidate the Pension Plan which is anticipated to be completed during the fourth quarter of 2023. Note 9 – Fair Value Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal and most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at September 30, 2023: ($ in thousands) Description of Financial Instruments Fair Value at September 30, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Recurring Securities available for sale: U.S. Treasury $ 170,859 — 170,859 — Government-sponsored enterprise securities 56,904 — 56,904 — Mortgage-backed securities 1,854,448 — 1,854,448 — Corporate bonds 18,195 — 18,195 — Total available for sale securities $ 2,100,406 — 2,100,406 — Presold mortgages in process of settlement $ 5,427 5,427 — — Nonrecurring Individually evaluated loans $ 1,436 — — 1,436 The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2022: Page 35 Index ($ in thousands) Description of Financial Instruments Fair Value at December 31, 2022 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Recurring Securities available for sale: US Treasury securities $ 168,758 — 168,758 — Government-sponsored enterprise securities 57,456 — 57,456 — Mortgage-backed securities 2,045,000 — 2,045,000 — Corporate bonds 43,279 — 43,279 — Total available for sale securities $ 2,314,493 — 2,314,493 — Presold mortgages in process of settlement $ 1,282 1,282 — — Nonrecurring Individually evaluated loans $ 9,590 — — 9,590 Foreclosed real estate 38 — — 38 The following is a description of the valuation methodologies used for financial 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. Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 in the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by our third-party bond accounting provider using matrix pricing. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. For the Company, Level 2 securities include U.S. Treasury bonds, mortgage-backed securities, commercial mortgage-backed obligations, GSEs, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Individually evaluated loans — Fair values for individually evaluated 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 ("PV") of the cash flows expected to be received for such loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is generally determined by third-party appraisers using an income or market valuation approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3). The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower’s financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the loans first became impaired, and thus the appraisals are not necessarily as of the period ends presented. Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income. Foreclosed real estate — Foreclosed real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value. Fair value is measured on a non-recurring basis and is based upon independent market prices or current appraisals that are generally prepared using an income or market valuation approach and conducted by an independent, licensed third party appraiser, adjusted for estimated selling costs (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the assets were acquired, and thus the appraisals are not necessarily as of the period ends presented. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the ACL. For any real estate valuations Page 36 Index 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, 2023, the significant unobservable inputs used in the fair value measurements were as follows: ($ in thousands) Fair Value at September 30, 2023 Valuation Technique Significant Unobservable Inputs Range (Weighted Average) Individually evaluated loans - collateral-dependent $ 1,436 Appraised value Discounts applied 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, 2022, the significant unobservable inputs used in the fair value measurements were as follows: ($ in thousands) Fair Value at December 31, 2022 Valuation Technique Significant Unobservable Inputs Range (Weighted Average) Individually evaluated loans - collateral-dependent $ 5,680 Appraised value Discounts applied for estimated costs to sell 10 % Individually evaluated loans - cash-flow dependent 3,910 PV of expected cash flows Discount rates used in the calculation of PV of expected cash flows 5.5 %- 11.1 % ( 6.76 %) Foreclosed real estate 38 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 September 30, 2023 and December 31, 2022 were as follows: September 30, 2023 December 31, 2022 ($ in thousands) Level in Fair Value Hierarchy Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Cash and due from banks, noninterest-bearing Level 1 $ 95,257 95,257 101,133 101,133 Due from banks, interest-bearing Level 1 178,332 178,332 169,185 169,185 Securities held to maturity Level 2 535,460 410,321 541,700 432,528 SBA loans held for sale Level 2 2,633 2,633 — — Total loans, net of allowance Level 3 7,918,839 7,377,021 6,574,178 6,240,870 Accrued interest receivable Level 1 34,414 34,414 29,710 29,710 Bank-owned life insurance Level 1 182,764 182,764 164,592 164,592 SBA Servicing Asset Level 3 3,515 4,127 4,004 4,721 Deposits Level 2 10,235,403 10,225,228 9,227,529 9,218,945 Borrowings Level 2 401,843 388,391 287,507 277,146 Accrued interest payable Level 1 5,511 5,511 2,738 2,738 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as deferred income taxes, prepaid expense Page 37 Index accounts, income taxes currently payable and other various accrued expenses. In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. Note 10 – Stock-Based Compensation The Company recorded total stock-based compensation expense of $ 1.2 million and $ 0.7 million for the three months ended September 30, 2023 and 2022, respectively, and $ 3.4 million and $ 1.9 million for the nine months ended September 30, 2023 and 2022, respectively. In addition, the Company recog nized $ 278,000 an d $ 170,000 of income tax benefits related to stock-based compensation expense for the three months ended September 30, 2023 and 2022, respectively, and $ 798,000 and $ 445,000 for the nine months ended September 30, 2023 and 2022, respectively. At September 30, 2023, the sole equity-based compensation plan of the Company was the First Bancorp 2014 Equity Plan (the "Equity Plan"), which was approved by shareholders on May 8, 2014. As of September 30, 2023, the Equity Plan had 205,498 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 an annual or cliff vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company recognizes compensation expense for awards with 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 $ 37,500 for the current year, to each non-employee director (currently 14 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 nine months of 2023 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, 2023 223,012 $ 36.14 Granted during the period 143,380 37.08 Vested during the period ( 25,811 ) 24.52 Forfeited or expired during the period ( 791 ) 37.88 Nonvested at September 30, 2023 339,790 $ 37.15 Total unrecognized compensation expense as of September 30, 2023 amounted to $ 6.1 million with a weighted-average remaining term of 2.0 years. For the nonvested awards that were outstanding at September 30, 2023, the Company expects to record $ 3.6 million in compensation expense in the next twelve months, $ 1.2 million of which is expected to be recorded in the remaining quarter of 2023. Page 38 Index As discussed in Note 2, in conjunction with the GrandSouth acquisition, GrandSouth common stock options outstanding at January 1, 2023 became fully vested under the change in control provisions in the GrandSouth option plans and were converted into replacement options to acquire 0.91 shares of the Company's common stock. Stock option activity and related information is presented below as of and for the periods indicated: Options Outstanding Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (years) Aggregate Intrinsic Value ($ in thousands) Balance at January 1, 2023 — $ — Replacement options issued in conjunction with acquisition of GrandSouth 542,345 20.14 Exercised during the period ( 194,998 ) 19.33 Forfeited or expired during the period — — Outstanding at September 30, 2023 347,347 20.59 6.01 $ 2,768 Exercisable at September 30, 2023 347,347 $ 20.59 6.01 $ 2,768 Stock options outstanding are summarized as follows as of September 30, 2023: Shares Range Weighted Average Price Weighted Average Remaining Life in Years 111,822 $ 13.79 - 18.18 15.63 4.38 121,320 $ 18.19 18.19 5.73 114,205 $ 18.20 - 31.32 28.00 7.91 347,347 20.59 6.01 In accordance with ASC 805-30, the fair value of the replacement options issued in conjunction with the GrandSouth acquisition as of January 1, 2023 was measured using the Black-Scholes option pricing model. The following table illustrates the assumptions for the Black-Scholes model used in determining the fair value of options granted: For the Nine Months Ended September 30, 2023 Fair value per option, weighted average $ 24.85 Expected life (years) 1.4 - 4.7 Expected stock price volatility, weighted average 46.39 % Expected dividend yield 2.05 % Risk-free interest rate, weighted average 4.18 % Expected forfeiture rate — % The expected life is based on historical exercises and forfeitures experience of the grantees. The volatility is based on historical price volatility. The risk-free interest rate is based on a U.S. Treasury instrument with a life that is similar to the expected life of the option grant. At September 30, 2023, the Company had no unrecognized compensation expense related to stock options. All unexercised options expire ten years after the applicable original grant dates under the GrandSouth stock option plan. Page 39 Index Note 11 – 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 September 30, 2023 2022 ($ in thousands except per share amounts) Income (Numerator) Shares (Denominator) Per Share Amount Income (Numerator) Shares (Denominator) Per Share Amount Basic EPS: Net income $ 29,893 $ 37,949 Less: income allocated to restricted stock ( 247 ) ( 249 ) Basic EPS per common share $ 29,646 40,744,042 $ 0.73 $ 37,700 35,469,001 $ 1.06 Diluted EPS: Net income $ 29,893 40,744,042 $ 37,949 35,469,001 Effect of dilutive securities — 455,016 — 234,445 Diluted EPS per common share $ 29,893 41,199,058 $ 0.73 $ 37,949 35,703,446 $ 1.06 Nine Months Ended September 30, 2023 2022 ($ in thousands except per share amounts) Income (Numerator) Shares (Denominator) Per Share Amount Income (Numerator) Shares (Denominator) Per Share Amount Basic EPS: Net income $ 74,457 $ 108,503 Less: income allocated to restricted stock ( 539 ) ( 573 ) Basic EPS per common share $ 73,918 40,691,751 $ 1.82 $ 107,930 35,474,239 $ 3.04 Diluted EPS: Net income $ 74,457 40,691,751 $ 108,503 35,474,239 Effect of dilutive securities — 458,239 — 188,288 Diluted EPS per common share $ 74,457 41,149,990 $ 1.81 $ 108,503 35,662,527 $ 3.04 Page 40 Index Note 12 – Accumulated Other Comprehensive Income (Loss) The components of accumulated other comprehensive income (loss) ("AOCI") for the Company are as follows: ($ in thousands) September 30, 2023 December 31, 2022 Unrealized loss on securities available for sale $ ( 521,660 ) ( 444,063 ) Deferred tax asset 120,765 102,046 Net unrealized loss on securities available for sale ( 400,895 ) ( 342,017 ) Postretirement plans liability 187 54 Deferred tax asset ( 44 ) ( 12 ) Net postretirement plans liability 143 42 Total accumulated other comprehensive loss $ ( 400,752 ) ( 341,975 ) The following tables disclose the changes in AOCI for the three and nine months ended September 30, 2023 and 2022 (all amounts are net of tax): For the Three Months Ended September 30, 2023 ($ in thousands) Unrealized Loss on Securities Available for Sale Postretirement Plans Asset (Liability) Total Beginning balance $ ( 338,251 ) 109 ( 338,142 ) Other comprehensive loss before reclassifications ( 62,644 ) — ( 62,644 ) Amounts reclassified from accumulated other comprehensive income — 34 34 Net current period other comprehensive (loss) income ( 62,644 ) 34 ( 62,610 ) Ending balance $ ( 400,895 ) 143 ( 400,752 ) For the Three Months Ended September 30, 2022 ($ in thousands) Unrealized Loss on Securities Available for Sale Postretirement Plans Asset (Liability) Total Beginning balance $ ( 249,148 ) ( 204 ) ( 249,352 ) Other comprehensive loss before reclassifications ( 108,718 ) — ( 108,718 ) Amounts reclassified from accumulated other comprehensive income — 34 34 Net current period other comprehensive (loss) income ( 108,718 ) 34 ( 108,684 ) Ending balance $ ( 357,866 ) ( 170 ) ( 358,036 ) Page 41 Index For the Nine Months Ended September 30, 2023 ($ in thousands) Unrealized Loss on Securities Available for Sale Postretirement Plans Asset (Liability) Total Beginning balance $ ( 342,017 ) 42 ( 341,975 ) Other comprehensive loss before reclassifications ( 58,878 ) — ( 58,878 ) Amounts reclassified from accumulated other comprehensive income — 101 101 Net current-period other comprehensive (loss) income ( 58,878 ) 101 ( 58,777 ) Ending balance $ ( 400,895 ) 143 ( 400,752 ) For the Nine Months Ended September 30, 2022 ($ in thousands) Unrealized Loss on Securities Available for Sale Postretirement Plans Asset (Liability) Total Beginning balance $ ( 24,698 ) ( 272 ) ( 24,970 ) Other comprehensive loss before reclassifications ( 333,168 ) — ( 333,168 ) Amounts reclassified from accumulated other comprehensive income — 102 102 Net current-period other comprehensive (loss) income ( 333,168 ) 102 ( 333,066 ) Ending balance $ ( 357,866 ) ( 170 ) ( 358,036 ) Amounts reclassified from AOCI for unrealized gain (loss) on securities available for sale represent realized securities gains or losses, net of tax effects. There were no security sales resulting in gains or losses in any period presented. Amounts reclassified from AOCI for postretirement plans asset (liability) represent amortization of amounts included in AOCI, net of taxes, and are recorded in the "Other operating expenses" line item of the Consolidated Statements of Income. Note 13 – 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, 2023 and 2022. 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, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Noninterest Income: In-scope of ASC 606: Service charges on deposit accounts $ 4,661 4,166 13,012 11,407 Other service charges and fees: Bankcard interchange income, net 2,239 3,009 7,190 12,532 Other service charges and fees 1,354 1,594 4,184 4,347 Commissions from sales of financial products 1,207 1,391 3,926 3,487 SBA consulting fees 478 479 1,408 1,963 Noninterest income (in-scope of ASC 606) 9,939 10,639 29,720 33,736 Noninterest income (out-of-scope of ASC 606) 5,238 6,273 13,228 19,691 Total noninterest income $ 15,177 16,912 42,948 53,427 A description of the Company’s revenue streams accounted for under ASC 606 is detailed below. Service charges on deposit accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Overdraft fees are recognized at the point in time that the overdraft occurs. Maintenance and activity fees include account maintenance fees and transaction-based fees. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month, Page 42 Index representing the period over which the Company satisfies the performance obligation. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Service charges on deposits are withdrawn from the customer’s account balance. Other service charges and fees: The Company earns interchange income on its customers’ debit and credit card usage and earns fees from other services utilized by its customers. Interchange income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as MasterCard. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Interchange fees are offset with interchange expenses and are presented on a net basis. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, ATM surcharge fees, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Commissions from the sales of financial products: The Company earns commissions from the sale of wealth management products which primarily consist of commissions received on financial product sales, such as annuities. The Company’s performance obligation is generally satisfied upon the issuance of the financial product. Shortly after the policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. The Company also earns some fees from asset management, which is billed quarterly for services rendered in the most recent period, for which the performance obligation has been satisfied. SBA consulting fees: The Company earns fees for its consulting services related to the origination of SBA loans. Fees are based on a percentage of the dollar amount of the originated loans and are recorded when the performance obligation has been satisfied. 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.