What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-28 compared with 2023-02-28 · 825 added, 699 removed, 1348 unchanged (53% of the section changed)

14 unchanged sentences

533,678 541,700

Presold mortgages in process of settlement

SBA and other loans held for sale — 61,003

Presold mortgages and SBA loans in process of settlement 2,667 1,282

8,150,102 6,665,145

1 unchanged sentence

Net loans 8,040,249 6,574,178

Premises and equipment

134,187 136,092

Premises and equipment, net 150,957 134,187

Operating right-of-use lease assets

3 unchanged sentences

478,750 364,263

Other intangible assets

12,675 17,827

Foreclosed properties

Other intangible assets, net 32,858 12,675

Bank-owned life insurance

67 unchanged sentences

22,270 26,294 25,516

Fees from presold mortgage loans

2,102 10,975 14,183

Presold mortgage loan gains 1,613 2,102 10,975

Commissions from sales of insurance and financial products

6 unchanged sentences

4,350 3,847 2,885

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

Other gains (losses), net

7,340 1,648 ( 54 )

Securities losses, net — — ( 1,237 )

Other gains, net 2,662 7,340 1,648

Total noninterest income

14 unchanged sentences

8,003 3,684 3,531

Foreclosed property (gains) losses, net ( 372 ) 24 547

Other operating expenses

10 unchanged sentences

2.53 4.12 3.19

Dividends declared per common share

$ 0.88 0.80 0.72

Weighted average common shares outstanding:

3 unchanged sentences

First Bancorp and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Statements of Comprehensive Income (Loss)

Years Ended December 31, 2023, 2022 and 2021

1 unchanged sentence

Net income $ 104,131 146,936 95,644

Other comprehensive (loss) income:

Unrealized (losses) gains on securities available for sale:

Unrealized holding (losses) gains arising during the period, pretax ( 411,996 ) ( 53,752 ) 18,729

Tax benefit (expense) 94,677 12,352 ( 4,304 )

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

Tax (benefit) expense — ( 284 ) 1,844

Other comprehensive income (loss):

Unrealized gains (losses) on securities available for sale:

Unrealized holding gains (losses) arising during the period, pretax 43,343 ( 411,996 ) ( 53,752 )

Tax (expense) benefit ( 9,279 ) 94,677 12,352

Reclassification to realized losses — — 1,237

Tax benefit — — ( 284 )

Postretirement plans:

Net gain arising during period 695 872 589

Tax expense ( 159 ) ( 201 ) ( 135 )

Amortization of unrecognized net actuarial (gain) loss ( 288 ) 592 686

Net (gains) losses arising during period ( 607 ) 695 872

Tax expense (benefit) 141 ( 159 ) ( 201 )

Other comprehensive (loss) income ( 317,005 ) ( 39,320 ) 9,227

Comprehensive (loss) income $ ( 170,069 ) 56,324 90,704

Amortization of unrecognized net actuarial (gains) losses ( 545 ) ( 288 ) 592

Tax expense (benefit) 126 66 ( 136 )

Reclassification of net actuarial losses due to settlement to realized losses 998 — —

Tax benefit ( 232 ) — —

Other comprehensive income (loss) 33,945 ( 317,005 ) ( 39,320 )

Comprehensive income (loss) $ 138,076 ( 170,069 ) 56,324

See accompanying notes to consolidated financial statements.

7 unchanged sentences

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

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

Net income 95,644 95,644

2 unchanged sentences

Change in Rabbi Trust Obligation 440 ( 440 ) —

Equity issued related to acquisition earn-out 24 494 494

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

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

3 unchanged sentences

Balances, December 31, 2021 35,629 722,671 532,874 ( 1,803 ) 1,803 ( 24,970 ) 1,230,575

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

Net income 146,936 146,936

2 unchanged sentences

Change in Rabbi Trust Obligation 218 ( 218 ) —

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

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

Stock withheld for payment of taxes ( 25 ) ( 840 ) ( 840 )

6 unchanged sentences

Change in Rabbi Trust Obligation 200 ( 200 ) —

Equity issued pursuant to acquisition 5,033 229,489 229,489

Stock option exercises 237 4,519 4,519

Stock withheld for payment of taxes ( 23 ) ( 743 ) ( 743 )

10 unchanged sentences

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

Provision for credit losses 12,400 15,031 35,039

Provision for credit losses and unfunded commitments, net 17,813 12,400 15,031

Net security premium amortization 9,337 12,005 14,058

1 unchanged sentence

Loan discount accretion ( 13,277 ) ( 5,622 ) ( 8,814 )

Other purchase accounting accretion and amortization, net ( 340 ) ( 47 ) 81

Deposit and debt discount (premium) accretion (amortization), net 3,943 ( 340 ) ( 47 )

Foreclosed property (gains) losses/write-downs, net ( 150 ) ( 372 ) 24

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

Other (gains) losses ( 4,069 ) ( 1,648 ) 54

Losses on sales of securities available for sale, net — — 1,237

Other gains, net ( 1,857 ) ( 4,069 ) ( 1,648 )

Bank-owned life insurance income ( 4,350 ) ( 3,847 ) ( 2,885 )

(Decrease) increase in net deferred loan fees ( 301 ) ( 1,994 ) 5,639

Net amortization of deferred loan fees ( 1,225 ) ( 301 ) ( 1,994 )

Depreciation of premises and equipment 7,754 6,859 6,187

3 unchanged sentences

Amortization of intangible assets 8,003 3,684 3,531

Amortization of SBA servicing assets 2,800 2,272 1,795

Amortization and impairment of SBA servicing assets 1,356 2,800 2,272

Fees/gains from sales of presold mortgages and SBA loans ( 4,102 ) ( 7,178 ) ( 18,304 )

11 unchanged sentences

Purchases of securities held to maturity — ( 39,004 ) ( 271,169 )

Proceeds from maturities/issuer calls of securities available for sale 251,314 358,259 223,842

Proceeds from maturities/issuer calls of securities held to maturity 6,500 13,642 33,030

Proceeds from maturities, calls and principal repayments of securities available for sale 165,358 251,314 358,259

Proceeds from maturities, calls and principal repayments of securities held to maturity 3,453 6,500 13,642

Proceeds from sales of securities available for sale 111,863 — 106,484

(Purchases) redemptions of FRB and FHLB stock, net ( 17,244 ) 2,043 9,851

Purchases of Federal Reserve and FHLB stock ( 58,688 ) ( 48,159 ) ( 93 )

Redemptions of Federal Reserve and FHLB stock 43,797 30,915 2,136

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

5 unchanged sentences

Proceeds from sales of premises and equipment 970 299 313

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

Net cash received in acquisition activities 22,610 — 208,992

Net cash received in disposition activities — — 11,314

1 unchanged sentence

Cash Flows From Financing Activities

Net increase in deposits 103,494 1,258,193 1,342,340

Net increase (decrease) in short-term borrowings 220,000 — ( 198,000 )

Proceeds from long-term borrowings — — 150,000

Payments on long-term borrowings ( 133 ) ( 5,729 ) ( 202,035 )

Net (decrease) increase in deposits ( 244,339 ) 103,494 1,258,193

Advances from other borrowings 3,348,000 1,252,000 —

Repayment of other borrowings ( 3,044,991 ) ( 1,032,133 ) ( 5,729 )

Cash dividends paid – common stock ( 34,940 ) ( 30,660 ) ( 22,228 )

Repurchases of common stock — — ( 4,036 )

Proceeds from stock option exercises 4,519 — —

Payment of taxes related to stock withheld ( 743 ) ( 840 ) ( 786 )

10 unchanged sentences

Cash paid during the period for income taxes 29,734 39,722 32,506

Unrealized gain (loss) on securities available for sale, net of taxes 34,064 ( 317,319 ) ( 41,400 )

Foreclosed loans transferred to foreclosed real estate 1,036 119 2,285

Unrealized (loss) gain on securities available for sale, net of taxes ( 317,319 ) ( 41,400 ) 14,425

Accrued dividends at period end 9,046 7,857 7,125

Initial recognition of operating lease right-of-use assets and liabilities 260 — 2,191

Revision of operating lease right-of-use assets and operating lease liabilities ( 562 ) — —

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

Acquisition of Select Bancorp, Inc.

— See Note 2 —

Acquisition of GrandSouth Bancorporation See Note 2 — —

See accompanying notes to consolidated financial statements.

19 unchanged sentences

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

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

Actual results could differ from those estimates.

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

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

Actual results could materially differ from those estimates.

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

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

11 unchanged sentences

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

Allowance for Credit Losses ("ACL") - Securities Held to Maturity - Since its adoption of ASC 326 ("CECL"), the Company measures expected credit losses on HTM debt securities on a pooled basis.

Allowance for Credit Losses ("ACL") - Securities Held to Maturity - The Company measures expected credit losses on HTM debt securities on a pooled basis in accordance with Accounting Standards Codification ("ASC") 326 ("CECL").

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

1 unchanged sentence

The CECL assumptions, including reasonable and supportable forecast periods, reversion method, and prepayments as applicable, are consistent with those utilized for the ACL on loans as discussed further below.

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

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

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

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

government or guaranteed by GSEs that have credit ratings and perceived credit risk comparable to the U.S.

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

6 unchanged sentences

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

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

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

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

Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

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

3 unchanged sentences

The terms of the loans are set by the secondary investors, and the purchase price that the investor will pay for the loan is agreed to prior to the funding of the loan by the Company.

Generally within three weeks after funding, the loans are transferred to the investor in accordance with the agreed-upon terms.

Loans are transferred to the investor in a short period following funding in accordance with the agreed-upon terms.

The Company records gains from the sale of these loans on the settlement date of the sale equal to the difference between the proceeds received and the carrying amount of the loan.

1 unchanged sentence

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

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

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

There were no SBA loans held for sale at December 31, 2022 and there were $ 9.6 million in SBA loans held for sale at December 31, 2021.

Also included in the balance at December 31, 2021 was $ 51.4 million of loans assumed in the Company's acquisition of Select Bancorp, Inc.

("Select") that were designated for sale as not aligning with the Company's strategy or markets.

The loans were carried at the the lower of cost or market and the disposition of these loans was completed in the first quarter of 2022 at a price that approximated the carrying value.

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

2 unchanged sentences

Interest income is accrued on the unpaid principal balance.

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

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

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

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

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

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

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

Interest received on such loans is accounted for using

the cost-recovery method, until qualifying for return to accrual.

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

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

Purchased Financial Assets with Credit Deterioration ("PCD") - Subsequent to the Company's adoption of CECL on January 1, 2021, loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans.

Purchased Financial Assets with Credit Deterioration ("PCD") - Loans acquired in a business combination that have experienced more-than-insignificant deterioration in credit quality since origination are considered PCD loans.

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

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

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

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

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

The initial amortized cost of PCD loans is determined by reducing the loans par value by the initial ACL, with any difference between the resulting amount and the loans purchase price or acquisition date fair value recorded as a non-credit-related discount or premium.

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

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

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

Allowance for Credit Losses - Loans - The ACL is an estimate that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial assets.

The level of the allowance is determined under the CECL methodology and includes management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay a loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, and other pertinent factors.

Credit losses are estimated on the amortized cost basis of loans, which includes the principal balance outstanding, purchase discounts and premiums, and deferred loan fees and costs.

1 unchanged sentence

Loans are charged off when the Company determines that such financial assets are deemed uncollectible.

The ACL is increased through provision for loan losses and decreased by charge-offs, net of recoveries of amounts previously charged-off.

The ACL is increased through provision for loan losses and decreased by charge-offs, net of recoveries.

The ACL is measured on a collective basis for pools of loans with similar risk characteristics.

8 unchanged sentences

For such loans, repayment is largely dependent upon the operation of the borrower's business.

The Company generally requires loan to value of 80 % or lower and debt service coverage of 1.30 x or better.

Terms outside of these guidelines will have strengths to mitigate additional risk.

• Non-owner occupied commercial real estate loans - These loans represent investment real estate loans secured by office buildings, industrial buildings, warehouses, retail buildings, and multifamily residential housing.

Repayment is primarily dependent on lease income generated from the underlying collateral.

The Company generally requires loan to value of 80 % or lower, debt service coverage of 1.30 x or better and overall lease terms to match or extend beyond the term of the loan.

• Consumer real estate mortgage loans - Consumer real estate mortgage consists primarily of loans secured by 1-4 family residential properties, including home equity lines of credit.

Repayment is primarily dependent on the personal cash flow of the borrower and may be affected by changes in general economic conditions.

• Construction and land development loans - Construction and land development loans include loans where the repayment is dependent on the successful completion and eventual sale, refinance or operation of the related real estate project and are thus impacted by market demand and real estate valuations.

The Company generally requires a debt-to-income below 40 % on all home equity lines of credit with loan to

value generally 80 % or less and a minimum credit score of 660 .

Portfolio mortgage loans will vary depending on the product, but generally require credit scores of 640 or greater, debt to income below 50 % and loan to value maximum of 90 %.

• Construction and land development loans - This pool includes loans where the repayment is dependent on the successful completion and eventual sale, refinance or operation of the related real estate project and are thus impacted by market demand and real estate valuations.

Construction and land development loans include 1-4 family construction projects and commercial construction projects.

• Commercial and industrial loans - Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes.

Residential construction loans for resale generally have a loan to value of 85 % or lower.

Loan to value would generally be under 80 % for commercial speculative construction projects.

Owner occupied and non-owner occupied commercial construction projects are underwritten to standard guidelines discussed above.

• Commercial and industrial loans - These loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes.

These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.

Commercial and Industrial loans generally require debt service coverage of 1.25 x or better.

The Company typically limits equipment and accounts receivable to loan to value of 80 % and eligible inventory limited to 40 % loan to value.

• Consumer and other loans - Consumer and other loans include all loans issued to individuals not included in the consumer real estate mortgage classification, including automobile loans, consumer credit cards and loans to finance education, among others.

Many consumer loans are unsecured and repayment is primarily dependent on the personal cash flow of the borrower which may be impacted by changes in economic conditions and unemployment.

The Company generally limits consumer loans to those clients with a minimum 660 credit score and debt-to-income below 40 %.

Loan to value will vary based on the collateral type and useful life.

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

1 unchanged sentence

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

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

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

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

The baseline forecast, which incorporates an equal probability of the United States economy performing better or worse than the projection, along with the alternative scenarios, are evaluated by management to determine the best estimate within the range of expected credit losses.

The baseline forecast, which incorporates an equal probability of the United States economy performing better or worse than the projection, along with the alternative scenarios, are evaluated by management to determine the best forecast to use for macroeconomic factors in the model.

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

5 unchanged sentences

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

Allowance for Credit Losses - Off-Balance Sheet Credit Exposure - The Company estimates expected credit losses on commitments to extend credit over the contractual period in which the Company is exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancellable by the Company.

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

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

over its estimated life.

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

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

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

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

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

Allowance for Credit Losses - Off-Balance Sheet Credit Exposure - The Company estimates expected credit losses on commitments to extend credit over the contractual period (unfunded commitments) in which the Company is exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancellable by the Company.

The allowance for unfunded commitments, which is reflected within "Other liabilities" on the consolidated balance sheets is adjusted for as an increase or decrease to the provision for credit losses for unfunded commitments.

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

The allowance is calculated

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

Financial Difficulty Modifications ("FDM") - A loan that is refinanced or restructured by the Company when a borrower is experiencing financial difficulty is generally considered a FDM.

Such modification is evaluated to determine if the changes to the loan result in a new loan or a continuation of the existing loan, and to determine the appropriate treatment of deferred loan fees/costs, (i.e.

to recognize in income if considered a new loan or to continue amortization if determined to be a continuation of the loan).

The ACL on a FDM is measured using the same method as all other loans held for investment.

FDMs that share similar risk characteristics and consistently discounted based on the post-modification effective rate.

Troubled Debt Restructurings ("TDR") - Prior to the adoption of Accounting Standards Update ("ASU") 2022-02 on January 1, 2023, a TDR was generally considered a loan for which the terms were modified resulting in a more than insignificant concession, and for which the borrower was experiencing financial difficulties.

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

Small Business Administration ("SBA") Loans Held for Sale and SBA Retained Loan Discount – All SBA loans originated are underwritten and documented as prescribed by the SBA.

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

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

The portion of SBA loans originated that are guaranteed and intended for sale on the secondary market may be classified as held for sale if the Company intends to sell them in the near future and generally has acceptable bids for such loans.

SBA loans classified as held for sale are carried at the lower of cost or fair value.

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

3 unchanged sentences

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

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

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

2 unchanged sentences

SBA servicing assets are initially recorded at fair value and amortized against income over the lives of the related loans as a reduction of servicing fee income, generally five years .

SBA servicing asset amortization expense is recorded in noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions and fees" on the consolidated statement of income.

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

3 unchanged sentences

Premises and Equipment - Premises and equipment are stated at cost less accumulated depreciation.

Depreciation, computed by the straight-line method, is charged to operations over the estimated useful lives of the properties or, in the case of leasehold improvements, over the term of the lease, if shorter.

Recorded within noninterest expense as "Occupancy expense" on the consolidated statements of income, depreciation, computed by the straight-line method, is charged to operations over the estimated useful lives of the properties or, in the case of leasehold improvements, over the term of the lease, if shorter.

Land is carried at cost.

Maintenance and repairs are charged to operations in the year incurred.

Gains and losses on dispositions are included in current operations.

Gains and losses on dispositions are included in current operations and are recorded within noninterest expense on the "Other operating expenses" line on the consolidated statements of income.

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

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

Identifiable intangible assets, primarily core deposit intangibles ("CDI"), are recognized separately and are amortized over their estimated useful lives, which for the Company has generally been five to ten years and at an accelerated rate.

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

2 unchanged sentences

The property is initially carried at the lower of cost or the estimated fair value of the property less estimated selling costs.

If there are subsequent declines in fair value, which is reviewed routinely by management, the property is written down to its fair value through a charge to expense.

If there are subsequent declines in fair value, which is reviewed routinely by management, the property is written down to its fair value through a charge to expense recorded within noninterest expense on the "Other operating expenses" line in the consolidated statements of income.

Capital expenditures made to improve the property are capitalized.

Costs of holding real estate, such as property

taxes, insurance, and maintenance, less related revenues during the holding period, are recorded as expense as they are incurred.

Costs of holding real estate, such as property taxes, insurance, and maintenance, less related revenues during the holding period, are recorded as expense as they are incurred.

Foreclosed properties are included in the "Other assets" line on the consolidated balance sheets and totaled $ 0.9 million and $ 0.7 million at December 31, 2023 and 2022, respectively.

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

These policies are recorded at their cash surrender value.

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

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

Income Taxes - Income taxes are accounted for under the asset and liability method.

2 unchanged sentences

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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

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

Other Investments – The Company accounts for its investments in limited partnerships and limited liability companies (“LLCs”) using the equity method of accounting if the percentage ownership and degree of management influence in the investments warrants such accounting treatment.

Under the equity method of accounting, the Company records its initial investment at cost.

Subsequently, the carrying amount of the investment is increased or decreased to reflect the Company’s share of income or loss of the investee.

Subsequently, the carrying amount of the investment is increased or decreased to reflect the Company’s share of income or loss of the investee, recorded within noninterest income as "Other gains, net" on the consolidated statements of income.

The Company’s recognition of earnings or losses from an equity method investment is based on the Company’s ownership percentage in the investee and the investee’s earnings on a quarterly basis.

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

At December 31, 2022 and 2021, the Company’s investments in limited partnerships and LLCs totaled $ 18.5 million and $ 11.3 million, respectively, and are included in "Other assets".

At December 31, 2023 and 2022, the Company’s investments in limited partnerships and LLCs totaled $ 27.6 million and $ 18.5 million, respectively, and are included in "Other assets" on the consolidated balance sheets.

Federal Home Loan Bank ("FHLB") Stock - The Company is a member of the FHLB system.

Members are required to own a certain amount of stock based on the level of borrowings and other factors.

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

Cash dividends are reported as income.

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

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

FHLB stock is carried at cost and is recorded in "Other assets" on the consolidated balance sheets.

Cash dividends are reported as income, recorded within interest income in the "Other, principally overnight investments" line on the consolidated statements of income.

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

Federal Reserve stock is carried at cost and is

recorded in "Other assets" on the consolidated balance sheets.

Cash dividends are reported as income, recorded within interest income in the "Other, principally overnight investments" line on the consolidated statements of income.

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

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Such financial instruments are recorded when they are funded.

Leases - The Company leases certain branch locations and administrative offices which are generally classified as operating leases with right-of-use assets being included in other assets and the associated lease obligations being included in other liabilities.

For leases where the Company is the lessee that have initial terms greater than one year, right-of-use assets and corresponding lease liabilities are reported on the balance sheet.

Leases with an initial term of less than one year are not recorded on the balance sheet, rather, the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Operating lease expense is recognized on a straight-line basis over the lease term and included in "Occupancy expense" on the consolidated statements of income.

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

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Because of the insignificant amount of forfeitures the Company has experienced, forfeitures are recognized as they occur.

Earnings Per Share Amounts - Basic Earnings Per Common Share is calculated by dividing net income, less income allocated to participating securities, by the weighted average number of common shares outstanding during the period, excluding unvested shares of restricted stock.

For the Company, participating securities are comprised

of unvested shares of restricted stock.

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

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

Earnings Per Share ("EPS") Amounts - Basic EPS is calculated by dividing net income, less income allocated to participating securities, by the weighted average number of common shares outstanding during the period, excluding unvested shares of restricted stock.

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

Diluted EPS is computed by assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period.

For the periods presented, the Company’s potentially dilutive common stock issuances related to unvested shares of restricted stock, dilutive stock options and contingently issuable shares which are determined using the treasury stock method.

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

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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 assets and other assets such as deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses.

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

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

At December 31, 2022, the Company had two reporting units which are evaluated for impairment.

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

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To date, the Company has not recorded any impairment write-downs of its long-lived assets or goodwill.

Comprehensive Income (Loss) - Comprehensive income (loss) is defined as the change in equity during a period for non-owner transactions and is divided into net income (loss) and other comprehensive income (loss).

Other comprehensive income (loss) includes revenues, expenses, gains, and losses that are excluded from earnings under current accounting standards.

Variable Interest Entities - The Company's statutory trust subsidiaries (First Bancorp Capital Trust II, Trust III and Trust IV, Carolina Capital Trust, and New Century Statutory Trust I), ("the Trusts") qualify as variable interest entities under ASC 810, “Consolidation.” Notes issued by the Company to the Trusts in return for the proceeds from the issuance of the trust preferred securities have terms that are substantially the same as the corresponding trust preferred securities.

Comprehensive Income (Loss) - Comprehensive income (loss) includes revenues, expenses, gains, and losses that are excluded from earnings under current accounting standards, primarily unrealized gain (loss) on available for sale securities and unrealized and realized gains and losses on postretirement benefit plans.

Variable Interest Entities - The Company's statutory trust subsidiaries (First Bancorp Capital Trust II, Trust III and Trust IV, Carolina Capital Trust, New Century Statutory Trust I, and GrandSouth Capital Trust I), (collectively "the Trusts") qualify as variable interest entities.

Notes issued by the Company to the Trusts in return for the proceeds from the issuance of the trust preferred securities have terms that are substantially the same as the corresponding trust preferred securities.

As qualified variable interest entities, the Trusts' balance sheet and statement of operations have never been consolidated with those of the Company because the Company is not the primary beneficiary.

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The Company has no foreign operations or customers.

Derivative Instruments and Hedging Activities - The Company occasionally enters into derivative financial instruments as part of its interest rate risk management strategies.

These derivative financial instruments consist primarily of interest rate swaps to accommodate certain commercial loan customers, with offsetting positions to dealers under a back-to-back swap program.

All derivative instruments are recorded on the consolidated balance sheets as either an asset (included in "Other assets") or liability (included in "Other liabilities") at their fair value.

The Company has master netting agreements with the counterparties with which it does business, but reflects gross assets and liabilities at fair value on the consolidated balance sheets.

The accounting for the gain or loss resulting from the change in fair value depends on the intended use of the derivative.

The Company classifies its derivative financial instruments as either (1) a hedge of an exposure to changes in the fair value of a recorded asset or liability (“fair value hedge”), (2) a hedge of an exposure to changes in the cash flows of a recognized asset, liability or forecasted transaction (“cash flow hedge”), or (3) derivatives not designated as accounting hedges ("undesignated hedges").

As of December 31, 2023, the Company has only entered into derivatives classified as undesignated hedges for which changes in fair value are recognized in current period earnings in either noninterest income or noninterest expense.

The Company also originates certain residential mortgage loans with the intention of selling these loans.

The Company enters into forward sale agreements to mitigate risk and to protect the expected gain on the eventual loan sale.

The commitments to originate residential mortgage loans and forward loan sales commitments are freestanding derivative instruments which are entered into as part of an economic hedging strategy to manage exposure related to mortgage loans held for sale.

Recent Accounting Pronouncements

Accounting Standards Adopted in 2023

The Company did not adopt any accounting standards during 2022.

Accounting Standards Pending Adoption

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

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

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

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

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

The Company has evaluated the adoption of the new guidance on the consolidated financial statements and does not expect it to have a material effect on its financial statements.

Troubled Debt Restructurings and Vintage D isclosures ." The amendments contained in this ASU eliminate the accounting guidance for TDRs 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 ACL, thus no adjustment to retained earnings was recorded.

Disclosures have been updated in Note 4 to comply with the ASU as required.

In addition, TDR disclosures are presented in Note 4 for comparative periods only and are not required to be updated in current periods.

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 amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.

Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance.

The Company does not expect the ASU to have a material effect on its financial statements.

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 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 published.

The United Kingdom Financial Conduct Authority has announced that the intended LIBOR cessation date has been extended from December 31, 2021 to June 30, 2023.

As such, ASU 2022-06 defers the sunset date previously set to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848;

Deferral of the Sunset Date of Topic 848 ." ASU 2022-06 deferred the sunset date of the London Interbank Offered Rate ("LIBOR") to December 31, 2024, after which entities will no longer be permitted to apply the relief prescribed in ASU 2020-04, Reference Rate Reform (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.

The Company does not expect this ASU to have a material effect on its financial statements.

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

Acquisitions and Dispositions

GrandSouth Acquisition

On January 1, 2023, the Company completed its acquisition of GrandSouth Bancorporation ("GrandSouth"), in an all-stock transaction pursuant to the previously announced Agreement and Plan of Merger and Reorganization ("the Merger Agreement"), dated June 21, 2022, between the Company and GrandSouth.

ASU 2022-06 was adopted in the third quarter of 2023 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.

ASU 2023-07, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures" amended existing guidance to improve disclosures about a public entity’s reportable segments and provide more detailed information about a reportable segment’s expenses.

ASU 2023-07 clarifies that an entity which has a single reportable segment is to provide all the disclosures required by Topic 280 and ASU 2023-07.

The amendment is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The adoption of ASU 2023-07 is not expected to have a significant impact on the Company's consolidated financial statements.

ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures” amended existing guidance to improve the transparency of income tax disclosures, including disclosure of specific categories in the rate reconciliation, providing additional information for certain reconciling items, and providing details on income taxes paid.

The amendments are effective for annual periods beginning after December 15, 2024.

The adoption of ASU 2023-09 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 Financial Accounting Standards Board, ("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.

On January 1, 2023, the Company completed its acquisition of 100 % 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, approximately 596,000 GrandSouth common stock options were converted to options to acquire 0.91 shares of the Company's common stock with an average exercise price of approximately $ 18.22 .

The consideration transferred at the close of the transaction was approximately $ 226.9 million.

Effective with the transaction close, eight branches in South Carolina were added to the Company's branch network.

Immediately prior to the completion of the acquisition, at December 31, 2021, GrandSouth Bank reported total assets of $ 1.2 billion, total loans of $ 1.0 billion, and total deposits of $ 1.1 billion on a Call Report filed with federal banking regulators.

The acquisition accomplished the Company's strategic initiative to expand its presence in South Carolina, specifically in the the high-growth markets of the state including Greenville, Charleston and Columbia.

Significant synergies are 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 anticipates recognizing goodwill in the transaction related primarily to the reasons noted, as well as the positive earnings of GrandSouth.

It is anticipated that the goodwill which will result from this transaction will be non-deductible for tax purposes.

Given that the initial purchase accounting for the acquisition in accordance with GAAP for this business combination is not yet completed, the Company is not yet able to disclose the preliminary fair value of the GrandSouth assets acquired and liabilities assumed.

Select Acquisition

On October 15, 2021, the Company completed the acquisition of Select, headquartered in Dunn, North Carolina, pursuant to an Agreement and Plan of Merger and Reorganization dated June 1, 2021.

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

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

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

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

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

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

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

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

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

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 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.

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

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

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

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 estimating the fair values.

The $ 114.5 million in goodwill that resulted from this transaction is non-deductible for tax purposes.

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Securities available for sale 112,363

Loans held for sale 51,779

Loans 1,230,107

Loans, gross 996,833

Allowance for credit losses ( 5,610 )

Premises and equipment 20,268

Core deposit intangible 28,840

Operating right-of-use lease assets 4,649

Operating right-of-use 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

Total consideration 229,489

Goodwill recorded related to acquisition of Select $ 132,356

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

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.

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

Loans held for sale:

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

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.

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.

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.

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

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

PCD loans were determined based primarily on internal grades, delinquency status, and other evidence of credit deterioration.

The Company calculated the initial allowance of $ 5.6 million on PCD loans in accordance with its CECL model 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:

($ in thousands) October 15, 2021

($ in thousands) January 1, 2023

Par value $ 152,487

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Estimate of contractual cash flows not expected to be collected 22,542

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

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

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

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:

The CDI asset represents the value of the relationships with deposit customers.

The fair value for the CDI 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 ten 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:

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

Intangible assets:

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

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

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

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

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

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Supplemental Pro Forma Financial Information

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

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

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

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

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 $ 13.7 million for 2023 were recorded by the Company and were excluded from the pro forma information below.

In addition, no adjustments have been made to such pro forma information to eliminate the provision for loan losses recorded by GrandSouth in the amount of $ 2.2 million for 2022.

Pro forma information for the year 2023 was adjusted to eliminate the following:

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

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

Expenses related to systems conversions and other costs of integration were recorded during 2022.

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

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

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 December 31, 2023.

These amounts are included in the Company’s consolidated financial statements as of and for the year ended December 31, 2023.

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Year Ended December 31, 2023

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

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

Actual GrandSouth results included in statement of income since acquisition date $ 58,301 $ 22,058

Year Ended December 31, 2022

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

First Bank Insurance Services, Inc.

On June 30, 2021, the Company completed the sale of the operations and substantially all of the operating assets of its property and casualty insurance agency subsidiary, First Bank Insurance Services Inc.

("First Bank Insurance"), to Bankers Insurance, LLC for an initial purchase price valued at $ 13.0 million and a future earn-out payment of up to $ 1.0 million.

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

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

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

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

Supplemental consolidated pro forma as if GrandSouth had been acquired on January 1, 2022 454,579 161,826

The book values and approximate fair values of investment securities at December 31, 2023 and 2022 are summarized as follows:

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Losses Fair Value Unrealized

US Treasury securities $ 168,758 5,662 — — 168,758 5,662

Government-sponsored enterprise securities — — 57,456 14,501 57,456 14,501

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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 FHLMC, FNMA, GNMA, or the SBA, each of which is a government agency or GSE and guarantees the repayment of its securities.

The Company has no significant concentrations of bond holdings from any one state or local government entity.

Nearly all of the Company's mortgage-backed securities were issued by Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA"), Government National Mortgage Association ("GNMA"), or SBA, each of which is a government agency or GSE and guarantees the repayment of its 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.

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At December 31, 2023 and 2022, investment securities with carrying values of $ 971.3 million and $ 758.0 million, respectively, were pledged as collateral for public deposits.

In addition, at December 31, 2023 and 2022, investment securities with carrying values of $ 679.0 million and zero , respectively, were pledged as collateral for FRB borrowings.

At December 31, 2023 and 2022, there were no holdings of securities of any one issuer, other than the US Government and its agencies or GSEs, in an amount greater than 10% of shareholders' equity.

In 2022, there were no sales of investment securities.

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

In 2023 and 2022, there were no sales of investment securities with the exception of securities acquired from GrandSouth in 2023 which were subsequently liquidated as discussed in Note 2.

There was no gain or loss associated with the sale of acquired securities.

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

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($ in thousands) Amount Percentage Amount Percentage

Commercial, financial, and agricultural

$ 641,941 9 % 648,997 11 %

Real estate – construction, land development & other land loans

934,176 14 % 828,549 13 %

Real estate mortgage – residential (1-4 family) first mortgages 1,195,785 18 % 1,021,966 17 %

Real estate mortgage – home equity loans/lines of credit 323,726 5 % 331,932 5 %

Real estate mortgage – commercial and other 3,510,261 53 % 3,194,737 53 %

Commercial and industrial $ 905,862 11 % 641,941 9 %

Construction, development & other land loans 992,980 12 % 934,176 14 %

Commercial real estate - owner occupied 1,259,022 16 % 1,036,270 16 %

Commercial real estate - non owner occupied 2,528,060 31 % 2,123,811 32 %

Multi-family real estate 421,376 5 % 350,180 5 %

Residential 1-4 family real estate 1,639,469 20 % 1,195,785 18 %

Home equity loans/lines of credit 335,068 4 % 323,726 5 %

Consumer loans 68,443 1 % 60,659 1 %

9 unchanged sentences

Sold portions of SBA loans with servicing retained - not included in table above $ 349,275 392,370

As of December 31, 2022, there were essentially no remaining loans originated under the SBA's Paycheck Protection Program ("PPP") as provided for under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") of 2020.

As of December 31, 2021, the Company had $ 39.0 million in remaining PPP loans which have been excluded from the above SBA 7A Loan program table.

At December 31, 2023 and December 31, 2022, there were remaining unaccreted discounts on the retained portion of sold SBA loans amounting to $ 3.5 million and $ 4.3 million respectively.

1 unchanged sentence

Refer to Note 9 for further discussion.

Total loans at December 31, 2022 and 2021 included loans to executive officers and directors of the Company, and their associates, totaling approximately $ 6.0 million and $ 0.6 million, respectively.

There were six new loans and advances totaling approximately $ 5.5 million on those loans in 2022 and repayments amounted to $ 0.1 million.

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

For acquisitions completed prior to the Company's adoption of CECL, loans designated as PCI loans were reclassified as PCD loans, upon the adoption of CECL.

Activity in the accretable yield for PCI loans under the Incurred Loss methodology used by the Company prior to adopting CECL was not material for the year ended December 31, 2020.

At December 31, 2023 and 2022, total loans included loans to executive officers and directors of the Company, and their associates, totaling approximately $ 63.7 million and $ 6.0 million, respectively.

There were nine new loans and advances on existing loans totaling approximately $ 58.5 million for the year ended December 31, 2023 and repayments amounted to $ 0.8 million for that period.

Available credit on related party loans totaled $ 2.7 million and $ 1.2 million at December 31, 2023 and December 31, 2022, respectively.

As of December 31, 2023 and 2022, unamortized discounts on all acquired loans totaled $ 24.0 million and $ 11.6 million, respectively.

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

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

Nonperforming assets ("NPAs") are defined as nonaccrual loans, FDMs, 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.

The following table summarizes the NPAs for each period presented:

($ in thousands) December 31,

2 unchanged sentences

Nonaccrual loans $ 32,208 28,514

Restructured loans - accruing 9,121 13,866

Accruing loans > 90 days past due — 1,004

Modifications to borrowers in financial distress 11,719 —

TDRs - accruing — 9,121

Total nonperforming loans 43,927 37,635

2 unchanged sentences

At December 31, 2023 and 2022, the Company had $ 1.0 million and $ 0.8 million in residential mortgage loans in process of foreclosure, respectively.

At December 31, 2022, there was one loan with an immaterial commitment to lend additional funds to borrowers whose loans were nonperforming.

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

At December 31, 2023 and December 31, 2022, there was one loan with an immaterial commitment to lend additional funds to borrowers whose loans were nonperforming.

The following table is a summary of the Company’s nonaccrual loans by major categories for the year ended December 31, 2023.

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

Commercial, financial, and agricultural $ 3,855 6,374 10,229

Real estate – construction, land development & other land loans — 1,009 1,009

Real estate mortgage – residential (1-4 family) first mortgages 157 3,132 3,289

Real estate mortgage – home equity loans/lines of credit — 1,397 1,397

Real estate mortgage – commercial and other 5,010 7,495 12,505

Commercial and industrial $ 944 8,932 9,876

Construction, development & other land loans — 399 399

Commercial real estate - owner occupied 960 6,082 7,042

Commercial real estate - non owner occupied 6,121 1,082 7,203

Residential 1-4 family real estate — 4,843 4,843

Home equity loans/lines of credit 534 2,169 2,703

Consumer loans — 142 142

2 unchanged sentences

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

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

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

Real estate mortgage – residential (1-4 family) first mortgages 858 4,040 4,898

Real estate mortgage – home equity loans/lines of credit — 694 694

Real estate mortgage – commercial and other 7,648 8,583 16,231

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

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

4 unchanged sentences

($ in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022

Commercial, financial, and agricultural $ 102 195

Real estate – construction, land development & other land loans 16 6

Real estate mortgage – residential (1-4 family) first mortgages 45 31

Real estate mortgage – home equity loans/lines of credit 20 14

Real estate mortgage – commercial and other 139 453

Commercial and industrial $ 225 102

Construction, development & other land loans 10 16

Commercial real estate - owner occupied 124 124

Commercial real estate - non owner occupied 186 15

Residential 1-4 family real estate 38 45

Home equity loans/lines of credit 57 20

Consumer loans 2 2

7 unchanged sentences

Current Total Loans

Commercial, financial, and agricultural

$ 438 565 — 10,229 630,709 641,941

Real estate – construction, land development & other land loans

238 1,687 — 1,009 931,242 934,176

Real estate mortgage – residential (1-4 family) first mortgages 3,415 25 — 3,289 1,189,056 1,195,785

Real estate mortgage – home equity loans/lines of credit 457 371 — 1,397 321,501 323,726

Real estate mortgage – commercial and other 620 97 — 12,505 3,497,039 3,510,261

Commercial and industrial $ 3,726 257 — 9,876 892,003 905,862

Construction, development & other land loans 241 256 — 399 992,084 992,980

Commercial real estate - owner occupied 906 404 — 7,042 1,250,670 1,259,022

Commercial real estate - non owner occupied 361 — — 7,203 2,520,496 2,528,060

Multi-family real estate — — — — 421,376 421,376

Residential 1-4 family real estate 18,868 3,401 — 4,843 1,612,357 1,639,469

Home equity loans/lines of credit 603 349 — 2,703 331,413 335,068

Consumer loans 270 131 — 142 67,900 68,443

9 unchanged sentences

Current Total Loans

Commercial, financial, and agricultural

$ 377 93 — 12,152 636,375 648,997

Real estate – construction, land development & other land loans

4,046 — 286 632 823,585 828,549

Real estate mortgage – residential (1-4 family) first mortgages 6,571 1,488 — 4,898 1,009,009 1,021,966

Real estate mortgage – home equity loans/lines of credit 489 124 718 694 329,907 331,932

Real estate mortgage – commercial and other 164 1,496 — 16,231 3,176,846 3,194,737

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

4 unchanged sentences

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 allowance for credit losses.

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 December 31, 2023.

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

Commercial, financial, and agricultural $ — 6,394 — — 6,394

Real estate mortgage – residential (1-4 family) first mortgages 157 — — — 157

Real estate mortgage – commercial and other — — — 6,723 6,723

Commercial and industrial $ — 2,385 — — 2,385

Commercial real estate - owner occupied — — — 1,142 1,142

Commercial real estate - non owner occupied — — — 6,121 6,121

Home equity loans/lines of credit 534 — — — 534

Total $ 534 2,385 — 7,263 10,182

1 unchanged sentence

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

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

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

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

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

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

7 unchanged sentences

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

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

The following tables presents the activity in the ACL on loans for the periods indicated.

The increase in ACL at December 31, 2022 as compared to the prior year was related to a combination of the allowance required for loan growth during the year, and updated economic forecasts and loss driver inputs to the CECL model.

Throughout 2022, the economic forecasts have projected general weakening of the economy demonstrated by higher projected unemployment rates, lower GDP, and declining price indices for both commercial real estate and residential mortgages.

These worsening economic projections translated to higher forecasted life of loan losses in our portfolio and a higher estimated ACL.

($ in thousands) Commercial,

Financial, and

Agricultural Real Estate -

Construction,

Development & Other Land Loans Real Estate Mortgage -

First Mortgages Real Estate Mortgage -

Home Equity Loans/Lines of Credit Real Estate

and Other Consumer Loans Total

As of and for the year ended December 31, 2022

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

Charge-offs ( 2,519 ) — — ( 43 ) ( 1,063 ) ( 840 ) ( 4,465 )

Recoveries 756 480 17 600 1,983 207 4,043

Provisions/(Reversals) 3,232 ( 1,871 ) 2,651 ( 1,736 ) 9,447 877 12,600

Ending balance $ 17,718 15,128 11,354 3,158 40,709 2,900 90,967

($ in thousands) Commercial,

Financial, and

Agricultural Real Estate -

Construction,

Development & Other Land Loans Real Estate Mortgage -

First Mortgages Real Estate Mortgage -

Home Equity Loans/Lines of Credit Real Estate

and Other Consumer loans Unallocated Total

There is no significant over-coverage of collateral for any of the loan types noted above.

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 year ended December 31, 2023 is attributed to the acquisition of GrandSouth.

In addition to the initial allowance recorded for PCD loans of $ 5.6 million, the Company recorded an 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 year and updated prepayment speed estimates in the CECL model, which have slowed with market rate increases, thus requiring additional allowance for the estimated longer life of loans.

The following tables presents the activity in the ACL on loans for each of the periods indicated.

($ in thousands) Beginning balance Initial ACL for acquired PCD loans Charge-offs Recoveries Provisions/(Reversals) Ending balance

As of and for the year ended December 31, 2023

Beginning balance

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

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

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

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

Commercial and industrial $ 17,718 5,197 ( 8,358 ) 1,393 5,277 21,227

Construction, development & other land loans 15,128 49 ( 120 ) 370 ( 1,487 ) 13,940

Commercial real estate - owner occupied 14,972 191 ( 144 ) 465 2,734 18,218

Commercial real estate - non owner occupied 22,780 51 ( 235 ) 737 1,583 24,916

Multi-family real estate 2,957 — — 13 855 3,825

Residential 1-4 family real estate 11,354 113 ( 4 ) 377 9,556 21,396

Home equity loans/lines of credit 3,158 8 ( 309 ) 98 384 3,339

Consumer loans 2,900 1 ( 1,005 ) 248 848 2,992

$ 90,967 5,610 ( 10,175 ) 3,701 19,750 109,853

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

Ending balance

($ 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

$ 78,789 ( 4,465 ) 4,043 12,600 90,967

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

($ in thousands) Commercial,

Financial, and

Agricultural Real Estate -

Construction,

Development & Other Land Loans Real Estate Mortgage -

First Mortgages Real Estate Mortgage -

Home Equity Loans/Lines of Credit Real Estate

and Other Consumer loans Unallo-

($ in thousands) Beginning balance Initial ACL for acquired PCD loans Adjustment for implementation of CECL Charge-offs Recoveries Provisions/(Reversals) Ending balance

As of and for the year ended December 31, 2021

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

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

Recoveries 745 1,552 754 487 621 294 — 4,453

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

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

Ending balances as of December 31, 2020:

Allowance for loan losses

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

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

Purchased credit impaired 28 — 107 — — 3 — 138

Loans receivable as of December 31, 2020:

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

Unamortized net deferred loan fees ( 3,698 )

Total loans 4,731,315

Ending balances as of December 31, 2020:

Individually evaluated for impairment $ 7,700 677 9,303 15 18,582 4 — 36,281

Collectively evaluated for impairment 774,712 569,845 958,848 306,141 2,026,682 53,913 — 4,690,141

Purchased credit impaired 137 150 4,227 100 3,939 38 — 8,591

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

Commercial and industrial $ 11,316 2,917 3,067 ( 3,722 ) 1,744 927 16,249

Construction, development & other land loans 5,355 165 6,140 ( 245 ) 948 4,156 16,519

Commercial real estate - owner occupied 10,608 307 ( 189 ) ( 362 ) 150 1,803 12,317

Commercial real estate - non owner occupied 11,465 1,181 380 ( 1,933 ) 371 5,325 16,789

Multi-family real estate 1,530 1 ( 448 ) — 12 141 1,236

Residential 1-4 family real estate 8,048 222 2,584 ( 273 ) 761 ( 2,656 ) 8,686

Home equity loans/lines of credit 2,375 92 2,580 ( 400 ) 578 ( 888 ) 4,337

Consumer loans 1,478 10 674 ( 667 ) 358 803 2,656

Unallocated 213 — ( 213 ) — — — —

$ 52,388 4,895 14,575 ( 7,602 ) 4,922 9,611 78,789

Credit Quality Indicators

28 unchanged sentences

(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.

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination or renewal as of December 31, 2022.

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.

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.

Revolving lines of credit that converted to term loans during the years ended December 31, 2023 and December 31, 2022 totaled $ 25.9 million and $ 7.9 million, respectively.

As presented in the tables that follow, as of December 31, 2023, the Company had $ 44.1 million in loans graded as Special Mention and $ 54.2 million in loans graded as Classified, which includes all nonaccrual loans at that date.

As of December 31, 2022, the Company had $ 39.0 million in loans graded as Special Mention and $ 48.5 million in loans graded as Classified, which includes all nonaccrual loans at that date.

Term Loans by Year of Origination

($ in thousands) 2023 2022 2021 2020 2019 Prior Revolving Total

Commercial, financial, and agricultural

As of December 31, 2023

Commercial and industrial

Pass $ 136,735 161,131 111,069 75,312 38,495 60,626 302,684 886,052

1 unchanged sentence

Classified 1,626 1,152 720 1,389 1,647 4,487 803 11,824

Total commercial, financial, and agricultural 186,243 109,822 86,566 53,970 590 83,340 121,410 641,941

Real estate – construction, land development & other land loans

Total commercial and industrial 141,193 164,830 111,956 76,886 40,590 65,785 304,622 905,862

Gross charge-offs, YTD 171 1,036 713 537 821 1,547 3,533 8,358

Construction, development & other land loans

Pass 563,998 231,450 90,374 16,662 11,598 5,816 70,852 990,750

1 unchanged sentence

Classified 657 708 — — 8 11 — 1,384

Total real estate – construction, development & other land loans 556,536 267,208 46,138 31,872 — 12,866 19,556 934,176

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

Total construction, development & other land loans 565,144 232,431 90,433 16,662 11,608 5,831 70,871 992,980

Gross charge-offs, YTD — — — — — 120 — 120

Commercial real estate - owner occupied

Pass 210,449 323,852 299,135 196,343 92,452 86,784 23,198 1,232,213

1 unchanged sentence

Classified 4,456 1,505 1,721 895 2,288 3,904 73 14,842

Total real estate mortgage – residential (1-4 family) first mortgages 319,234 275,134 186,433 99,388 185 313,373 2,038 1,195,785

Real estate mortgage – home equity loans/lines of credit

Total commercial real estate - owner occupied 215,243 327,890 301,127 198,055 100,495 92,941 23,271 1,259,022

Gross charge-offs, YTD — — 49 — — 92 3 144

Commercial real estate - non owner occupied

Pass 509,596 748,854 722,472 287,235 119,515 84,690 29,001 2,501,363

1 unchanged sentence

Classified 871 32 14 4,214 634 1,484 — 7,249

Total real estate mortgage – home equity loans/lines of credit 1,150 1,247 443 324 — 2,251 318,311 323,726

Real estate mortgage – commercial and other

Total commercial real estate - non owner occupied 521,820 749,085 722,522 291,842 121,332 92,116 29,343 2,528,060

Gross charge-offs, YTD — — 235 — — — — 235

Multi-family real estate

Pass 57,378 137,533 139,879 43,881 12,231 10,323 20,151 421,376

1 unchanged sentence

Classified — — — — — — — —

Total real estate mortgage – commercial and other 1,101,838 1,189,057 574,144 258,193 179 336,936 49,914 3,510,261

Total multi-family real estate 57,378 137,533 139,879 43,881 12,231 10,323 20,151 421,376

Gross charge-offs, YTD — — — — — — — —

Residential 1-4 family real estate

Pass 363,410 400,483 317,515 186,459 94,567 260,102 3,247 1,625,783

Special Mention 681 41 202 64 587 1,987 — 3,562

Classified 1,848 50 474 741 472 6,539 — 10,124

Total residential 1-4 family real estate 365,939 400,574 318,191 187,264 95,626 268,628 3,247 1,639,469

Gross charge-offs, YTD — — — — — 4 — 4

Home equity loans/lines of credit

Pass 2,830 1,136 1,141 223 499 1,233 319,199 326,261

Special Mention 163 — 122 — — — 18 303

Classified 255 — 146 91 112 10 7,890 8,504

Total home equity loans/lines of credit 3,248 1,136 1,409 314 611 1,243 327,107 335,068

Gross charge-offs, YTD — — — — — — 309 309

Consumer loans

3 unchanged sentences

Total consumer loans 16,627 12,913 5,044 2,173 435 463 30,788 68,443

Total $ 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 )

Gross charge-offs, YTD 34 79 73 23 — 1 795 1,005

Total loans $ 1,886,592 2,026,392 1,690,561 817,077 382,928 537,330 809,400 8,150,280

At December 31, 2022, as derived from the table above, the Company had $ 39.0 million in loans graded as Special Mention and $ 48.5 million in loans graded as Classified, which includes all nonaccrual loans.

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

Revolving lines of credit that converted to term loans during the year ended December 31, 2022 amounted to $ 3.3 million.

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

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

Unamortized net deferred loan fees ( 178 )

Total loans, net of deferred loan fees $ 8,150,102

Total gross charge-offs, year to date

$ 205 1,115 1,070 560 821 1,764 4,640 10,175

Term Loans by Year of Origination

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

Commercial, financial, and agricultural

As of December 31, 2022

Commercial and industrial

Pass $ 185,167 107,747 85,110 51,274 590 76,588 120,590 627,066

1 unchanged sentence

Classified 734 1,909 808 1,384 — 5,762 488 11,085

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

Real estate – construction, land development & other land loans

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

1 unchanged sentence

Classified 656 107 38 899 — 44 24 1,768

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

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

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

1 unchanged sentence

Classified 3,060 208 84 1,572 — 6,790 367 12,081

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

Real estate mortgage – home equity loans/lines of credit

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

1 unchanged sentence

Classified 420 1,057 — 884 — 1,328 — 3,689

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

Real estate mortgage – commercial and other

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

1 unchanged sentence

Classified — — — — — — — —

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

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

3 unchanged sentences

Total consumer loans 35,726 7,977 3,613 1,057 3 1,275 11,008 60,659

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

Unamortized net deferred loan fees ( 1,704 )

Total loans $ 2,200,727 1,850,445 897,337 444,804 957 750,041 522,237 6,666,548

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

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

Revolving lines of credit that converted to term loans during the year ended December 31, 2021 amounted to $ 1.0 million.

Troubled Debt Restructurings

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

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

Unamortized net deferred loan fees ( 1,403 )

Total loans, net of deferred loan fees $ 6,665,145

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 December 31, 2023 of the loans modified during the twelve months then ended for borrowers experiencing financial difficulty, by loan category and type of concession granted.

Payment Delay Term Extension Combination - Interest Rate Reduction and Term Extension Total Percent of Total Class of Loans

Commercial and industrial $ 2,590 251 — 2,841 0.31 %

Construction, development & other land loans — 354 8 362 0.04 %

Commercial real estate - owner occupied 210 4,245 — 4,455 0.35 %

Commercial real estate - non owner occupied — 206 — 206 0.01 %

Residential 1-4 family real estate — 735 — 735 0.04 %

Home equity loans/lines of credit 557 2,436 121 3,114 0.93 %

Consumer loans — 6 — 6 0.01 %

Total $ 3,357 8,233 129 11,719 0.14 %

For the twelve months ended December 31, 2023, there were no modifications for borrowers experiencing financial difficulty with principal forgiveness concessions.

The following tables describes the financial effect for the twelve months ended December 31, 2023 of the modifications made for borrowers experiencing financial difficulty:

Weighted Average Interest Rate Reduction Weighted Average Payment Delay (in months) Weighted Average Term Extension (in months)

Commercial and industrial — % 4 31

Construction, development & other land loans 1.55 % 0 19

Commercial real estate - owner occupied — % 11 34

Commercial real estate - non owner occupied — % 0 13

Residential 1-4 family real estate — % 0 23

Home equity loans/lines of credit 2.40 % 13 49

Consumer loans — % 0 24

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 presents the performance of loans that have been modified in the last twelve months as of December 31, 2023:

Payment Status (Amortized Cost Basis)

Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due

Commercial and industrial $ 2,841 — — —

Construction, development & other land loans 362 — — —

Commercial real estate - owner occupied 4,455 — — —

Commercial real estate - non owner occupied 206 — — —

Residential 1-4 family real estate 656 79 — —

Home equity loans/lines of credit 3,114 — — —

Consumer loans 6 — — —

Total $ 11,640 79 — —

None of the modifications made for borrowers experiencing financial difficulty during the twelve months ended December 31, 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 years ended December 31, 2022 and 2021 related to interest rate reductions combined with extension of terms.

2 unchanged sentences

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

The following table presents information related to loans modified in a TDR during the year ended December 31, 2022.

For the year ended December 31, 2022

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

Contracts Pre-

Balances Post-

TDRs – Accruing

Commercial, financial, and agricultural

Real estate – construction, land development & other land loans

Real estate mortgage – residential (1-4 family) first mortgages 2 75 78

TDRs – Nonaccrual

Commercial, financial, and agricultural

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

Real estate mortgage – commercial and other 1 72 72

Total TDRs arising during period

12 $ 1,137 1,140

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

The following tables present information related to loans modified in a TDR during periods as indicated.

For the year ended December 31, 2022

3 unchanged sentences

TDRs – Accruing

Real estate mortgage – residential (1-4 family) first mortgages 1 $ 33 33

Commercial and industrial 2 $ 143 143

Construction, development & other land loans 1 67 67

Residential 1-4 family real estate 2 75 78

TDRs – Nonaccrual

Commercial, financial, and agricultural

5 1,438 1,435

Real estate – construction, land development & other land loans

Real estate mortgage – residential (1-4 family) first mortgages 1 263 263

Real estate mortgage – commercial and other 4 1,729 1,729

Commercial and industrial 5 744 744

Commercial real estate - non owner occupied 1 72 72

Residential 1-4 family real estate 1 36 36

Total TDRs arising during period 12 $ 1,137 1,140

12 $ 3,538 3,535

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

For the year ended December 31, 2021

3 unchanged sentences

TDRs – Accruing

Commercial, financial, and agricultural

Real estate – construction, land development & other land loans

Real estate mortgage – residential (1-4 family) first mortgages 2 75 78

Consumer loans 1 4 4

Residential 1-4 family real estate 1 $ 33 33

TDRs – Nonaccrual

Commercial, financial, and agricultural

Real estate mortgage – commercial and other 5 5,977 5,977

Commercial and industrial 5 1,438 1,435

Construction, development & other land loans 1 75 75

Commercial real estate - owner occupied 3 553 553

Commercial real estate - non owner occupied 1 1,176 1,176

Residential 1-4 family real estate 1 263 263

Total TDRs arising during period 12 $ 3,538 3,535

12 $ 6,338 6,341

Accruing TDRs that were modified in the previous 12 months and that defaulted during the years ended December 31, 2022, 2021, and 2020 are presented in the table below.

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

For the Year Ended December 31, 2022 For the Year Ended December 31, 2021 For the Year Ended December 31, 2020

($ in thousands) Number of

Contracts Recorded

Investment Number of

Contracts Recorded

Investment Number of

Contracts Recorded

Accruing TDRs that subsequently defaulted

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

Total accruing TDRs that subsequently defaulted

— $ — — $ — 1 $ 274

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 December 31, 2022 and 2021 and that defaulted during the twelve months ended December 31, 2022 and 2021.

Concentration of Credit Risk

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

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

The Company’s loan portfolio is not concentrated in loans to any single borrower or to a relatively small number of borrowers.

Additionally, management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.

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

Allowance for Credit Losses - Unfunded Loan Commitments

Most of our business activity is with customers located within the markets where we have banking operations.

While our exposure to credit risk is affected by changes in the economy within our markets, the risk is not significantly concentrated.

The following table presents the total lending exposure for the counties with the largest percentage of our loan portfolio as of December 31, 2023 and 2022.

No other market (as defined by county) had total loans outstanding in excess of 5% of the total portfolio at year end.

Percentage of Loans Outstanding

Wake County, North Carolina 10.1 % 11.6 %

New Hanover County, North Carolina 8.1 % 9.1 %

Mecklenburg County, North Carolina 7.6 % 7.9 %

Buncombe County, North Carolina 5.3 % 6.1 %

Guilford County, North Carolina 5.0 % 5.0 %

In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries, and geographic regions, the Company monitors exposure to credit risk that could arise from potential concentrations of lending products and practices The Company has determined that there is no concentration of credit risk associated with its lending policies or practices.

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.

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

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

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

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

The allowance for credit losses for unfunded loan commitments of $ 13.3 million and $ 13.5 million at December 31, 2022 and December 31, 2021, respectively, is separately classified on the consolidated balance sheets within the line items "Other Liabilities."

The following table prese nts the balance and activity in the allowance for credit losses for unfunded loan commitments for each period indicated.

The allowance for unfunded loan commitments of $ 11.4 million and $ 13.3 million at December 31, 2023 and December 31, 2022, respectively, were included in "Other liabilities" on the consolidated balance sheets.

The following table prese nts the balance and activity in the allowance for unfunded loan commitments for twelve months ended December 31, 2023 and December 31, 2022:

($ in thousands) December 31, 2023 December 31, 2022

Beginning balance $ 13,306 $ 13,506

Adjustments for implementation of CECL on January 1, 2021 — 7,504

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

(Reversal of) provision for credit losses on changes in unfunded commitments ( 200 ) 1,438

Initial provision for credit losses on unfunded commitments acquired from GrandSouth 1,921 —

Charge-offs — —

Recoveries — —

Reversal of provision for unfunded commitments ( 3,858 ) ( 200 )

Ending balance $ 11,369 $ 13,306

Allowance for Credit Losses - Securities HTM and AFS

The ACL for securities HTM and AFS was immaterial at December 31, 2022 and December 31, 2021.

Allowance for Credit Losses - Securities Held Maturity

The ACL for securities held to maturity was insignificant at December 31, 2023 and December 31, 2022.

Premises and Equipment

6 unchanged sentences

35,214 31,920

Vehicles 3 years

Leasehold improvements 5 to 39 years

4 unchanged sentences

Goodwill and Other Intangible Assets

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

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets and the carrying amount of unamortizable intangible assets as of the periods presented.

December 31, 2023 December 31, 2022

1 unchanged sentence

Amount Accumulated

Amortization Gross Carrying

Amortization Net Amount Gross Carrying

Amount Accumulated

Amortization Net Amount

Amortizable intangible assets:

1 unchanged sentence

Core deposit intangibles 57,890 28,932 28,958 29,050 21,274 7,776

SBA servicing asset 13,264 9,260 11,932 6,460

Other 100 83 17 100 58 42

Total $ 45,114 32,439 43,782 25,955

Intangibles before servicing assets 60,690 31,182 29,508 31,850 23,179 8,671

SBA servicing assets 13,966 10,616 3,350 13,264 9,260 4,004

Total amortizable intangible assets $ 74,656 41,798 32,858 45,114 32,439 12,675

Unamortizable intangible assets:

1 unchanged sentence

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

In connection with the GrandSouth acquisition on January 1, 2023, the Company recorded $ 28.8 million in core deposit intangibles.

Amortization expense of all other intangible assets, excluding the SBA servicing asset, totaled $ 8.0 million, $ 3.7 million, and $ 3.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

SBA guarantee servicing fees and SBA servicing asset amortization expense are both recorded within noninterest income within the line item "Other service charges, commissions, and fees." The following table presents the changes in the SBA servicing assets for each period indicated.

Impairment charges included with amortization expense in the table below were immaterial for each period presented.

The portfolio of SBA loans serviced for others, which were not included in the accompanying consolidated balances sheets, was $ 349.3 million and $ 392.4 million, respectively, at December 31, 2023 and 2022.

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

During 2023, 2022 and 2021, the Company recorded $ 3.5 million, $ 3.4 million, and $ 3.9 million , respectively in SBA guaranteed servicing fee income.

There was no impairment of SBA servicing assets at December 31, 2023 and $ 352 thousand as of December 31, 2022.

Impairment charges or reversals are nominal in each year and are included with amortization expense in noninterest income as an offset to SBA servicing income.

A summary of the key assumptions used in the discounted cash flow method utilized to estimate the fair value of the SBA servicing asset were as follows:

December 31, 2023 December 31, 2022

Prepayment rate assumption:

Weighted average 19.05 % 15.58 %

Range 9.27 % - 33.14 %

7.29 % - 32.38 %

Discount rate:

Weighted average 16.36 % 22.14 %

Range 11.19 % - 22.51 %

14.44 % - 31.29 %

Servicing cost 0.40 % 0.40 %

The following table presents the changes in the SBA servicing assets for each period indicated.

($ in thousands) December 31, 2023 December 31, 2022

3 unchanged sentences

Ending balance, net $ 3,350 4,004

During 2022, 2021, and 2020, the Company recorded $ 3.4 million, $ 3.9 million, and $ 3.3 million, respectively, in SBA guarantee servicing fee income .

At December 31, 2022 and 2021, the Company serviced SBA for others totaling $ 392.4 million and $ 414.2 million, respectively.

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

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

1 unchanged sentence

No triggering events were identified during 2023 or 2022, and therefore, the Company did not perform interim impairment evaluations in either of those years.

Each of the Company's goodwill impairment evaluations for the periods presented, including the most recent October 2022 evaluation, indicated that there was no goodwill impairment.

Each of the Company's goodwill impairment evaluations for the periods presented, including the most recent, which occurred in the fourth quarter of 2023, indicated that there was no goodwill impairment.

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

1 unchanged sentence

Balance at December 31, 2021 $ 364,263

Additions from acquisition of Select 132,356

Reduction from disposal of First Bank Insurance ( 7,365 )

Balance at December 31, 2021 364,263

Net activity during 2022 —

Balance at December 31, 2022 364,263

In addition to the changes in goodwill presented above, activity for other intangibles related to transactions since January 1, 2021 are presented as follows.

Refer to Note 2 for additional discussion of the transactions.

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

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

The following table presents the estimated amortization expense schedule related to acquisition-related amortizable intangible assets for each of the five calendar years ending December 31, 2027 and the estimated amount amortizable thereafter.

Additions from acquisition of GrandSouth 114,487

Balance at December 31, 2023 $ 478,750

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 amortizable intangible assets.

($ in thousands) Estimated

2 unchanged sentences

Total $ 29,508

The components of income tax expense for the years ended December 31, 2022, 2021, and 2020 are as follows:

The components of income tax expense (benefit) for the years ended December 31, 2023, 2022, and 2021 are as follows:

($ in thousands) 2023 2022 2021

15 unchanged sentences

Change in valuation allowance ( 13 ) ( 20 ) ( 10 )

Nondeductible compensation 274 97 27

Other, net 39 ( 36 ) 71

18 unchanged sentences

Gross deferred tax assets 133,602 136,240

136,240 40,055

Valuation allowance ( 17 ) ( 30 )

( 30 ) ( 10 )

Net deferred tax assets 133,585 136,210

136,210 40,045

Deferred tax liabilities:

1 unchanged sentence

Depreciable basis of fixed assets ( 7,070 ) ( 5,493 )

( 5,493 ) ( 5,790 )

Amortizable basis of intangible assets ( 15,523 ) ( 10,047 )

( 10,047 ) ( 10,328 )

Basis differences in assets acquired in FDIC transactions — ( 108 )

Trust preferred securities ( 388 ) ( 416 )

( 416 ) ( 453 )

Pension — ( 12 )

Gross deferred tax liabilities ( 25,933 ) ( 19,178 )

( 19,178 ) ( 19,411 )

Net deferred tax asset $ 107,652 117,032

The valuation allowances for 2022, 2021 and 2020 related primarily to state net operating loss carryforwards.

It is management’s belief that the realization of the remaining net deferred tax assets is more likely than not.

The valuation allowances for 2023 and 2022 related to state net operating loss carryforwards.

The realization of the remaining net deferred tax assets is determined to be more likely than not.

The Company had no significant uncertain tax positions, and thus no reserve for uncertain tax positions has been recorded.

13 unchanged sentences

Other time deposits 610,887 464,343

Time deposits of $250,000 or more 276,319 357,355

Time deposits >$250,000 355,209 276,319

Total customer deposits 10,019,000 8,965,618

Brokered Deposits - time deposits 12,599 261,911

Total deposits $ 10,031,599 9,227,529

8 unchanged sentences

Total reciprocal deposits through the Certificate of Deposit Account Registry Services ("CDARS") and Insured Cash Sweep ("ICS") were $ 26.6 million and $ 10.3 million at December 31, 2023 and 2022, respectively.

As of December 31, 2023, the estimated insured deposits totaled $ 6.3 billion or 63.3 % of total deposits, while approximately $ 3.7 billion of the Company's total deposits were uninsured deposits.

In addition to insured deposits, there were deposits with a balance totaling $ 820.9 million at December 31, 2023 which were collateralized by investment securities such that approximately 71.5 % of our total deposits were insured or collateralized at that date.

The Company’s deposit portfolio is not concentrated in deposits to any single customer or to a relatively small number of customers.

Additionally, management is not aware of any concentrations of deposits to classes of customers or industries that would be similarly affected by economic conditions.

The following table presents the counties with the largest share of our deposit base as of December 31, 2023 and 2022.

No other market area (as defined by county) comprises more than 5% of our deposit base at the dates presented.

Percentage of Total Deposits

Moore County, North Carolina 10.8 % 10.9 %

Buncombe County, North Carolina 7.2 % 8.3 %

Guilford County, North Carolina 5.0 % 6.0 %

Borrowings and Borrowings Availability

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

Description – 2022 Due date Call Feature 2022 Amount 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

The following tables presents information regarding the Company’s outstanding borrowings at December 31, 2023 (dollars are in thousands) :

Description Due Date Call Feature Balance at December 31,

2023 Interest Rate

FHLB Principal Reducing Credit 6/26/2028 None $ 203 0.25 % fixed

FHLB Principal Reducing Credit 7/17/2028 None 31 0.00 % fixed

FHLB Principal Reducing Credit 8/18/2028 None 151 1.00 % fixed

FHLB Principal Reducing Credit 8/22/2028 None 151 1.00 % fixed

FHLB Principal Reducing Credit 12/20/2028 None 315 0.50 % fixed

FHLB Fixed Rate Credit 1/16/2024 None 80,000 5.59 % fixed

1 unchanged sentence

FHLB Fixed Rate Credit 3/20/2024 None 100,000 5.61 % fixed

Trust Preferred Securities

1/23/2034 Quarterly by Company

FRB Bank Term Funding Program 12/20/2024 None 224,000 4.85 % fixed

FRB Bank Term Funding Program 12/27/2024 None 25,000 4.83 % fixed

Trust Preferred Securities 1/23/2034 Quarterly by Company

beginning 1/23/2009 10,310 8.30 % at 12/31/23

adjustable rate

3 month LIBOR + 2.70 %

Trust Preferred Securities

6/15/2036 Quarterly by Company

3 month CME Term SOFR + 2.91 %

Trust Preferred Securities 1/23/2034 Quarterly by Company

beginning 1/23/2009 10,310 8.40 % at 12/31/23

adjustable rate

3 month LIBOR + 1.39 %

Trust Preferred Securities

1/7/2035 Quarterly by Company

3 month CME Term SOFR + 3.01 %

Trust Preferred Securities 9/20/2034 Quarterly by Company

beginning 9/20/2009 12,372 7.78 % at 12/31/23

adjustable rate

3 month LIBOR + 2.00 %

Trust Preferred Securities

9/20/2034 Quarterly by Company

3 month CME Term SOFR + 2.41 %

Trust Preferred Securities 1/7/2035 Quarterly by Company

beginning 1/7/2010 10,310 7.66 % at 12/31/23

adjustable rate

3 month LIBOR + 2.15 %

3 month CME Term SOFR + 2.00 %

Trust Preferred Securities 6/15/2036 Quarterly by Company

beginning 6/15/2011 25,774 7.04 % at 12/31/23

adjustable rate

3 month CME Term SOFR + 1.65 %

Trust Preferred Securities 6/23/2036 Quarterly by Company beginning 6/23/2011 8,248 7.47 % at 12/31/23

adjustable rate

3 month CME Term SOFR + 2.11 %

Subordinated Debentures 11/30/2028 Continuous by Company beginning 11/30/2023 10,000 9.09 % at 12/31/23

adjustable rate

3 month CME Term SOFR + 3.69 %

Subordinated Debentures 11/15/2030 Continuous by Company beginning 11/15/2025 18,000 4.38 % fixed

Total borrowings / weighted average rate as of December 31, 2023 635,175 5.57 %

2 unchanged sentences

The following table presents information regarding the Company’s outstanding borrowings at December 31, 2022 (dollars are in thousands) :

Description – 2021 Due date Call Feature 2021 Amount Interest Rate

FHLB Principal Reducing Credit

7/24/2023 None $ 79 1.00 % fixed

FHLB Principal Reducing Credit

12/22/2023 None 952 1.25 % fixed

FHLB Principal Reducing Credit

6/26/2028 None 225 0.25 % fixed

FHLB Principal Reducing Credit

7/17/2028 None 44 0.00 % fixed

FHLB Principal Reducing Credit

8/18/2028 None 166 1.00 % fixed

FHLB Principal Reducing Credit

8/22/2028 None 166 1.00 % fixed

Description Due date Call Feature Balance at December 31,

2022 Interest Rate

FHLB Principal Reducing Credit 7/24/2023 None $ 32 1.00 % fixed

Trust Preferred Securities

1/23/2034 Quarterly by Company

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 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

FHLB Daily Rate Credit 8/23/2023 None 40,000 4.57 % 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

6/15/2036 Quarterly by Company

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 9/20/2034 Quarterly by Company

beginning 9/20/2009 12,372 6.90 % at 12/31/22

1 unchanged sentence

3 month LIBOR + 2.15 %

Trust Preferred Securities

1/7/2035 Quarterly by Company

Trust Preferred Securities 1/7/2035 Quarterly by Company

beginning 1/7/2010 10,310 6.08 % at 12/31/22

1 unchanged sentence

3 month LIBOR + 2.00 %

Trust Preferred Securities

9/20/2034 Quarterly by Company

Trust Preferred Securities 6/15/2036 Quarterly by Company

beginning 6/15/2011 25,774 6.16 % at 12/31/22

4 unchanged sentences

Total borrowings $ 287,507

All outstanding FHLB borrowings may be accelerated immediately by the FHLB in certain circumstances, including material adverse changes in the condition of the Company or if the Company’s qualifying collateral amounts to less than that required under the terms of the FHLB borrowing agreement.

In the above tables, at December 31, 2022 short-term borrowings (original maturity terms of less than 3 months) totaled $ 220.0 million.

There were no short-term borrowings at December 31, 2021.

In the above tables, the $ 20.6 million in borrowings due on January 23, 2034 relate to borrowings structured as trust preferred capital securities that were issued by First Bancorp Capital Trusts II and III ($ 10.3 million by each trust), which are unconsolidated subsidiaries of the Company, on December 19, 2003 and qualify as capital for regulatory capital adequacy requirements.

These unsecured debt securities became callable by the Company at par on any quarterly interest payment date beginning on January 23, 2009.

The interest rate on these debt securities adjusts on a quarterly basis at a rate of three-month LIBOR plus 2.70 %.

In the above tables, the $ 25.8 million in borrowings due on June 15, 2036 relate to borrowings structured as trust preferred capital securities that were issued by First Bancorp Capital Trust IV, an unconsolidated subsidiary of the Company, on April 13, 2006 and qualify as capital for regulatory capital adequacy requirements.

These unsecured debt securities became callable by the Company at par on any quarterly interest payment date beginning on June 15, 2011.

The interest rate on these debt securities adjusts on a quarterly basis at a rate of three-month LIBOR plus 1.39 %.

In the above tables, the $ 10.3 million in borrowings due on January 7, 2035 relate to borrowings structured as trust preferred capital securities that were issued by Carolina Capital Trust, an unconsolidated subsidiary of the Company.

The Company acquired Carolina Bank Holdings, Inc.

and its subsidiary, Carolina Capital Trust, on March 3, 2017.

These unsecured debt securities qualify as capital for regulatory capital adequacy requirements and became callable by the Company at par on any quarterly interest payment date beginning on January 7, 2010.

The interest rate on these debt securities adjusts on a quarterly basis at a rate of three-month LIBOR plus 2.00 %.

In the above tables, the $ 12.4 million in borrowings due on September 20, 2034 relate to borrowings structured as trust preferred capital securities that were issued by New Century Statutory Trust I, an unconsolidated subsidiary of the Company.

The Company acquired Select Bancorp, Inc.

and its subsidiary, New Century Statutory Trust I, on October 15, 2021.

The interest rate on these debt securities adjusts on a quarterly basis at a rate of three-month LIBOR plus 2.15 %.

At December 31, 2022, the Company had three sources of readily available borrowing capacity:

• An $ 847.1 million line of credit with the FHLB that can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity needs and is secured by the Company’s FHLB stock and a blanket lien on most of its real estate loan portfolio.

$ 221.8 million was outstanding at December 31, 2022 and $ 2.0 million was outstanding at December 31, 2021;

All outstanding FHLB and FRB borrowings may be accelerated immediately by the FHLB and FRB, respectively, in certain circumstances, including material adverse changes in the condition of the Company or if the Company’s qualifying collateral amounts to less than that required under the terms of the borrowing agreement.

In the above tables, at December 31, 2023, short-term borrowings (original maturity terms of less than twelve months) totaled $ 529.0 million and had a weighted average interest rate of 5.25 %.

At December 31, 2022, short-term borrowings totaled $ 220.9 million and had a weighted average interest rate of 4.30 % .

Trust Preferred Securities in the above tables are borrowings structured as trust preferred capital securities which were issued by various unconsolidated subsidiaries of the Company as discussed in Note 1.

These unsecured debt securities qualify as Tier I capital for capital adequacy requirements.

The Subordinated Debentures in the tables above are borrowings issued by GrandSouth and acquired by the Company on January 1, 2023.

These unsecured debt securities qualify as Tier II capital for capital adequacy requirements.

At December 31, 2023, the Company had several sources of readily available borrowing capacity:

• A $ 1.3 billion line of credit with the FHLB that can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity needs.

As of December 31, 2023, the line of credit is secured by a blanket lien on portions of the Company's real estate loan portfolio totaling approximately $ 2.3 billion and the Company's FHLB stock totaling $ 21.7 million.

$ 280.9 million was outstanding on the line of credit at December 31, 2023 and $ 221.8 million was outstanding at December 31, 2022;

• A total of $ 265.0 million federal funds lines of credit with correspondent banks which allow the Company to purchase federal funds on an overnight, unsecured basis.

None was outstanding at December 31, 2023 or 2022;

• An approximately $ 165.4 million line of credit through the Federal Reserve discount window, and is secured by a blanket lien on a portion of the Company’s commercial and consumer loan portfolio (excluding real estate collateral).

None was outstanding at December 31, 2022 or 2021.

• A $ 294.1 million line of credit through the Federal Reserve's Bank Term Funding Program, secured by specific investment securities, with $ 249.0 million outstanding at December 31, 2023;

• An approximately $ 561.6 million line of credit through the Federal Reserve's discount window borrowing program, which was secured at December 31, 2023 by a blanket lien on a portion of the Company’s commercial and consumer loan portfolios (excluding real estate collateral) totaling approximately$ 330.9 million and specific investment securities with a carrying value of $ 710.2 million.

None was outstanding at December 31, 2023 or 2022, respectively.

At December 31, 2023, the contractual maturities of borrowings were as follows for the years ending:

($ in thousands) FHLB Principal Reducing Credit FHLB Fixed Rate Credit FRB Bank Term Funding Program Trust Preferred Securities Subordinated Debentures Total

2024 $ — 280,000 249,000 — — 529,000

2025 — — — — — —

2026 — — — — — —

2027 — — — — — —

2028 851 — — — 10,000 10,851

Thereafter — — — 77,324 18,000 95,324

Total $ 851 280,000 249,000 77,324 28,000 635,175

Unamortized discount on acquired borrowings ( 5,017 )

Total borrowings 630,158

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

As of December 31, 2022, the Company leased 16 branch offices for which the land and buildings are leased and nine branch offices for which the land is leased but the building is owned.

As of December 31, 2023, the Company leased 17 branch offices for which the land and buildings are leased and ten branch offices for which the land is leased but the building is owned.

The Company also leases office space for several operational departments.

All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from July 2023 through May 2076, some of which include options for multiple five - and ten-year extensions.

All of the Company’s leases are operating leases 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 Company includes lease extension options in the lease term if, after considering relevant economic, market, and strategic factors, it is reasonably certain the Company will exercise the option.

The weighted average remaining life of the lease term for these leases was 19.6 years as of December 31, 2022.

The weighted average remaining life of the lease term for these leases was 19.8 years as of December 31, 2023 and 19.6 years as of December 31, 2022.

Certain of the Company's lease agreements include variable lease payments based on changes in inflation, with the impact of that factor being insignificant to the Company's total lease expense.

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

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

The weighted average discount rate for leases was 2.97 % as of December 31, 2022.

The Company uses its incremental borrowing rate, based on for a fully collateralized loan with a maturity similar to the lease term, 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 3.19 % and 2.97 % as of December 31, 2023 and 2022, respectively.

The right-of-use assets and lease liabilities were $ 17.1 million and $ 17.8 million as of December 31, 2023, respectively, and were $ 18.7 million and $ 19.4 million as of December 31, 2022, respectively.

Total operating lease expense charged to operations under all operating lease agreements was $ 3.1 million in 2023, $ 2.9 million in 2022, and $ 2.6 million in 2021.

These expenses are recorded within noninterest expense in the "Equipment related expenses" line on the consolidated statements of income.

Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2023 for each of the five calendar years ending December 31, 2028 are as follows:

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Employee Benefit Plans

401(k) Plan .

The Company sponsors a retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code ("IRC").

2 unchanged sentences

An eligible employee may contribute up to 15 % of annual salary to the plan, not to exceed IRC limits.

The Company’s matches 100 % of the employee’s contribution up to 6 %.

For each of the years ended December 31, 2023, 2022, and 2021, the Company matched 100 % of the employee’s contribution up to 6 %.

The Company’s matching contribution expense was $ 6.1 million, $ 4.9 million, and $ 4.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.

1 unchanged sentence

The Company’s matching and discretionary contributions are made according to the same investment elections each participant has established for their deferral contributions.

Pension Plan .

Historically, the Company offered a noncontributory defined benefit retirement plan (the “Pension Plan”) that qualified under Section 401(a) of the IRC.

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Benefits were fully vested after five years of service.

Effective December 31, 2012, the Company froze the Pension Plan for all participants.

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.

As discussed below, the contributions are invested to provide for benefits under the Pension Plan.

The Company did not make any contributions to the Pension Plan for any of the years presented.

The Company also does not expect to contribute to the Pension Plan in 2023.

The following table reconciles the beginning and ending balances of the Pension Plan’s benefit obligation, as computed by the Company’s independent actuarial consultants, and its plan assets, with the difference between the two amounts representing the funded status of the Pension Plan as of the end of the respective year.

Effective December 31, 2012, the Company froze the Pension Plan for all participants and has not made any contributions to the Pension Plan in any year presented.

In March 2023, the Company’s Board of Directors (the "Board") approved a resolution to terminate the Pension Plan.

During the second quarter of 2023, the Company commenced the Pension Plan termination process and on July 31, 2023, the Pension Plan was amended to terminate it as of that date.

During the fourth quarter of 2023, the Pension Plan settled benefits through lump-sum payments of approximately $ 9.2 million to eligible participants electing that option and purchased annuity contracts from One America (the "Insurer") which irrevocably transferred to the Insurer approximately $ 19.5 million of the Pension Plan's obligations and related assets, thereby reducing the Pension Plan's obligations at December 31, 2023 to zero .

The Insurer will administer all future payments to remaining participants of the Pension Plan.

The Pension Plan's net funded position was sufficient to cover the lump sum payments and the purchase of the annuity contract, settling all benefit obligations with no additional funding required.

As a result of this transaction, the Company recognized a one-time, non-cash pension settlement charge of $ 1.0 million.

After the settlement of the benefit obligations and payment of expenses, the Company had excess assets in the Pension Plan of approximately $ 2.5 million.

The Company has elected to utilize the remaining surplus

after payment of final administrative expenses for future contributions under the Company’s 401(k) plan.

The assets will be held in the Pension Plan trust account until the contributions are made and are included in "Other assets" on the consolidated balance sheets.

Prior to the termination of the Pension Plan, the investment objective was to ensure that there were sufficient assets to fund regular pension benefits payable to employees over the long-term life of the plan.

Plan assets were allocated in a manner to closely duration-match the actuarial projected cash flows of the plan liabilities.

In 2018, the Pension Plan adopted a liability-driven investment strategy to help meet the objectives.

This strategy employed a structured fixed-income portfolio designed to reduce volatility in the Pension Plan’s future funding requirements and funding status.

This was accomplished by using a blend of high quality corporate and government fixed-income securities, with both intermediate and long-term durations.

The following table reconciles the beginning and ending balances of the Pension Plan’s benefit obligation, as computed by the Company with assistance from its independent actuarial consultants, and its plan assets, with the difference between the two amounts representing the funded status of the Pension Plan as of the end of the respective year.

($ in thousands) 2023 2022 2021

3 unchanged sentences

Interest cost 1,451 1,043 981

Actuarial (gain) loss ( 10,286 ) ( 2,041 ) 3,788

Benefits paid ( 1,803 ) ( 2,033 ) ( 1,853 )

Actuarial gain ( 1,470 ) ( 10,286 ) ( 2,041 )

Benefits paid, including lump sums ( 11,135 ) ( 1,803 ) ( 2,033 )

Transfer to insurer ( 19,457 ) — —

Accumulated benefit obligation at end of year — 30,611 41,657

3 unchanged sentences

Employer contributions — — —

Benefits paid ( 1,803 ) ( 2,033 ) ( 1,853 )

Benefits paid, including lump sums ( 11,135 ) ( 1,803 ) ( 2,033 )

Transfer to insurer ( 19,457 ) — —

Plan assets at end of year 2,517 33,655 44,904

Funded status at end of year (1)

The amount recognized in the Other Assets in the consolidated balance sheets at December 31, 2022 and 2021 as it relates to the Pension Plan, excluding the related deferred tax assets, was $ 3.0 million and $ 3.2 million.

$ 2,517 3,044 3,247

(1) - As of December 31, 2023, the Pension Plan was terminated and surplus assets were held in the Pension Plan's trust account until deployed as contributions to the Company's 401(k) Plan in 2024 and 2025.

The following table presents information regarding the amounts recognized in accumulated other comprehensive income (loss) (“AOCI”) at December 31, 2023 and 2022, as it relates to the Pension Plan.

($ in thousands) 2023 2022

Net loss $ ( 1,497 ) ( 1,441 )

Net actuarial loss $ — ( 1,497 )

Prior service cost — —

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Net loss arising during period ( 693 ) ( 312 )

Amortization of unrecognized actuarial loss

Tax expense (benefit) of changes during the year, net 13 ( 76 )

Recognition of net actuarial loss due to plan settlement 998 —

Amortization of net unrecognized actuarial loss 1,192 256

Tax (benefit) expense of changes during the year, net ( 344 ) 13

Accumulated other comprehensive loss at end of fiscal year

$ — ( 1,153 )

The following table reconciles the beginning and ending balances of the prepaid pension cost related to the Pension Plan:

The following table reconciles the beginning and ending balances of the prepaid pension cost related to the Pension Plan for the periods presented.

As noted above, there are no remaining obligations of the Pension Plan and assets at December 31, 2023 represent the surplus cash held in the Pension Plan's trust account for contributions to be made to the Company's 401(k) plan during 2024 and 2025.

($ in thousands) 2023 2022

5 unchanged sentences

Prepaid pension asset as of end of fiscal year $ 2,517 4,542

$ 4,542 4,689

Net pension cost for the Pension Plan included the following components for the years ended December 31, 2023, 2022, and 2021:

4 unchanged sentences

Net amortization and deferral 1,192 256 577

Recognized settlement loss 998 — —

Net periodic pension cost $ 2,025 147 499

The following table is an estimate of the benefits that will be paid in accordance with the Pension Plan for each of the five calendar years ending December 31, 2027 and thereafter, assuming the Pension Plan is operated on an ongoing basis.

($ in thousands) Estimated

benefit payments

The components of net periodic benefit cost other than the service cost component are included in the line item "Other operating expenses" in the consolidated statements of income.

The following assumptions were used in determining the actuarial information for the Pension Plan for the years ended December 31, 2023, 2022, and 2021:

2023 2022 2021

The investment objective of the Company’s Pension Plan is to ensure that there are sufficient assets to fund regular pension benefits payable to employees over the long-term life of the plan.

The Plan seeks to allocate plan assets in a manner that is closely duration-matched with the actuarial projected cash flows of the Plan liabilities, consistent with prudent standards for preservation of capital, tolerance of investment risk, and maintenance of liquidity.

Assets of the Plan are held by Fidelity Investments as Trustee.

In 2018, the Pension Plan adopted a liability-driven investment strategy to help meet these objectives.

This strategy employs a structured fixed-income portfolio designed to reduce volatility in the Pension Plan’s future funding requirements and funding status.

This is accomplished by using a blend of high quality corporate and government fixed-income securities, with both intermediate and long-term durations.

Generally, the value of these fixed income securities is inversely correlated to changes in market interest rates, which substantially offsets changes in the value of the pension benefit obligation caused by changes in the interest rate used to discount plan liabilities.

The fair values of the Company’s pension plan assets at December 31, 2022, by asset category, were as follows:

($ in thousands) Total Fair Value at December 31,

2022 Quoted Prices in

Active Markets for

Identical Assets

(Level 1) Significant Other

Observable Inputs

(Level 2) Significant

Cash and cash equivalents $ 194 — 194 —

Fixed income investment funds 33,461 — 33,461 —

Total $ 33,655 — 33,655 —

The fair values of the Company’s Pension Plan assets at December 31, 2021, by asset category, were as follows:

($ in thousands) Total Fair Value at December 31,

2021 Quoted Prices in

Active Markets for

Identical Assets

(Level 1) Significant Other

Observable Inputs

(Level 2) Significant

Cash and cash equivalents $ 267 — 267 —

Fixed income investment funds 44,637 — 44,637 —

Total $ 44,904 — 44,904 —

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

There have been no changes in the methodologies used at December 31, 2022 and 2021.

- Cash and cash equivalents:

Valued at net asset value (“NAV”), which can be validated with a sufficient level of observable activity (i.e.

purchases and sales at NAV), and therefore, the funds were classified within Level 2 of the fair value hierarchy.

- Fixed income funds consist of commingled funds that primarily include investments in U.S.

Discount rate used to determine net periodic pension cost 4.94 % 2.62 % 2.24 %

Expected long-term rate of return on assets 4.94 % 2.62 % 2.24 %

Discount rate used to calculate end of year liability disclosures (1)

n/a 4.94 % 2.62 %

(1) - As of December 31, 2023, there were no Pension Plan obligations or liabilities.

The Company’s discount rate policy for the Pension Plan is based on a calculation of the Company’s expected pension payments, with those payments discounted using the FTSE yield curve (formerly called the Citigroup Pension Index yield curve) that matches the specific expected cash flows of the Pension Plan.

As noted above, the remaining assets in the Pension Plan's trust account at December 31, 2023 represent the surplus cash held for contributions to be made to the Company's 401(k) plan during 2024 and 2025.

The cash balance is held in an interest-bearing money market accounts and is considered a Level 1 fair value asset.

The Pension Plan assets at December 31, 2022 included $ 194.0 thousand of cash and cash equivalents which consisted of interest-bearing money market accounts and is considered a Level 1 fair value asset.

The Pension Plans' Level 2 assets totaled $ 33.5 million and consisted of fixed income commingled funds that primarily include investments in U.S.

government securities and corporate bonds.

The commingled funds also include an insignificant portion of investments in other asset-based securities, municipal securities, etc.

The commingled funds are valued at the NAV for the units in the fund.

The commingled funds are valued at the net asset value ("NAV") for the units in the fund.

The NAV, as provided by the Trustee, is used as practical expedient to estimate fair value.

14 unchanged sentences

Interest cost 158 112 119

Actuarial (gain) loss ( 1,006 ) ( 1,119 ) 517

Actuarial gain ( 86 ) ( 1,006 ) ( 1,119 )

Benefits paid ( 241 ) ( 245 ) ( 322 )

2 unchanged sentences

Funded status at end of year $ ( 3,352 ) ( 3,521 ) ( 4,660 )

The amount recognized in the Other Liabilities in the consolidated balance sheets at December 31, 2022 and 2021 as it relates to the SERP, excluding the related deferred tax assets, was $ 3.5 million and $ 4.7 million.

The accumulated benefit obligation presented above is included in "Other liabilities" in the consolidated balance sheets at December 31, 2023 and 2022.

The following table presents information regarding the amounts recognized in AOCI at December 31, 2023 and 2022, as it relates to the SERP:

($ in thousands) 2023 2022

Net gain $ 1,551 1,088

Net (loss) gain $ ( 100 ) 1,551

Prior service cost — —

Amount recognized in AOCI before tax effect ( 100 ) 1,551

Tax expense ( 356 ) ( 250 )

Net amount recognized as increase to AOCI $ 1,195 838

Tax benefit (expense) 23 ( 356 )

Net amount recognized as (decrease) increase to AOCI $ ( 77 ) 1,195

The following table reconciles the beginning and ending balances of AOCI at December 31, 2023 and 2022, as it relates to the SERP:

($ in thousands) 2023 2022

Accumulated other comprehensive income (loss) at beginning of fiscal year $ 838 ( 35 )

Accumulated other comprehensive income at beginning of fiscal year $ 1,195 838

Net gain arising during period 86 1,007

Prior service cost — —

Amortization of unrecognized actuarial (loss) gain ( 544 ) 15

Amortization of prior service cost and transition obligation — —

Tax expense related to changes during the year, net ( 106 ) ( 261 )

Accumulated other comprehensive income at end of fiscal year $ 1,195 838

Amortization of unrecognized actuarial loss ( 1,737 ) ( 544 )

Tax benefit (expense) related to changes during the year, net 379 ( 106 )

Accumulated other comprehensive (loss) income at end of fiscal year $ ( 77 ) 1,195

The following table reconciles the beginning and ending balances of the prepaid pension cost related to the SERP:

8 unchanged sentences

Interest cost on projected benefit obligation 158 112 119

Net amortization and deferral ( 544 ) 15 ( 157 )

Amortization of net actuarial (loss) gain ( 1,737 ) ( 544 ) 15

Net periodic pension cost $ ( 1,579 ) ( 432 ) 134

The components of net periodic benefit cost other than the service cost component are included in the line item "Other operating expenses" in the consolidated statements of income.

The following table is an estimate of the benefits that will be paid in accordance with the SERP for each of the five calendar years ending December 31, 2027 and thereafter:

1 unchanged sentence

2029-2033 1,322

Applicable to both Plans

The components of net periodic benefit cost other than the service cost component are included in the line item "Other operating expenses" in the consolidated statements of income.

The following assumptions were used in determining the actuarial information for the Pension Plan and the SERP for the years ended December 31, 2022, 2021, and 2020:

The following assumptions were used in determining the actuarial information for the SERP for the years ended December 31, 2023, 2022, and 2021:

2023 2022 2021

Plan SERP Pension

Discount rate used to determine net periodic pension cost 4.90 % 2.48 % 2.04 %

2.62 % 2.48 % 2.24 % 2.04 % 3.03 % 2.89 %

Discount rate used to calculate end of year liability disclosures 4.68 % 4.90 % 2.48 %

4.94 % 4.90 % 2.62 % 2.48 % 2.24 % 2.04 %

Expected long-term rate of return on assets

2.62 % n/a 2.24 % n/a 3.03 % n/a

The discount rate policy for the SERP is to use the FTSE yield curve that matches the expected cash flows of the SERP.

The Company’s discount rate policy for the SERP is to use the FTSE yield curve that matches the expected cash flows of the SERP.

Commitments and Contingencies

2 unchanged sentences

Commitments may expire without being used.

The following table presents the Company’s outstanding loan commitments at December 31, 2022 and December 31, 2021.

The following table presents the Company’s outstanding loan commitments, including credit cards, at December 31, 2023 and December 31, 2022.

December 31, 2023 December 31, 2022

4 unchanged sentences

407,521 1,417,250 1,824,771 273,244 1,194,575 1,467,819

$ 954,730 1,405,646 2,360,376 663,451 1,407,324 2,070,775

At December 31, 2022 and 2021, the Company had $ 20.2 million and $ 21.3 million, respectively, in standby letters of credit outstanding.

Total $ 850,437 1,597,184 2,447,621 954,730 1,405,646 2,360,376

In addition to loan commitments, at December 31, 2023 and 2022, the Company had $ 20.6 million and $ 20.2 million, respectively, in standby letters of credit outstanding.

The Company has no carrying amount for these standby letters of credit at either of those dates.

The nature of the standby letters of credit is a stand-alone obligation made on behalf of the Company’s customers to suppliers of the customers to guarantee payments owed to the supplier by the customer.

The nature of the standby letters of credit is a stand-alone

obligation made on behalf of the Company’s customers to suppliers of the customers to guarantee payments owed to the supplier by the customer.

The standby letters of credit are generally for terms for one year, at which time they may be renewed for another year if both parties agree.

The Company maintains an ACL for unfunded loan commitments which is included in the balance of other liabilities in the consolidated balance sheets.

The ACL for unfunded loan commitments is determined as part of the quarterly ACL analysis.

The Company maintains an allowance for unfunded loan commitments which is included in "Other liabilities" in the consolidated balance sheets.

The allowance for unfunded loan commitments is determined as part of the quarterly ACL analysis.

The Company also periodically invests in limited partnerships and LLCs primarily for the purposes of fulfilling CRA requirements and obtaining tax credits.

As of December 31, 2023, the Company had a remaining funding commitments of $ 26.3 million related to these investments.

See Note 10 with respect to future obligations under operating leases and Note 11 with respect to future benefits that will be paid under the Company's Pension Plan and SERP.

The Company, in the normal course of business, may be subject to various pending and threatened lawsuits in which claims for monetary damages are asserted.

The Company is not involved in any legal proceedings which, in management’s opinion, could have a material effect on the consolidated financial position of the Company.

Derivatives and Hedging Activities

In the normal course of business, the Company is exposed to certain risk arising from both its business operations and economic conditions.

As an element of its risk management strategies, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

To accommodate customers, the Company may enter into interest rate swaps with certain commercial loan customers, with offsetting positions to dealers under a back-to-back swap program.

At December 31, 2023, the Company's derivative financial instruments consist entirely of customer back-to-back interest rate swaps which are not designated as hedges.

Under this program, the Company executes interest rate swaps with commercial banking customers to facilitate their risk management strategies.

Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.

As the interest rate derivatives associated with this program are not designated as hedging instruments, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

The Company's derivative instruments are carried at fair value and included in "Other assets" for derivatives with positive fair values and "Other liabilities" for derivatives with negative fair values on the consolidated balance sheets.

The table below presents the fair value of Company’s derivative financial instruments as of the date indicated.

As of December 31, 2023

($ in thousands) Notional Amount Derivative Assets Derivative Liabilities

Derivatives not designated as hedging instruments:

Customer interest rate contracts $ 13,000 $ 295 —

Offsetting counterparty interest rate contracts 13,000 — 349

Total derivatives not designated as hedging instruments $ 295 349

The table below presents the gains and losses recognized in income related to derivative financial instruments that are not designated as hedging instruments.

Gains and losses on interest rate swap undesignated hedges are included in "Other gains, net" on the consolidated statements of income for the date indicated.

Gains (Losses)

($ in thousands) Year Ended December 31, 2023

Customer interest rate swaps and counterparty offsets $ ( 54 )

Total $ ( 54 )

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of December 31, 2023.

The Company’s interest rate swaps are subject to master netting arrangements between the Company and its counterparties, however, the Company has not made a policy election

to offset its derivative positions.

The interest rate swaps with borrowers are cross collateralized with the underlying loan and, therefore, there is no posted collateral.

Interest rate swap agreements with third-party counterparties contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount and receive collateral for agreements in a net asset position.

As of December 31, 2023 Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Balance Sheet Net Amounts of Assets presented in the Consolidated Balance Sheets Gross Amounts Not Offset in the Consolidated Balance Sheets

Financial Instruments Cash Collateral Received Net Amount

Interest rate swaps $ 295 — 295 — — 295

Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Balance Sheets Net Amounts of Liabilities presented in the Consolidated Balance Sheets Gross Amounts Not Offset in the Consolidated Balance Sheets

Financial Instruments Cash Collateral Posted Net Amount

Interest rate swaps $ 349 — 349 — 330 19

The commitments to originate residential mortgage loans and forward loan sales commitments are freestanding derivative instruments which were immaterial at December 31, 2023 and 2022.

Credit-risk-related Contingent Features

The Company's agreements with its derivative counterparties contain a provision where if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations.

The agreements with derivative counterparties also include provisions that if not met, could result in the Company being declared in default on its derivative obligations, including if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness.

The Company has provisions in its derivative counterparty agreement providing that if the Company fails to maintain its status as a well-capitalized institution or is subject to a prompt corrective action directive, the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

The Company manages its credit exposure on derivative transactions by entering into a bilateral credit support agreement with each non-customer counterparty.

The credit support agreement requires collateralization of exposure beyond specified minimum threshold amounts.

As of December 31, 2023, the fair value of derivatives in a net liability position, including accrued interest, was $ 349 thousand.

As of December 31, 2023, the Company has minimum collateral posting thresholds with its derivative counterparty and has posted collateral of $ 330 thousand.

Fair Value of Financial Instruments

9 unchanged sentences

Fair Value at December 31,

2022 Quoted Prices in

Active Markets

for Identical

Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant

2023 Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Securities available for sale:

5 unchanged sentences

2,189,379 — 2,189,379 —

Derivative financial assets 295 — 295 —

Presold mortgages in process of settlement 2,667 — 2,667 —

Derivative financial liabilities 349 — 349 —

Individually evaluated loans 1,953 — — 1,953

Foreclosed real estate

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.

1 unchanged sentence

Fair Value at December 31,

2021 Quoted Prices in

Active Markets

for Identical

Assets (Level 1) Significant

Inputs (Level 2) Significant

2022 Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Securities available for sale:

US Treasury securities $ 168,758 — 168,758 —

Government-sponsored enterprise securities 57,456 — 57,456 —

7 unchanged sentences

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

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

Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy.

If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy.

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

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

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

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

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

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

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

Presold Mortgages in Process of Settlemen t - The fair value is based on the committed price that an investor has agreed to pay for the loan which is considered a Level 2 input.

Derivative financial assets and liabilities - The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts).

The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

These are considered a Level 2 input.

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

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Appraisals used in this analysis are generally obtained at least annually based on when the assets were acquired, and thus the appraisals are not necessarily as of the period ends presented.

At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for loan losses.

At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the ACL.

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

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

For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2023, the significant unobservable inputs used in the fair value measurements were as presented in the tables below.

($ in thousands) Fair Value at December 31,

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Individually evaluated loans - collateral-dependent $ 1,953 Appraised value Discounts applied for estimated costs to sell 10 %

Individually evaluated loans - cash-flow dependent 3,909 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 %

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

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Inputs Range (Weighted Average)

Impaired loans - valued at collateral value $ 7,326 Appraised value Discounts applied for estimated costs to sell 10 %

Impaired loans - valued at PV of expected cash flows 4,257 PV of expected cash flows Discount rates used in the calculation of PV of expected cash flows 4 % - 11 % ( 6.22 %)

Individually evaluated loans - collateral-dependent $ 5,680 Appraised value Discounts applied for estimated costs to sell 10 %

Individually evaluated loans - valued at PV of expected cash flows 3,910 PV of expected cash flows Discount rates used in the calculation of PV of expected cash flows 5.5 % - 11.1 %

Foreclosed real estate 38 Appraised value Discounts applied for estimated costs to sell 10 %

In the above tables, weighted average discounts were calculated on relative fair value for underlying loans based on the range of discount rates applied.

The discount applied for estimated costs to sell collateral on individually evaluated loans was 10%.

The carrying amounts and estimated fair values of financial instruments not carried at fair value as of December 31, 2023 and 2022 are as follows:

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Level 2 533,678 449,623 541,700 432,528

SBA and other loans held for sale Level 2 — — 61,003 62,004

Total loans, net of allowance

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SBA servicing asset Level 3 3,351 4,049 4,004 4,721

Level 2 9,227,529 9,218,945 9,124,629 9,124,701

Demand deposits, money market and savings Level 1 9,052,905 9,052,905 8,224,956 8,224,956

Time deposits Level 2 978,694 972,513 1,002,573 993,989

Level 2 630,158 615,614 287,507 277,146

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Stock-Based Compensation

The Company recorded total stock-based compensation expense of $ 3.0 million, $ 2.3 million, and $ 2.5 million for the years ended December 31, 2022, 2021, and 2020, respectively.

The Company recorded total stock-based compensation expense of $ 4.6 million, $ 3.0 million, and $ 2.3 million for the years ended December 31, 2023, 2022, and 2021, respectively, include in "Total personnel expense" on the accompanying consolidated statements of income.

The Company recognized $ 1.1 million, $ 0.7 million, and $ 0.5 million of income tax benefits related to stock-based compensation expense in its income statement for the years ended December 31, 2023, 2022, and 2021, respectively.

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

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

For the last several

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

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

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

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

The Company issues new shares of common stock when options are exercised.

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

The Company recognizes forfeitures as they occur.

In addition to employee equity awards, the Company's practice is to grant unrestricted common shares to each non-employee director (currently 14 in total) in June of each year.

These grants were each valued at approximately $ 32,000 in 2022.

These grants were each valued at approximately $ 37,500 in 2023 and $ 32,000 in 2022.

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

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Long-Term Restricted Stock

Shares Grant Date Fair Value

Shares Weighted Average Grant Date Fair Value

Nonvested at January 1, 2021 172,105 $ 33.80

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Vested during the period ( 63,369 ) 39.82

Forfeited or expired during the period ( 6,819 ) 37.32

Nonvested at December 31, 2021 206,331 35.25

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Nonvested at December 31, 2023 291,291 38.01

The total fair value of shares vested during 2023, 2022 and 2021 was $ 2.2 million, $ 2.6 million and $ 2.5 million, respectively.

Total unrecognized compensation expense as of December 31, 2023 amounted to $ 5.0 million with a weighted average remaining term of 1.8 years.

The Company expects to record $ 3.3 million of compensation expense in the next twelve months related to these nonvested awards that are outstanding at December 31, 2023.

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.

The Company issues new shares of common stock when options are exercised.

Stock option activity and related information is presented below as of and for the periods indicated:

Options Outstanding

Shares Weighted-

Price Weighted-

Contractual Term

(years) Aggregate

Balance at January 1, 2023 — —

Replacement options issued in conjunction with acquisition of GrandSouth 542,345 20.14

Exercised during the period ( 236,760 ) 19.09

Forfeited or expired during the period — —

Outstanding at December 31, 2023 305,585 20.95 5.74 $ 4,907

Exercisable at December 31, 2023 305,585 20.95 5.74 $ 4,907

Stock options outstanding are summarized as follows as of December 31, 2023:

Shares Range Weighted Average Price Weighted Average Remaining Life in Years

77,857 $ 13.79 - 18.18

120,500 $ 18.19 18.19 5.48

107,228 $ 18.20 - 31.32

305,585 20.95 5.74

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 twelve months ended

December 31, 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 December 31, 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.

Shareholders’ Equity

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The balances of the related asset and liability were $ 1.4 million and $ 1.6 million at December 31, 2023 and December 31, 2022, respectively, both of which are presented as components of shareholders’ equity.

In the acquisition of Select on October 15, 2021, the Company assumed a deferred compensation plan structured as a Rabbi Trust for certain members of Select’s board of directors that is fully funded by Company common stock, which was valued at $ 5.1 million on the date of acquisition.

This plan was fully liquidated during the fourth quarter of 2021 by distributing the shares to the participants.

Stock Repurchases

During 2022, the Company did not repurchase any shares of the Company's common stock.

The $ 40.0 million repurchase authorization in effect during 2022 expired December 31, 2022 and the Company's Board has not approved any additional repurchase authorizations.

During 2021, the Company repurchased approximately 106,744 shares of the Company’s common stock at an average price of $ 37.81 , which totaled $ 4.0 million, under a $ 20 million repurchase authorization publicly announced in November 2020, which expired on December 31, 2021.

Pursuant to authorizations by the Company's Board, the Company from time to time has repurchased shares of common stock in private transactions and in open-market purchases.

The Company did not repurchase any shares of the Company's common stock during either 2023 or 2022.

As of December 31, 2023, there was no share repurchase program in place.

Earnings Per Share

The following is a reconciliation of the income (numerator) and shares (denominator) used in computing Basic and Diluted Earnings Per Common Share ("EPS"):

The following is a reconciliation of the income (numerator) and shares (denominator) used in computing Basic and Diluted EPS:

For Years Ended December 31,

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Diluted EPS per common share $ 104,131 41,164,834 $ 2.53 $ 146,936 35,674,730 $ 4.12 $ 95,644 30,027,785 $ 3.19

For the years ended December 31, 2022 , 2021, and 2019, there were no options that were anti-dilutive.

Accumulated Other Comprehensive (Loss) Income

For the year ended December 31, 2023 , there were no options that were anti-dilutive.

There were no outstanding options in other year presented.

Accumulated Other Comprehensive Income (Loss)

The components of AOCI for the Company are as follows:

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2022 December 31,

Unrealized (loss) gain on securities available for sale $ ( 444,063 ) ( 32,067 ) 20,448

Unrealized loss on securities available for sale $ ( 400,720 ) ( 444,063 ) ( 32,067 )

Deferred tax asset 92,767 102,046 7,369

Net unrealized loss on securities available for sale ( 307,953 ) ( 342,017 ) ( 24,698 )

Postretirement plans (liability) asset ( 100 ) 54 ( 353 )

Deferred tax asset (liability) 23 ( 12 ) 81

Net unrealized (loss) gain on securities available for sale ( 342,017 ) ( 24,698 ) 15,749

Postretirement plans asset (liability)

54 ( 353 ) ( 1,817 )

Deferred tax (liability) asset ( 12 ) 81 418

Net postretirement plans asset (liability)

42 ( 272 ) ( 1,399 )

Total accumulated other comprehensive (loss) income $ ( 341,975 ) ( 24,970 ) 14,350

Net postretirement plans (liability) asset ( 77 ) 42 ( 272 )

Total accumulated other comprehensive loss $ ( 308,030 ) ( 341,975 ) ( 24,970 )

The following table discloses the changes in AOCI for the years ended December 31, 2023, 2022, and 2021 (all amounts are net of tax).

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

Other comprehensive income before reclassifications 14,425 454 14,879

Amounts reclassified from accumulated other comprehensive income

( 6,180 ) 528 ( 5,652 )

Net current-period other comprehensive income 8,245 982 9,227

Ending balance at December 31, 2020 15,749 ( 1,399 ) 14,350

Other comprehensive (loss) income before reclassifications ( 41,400 ) 671 ( 40,729 )

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Net current-period other comprehensive (loss) income ( 40,447 ) 1,127 ( 39,320 )

Ending balance at at December 31, 2021 ( 24,698 ) ( 272 ) ( 24,970 )

Ending balance at December 31, 2021 ( 24,698 ) ( 272 ) ( 24,970 )

Other comprehensive (loss) income before reclassifications ( 317,319 ) 536 ( 316,783 )

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Ending balance at December 31, 2022 ( 342,017 ) 42 ( 341,975 )

Other comprehensive income (loss) before reclassifications 34,064 ( 466 ) 33,598

Amounts reclassified from accumulated other comprehensive income

Net current-period other comprehensive income (loss) 34,064 ( 119 ) 33,945

Ending balance at December 31, 2023 $ ( 307,953 ) ( 77 ) ( 308,030 )

Amounts reclassified from AOCI for Unrealized Gain (Loss) on Securities AFS represent realized securities gains or losses, net of tax effects.

Amounts reclassified from AOCI for Postretirement Plans Asset (Liability) represent amortization of amounts included in , net of taxes, and are recorded in the "Other operating expenses" line item of the consolidated statements of income.

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.

Regulatory Restrictions

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The Bank, as a North Carolina banking corporation, may declare dividends so long as such dividends do not reduce its capital below its applicable required capital (typically, the level of capital required to be deemed “adequately capitalized”).

As of December 31, 2022, approximately $ 830.8 million of the Company’s investment in the Bank was restricted as to transfer to the Company without obtaining prior regulatory approval.

As of December 31, 2023, approximately $ 1.1 billion of the Company’s investment in the Bank was restricted as to transfer to the Company without obtaining prior regulatory approval.

There was no average reserve balance requirement under the requirements of the Federal Reserve at December 31, 2023.

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The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Company’s and the Bank’s respective regulatory capital ratios as of December 31, 2022 and 2021, along with the minimum amounts required for capital adequacy purposes and to be well capitalized under prompt corrective

action in effect at such times are presented below.

The Company’s and the Bank’s respective regulatory capital ratios as of December 31, 2023 and 2022, along with the minimum amounts required for capital adequacy purposes and to be well capitalized under prompt corrective action in effect at such times are presented below.

There are no conditions or events since year-end that management believes have changed the Company’s or the Bank's classification.

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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.

All of the Company’s revenues that are in the scope of ASC Topic 606:

Revenue from Contracts with Customers (“ASC 606”) are recognized within noninterest income.

The following table presents the Company’s sources of noninterest income for years ended December 31, 2023, 2022, and 2021.

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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.

"Bankcard 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.

"Other service charges and fees" includes 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.

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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.

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

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

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insurance company and the policyholder.

The Company’s performance obligation was generally satisfied upon the issuance of the insurance policy.

The Company’s performance obligation was generally satisfied upon the issuance of the insurance policy and is due upon billing.

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.

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

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.

Supplementary Income Statement Information

Components of other noninterest income or noninterest expense exceeding 1% of total revenue ($ 4.1 million) for any of the years ended December 31, 2022, 2021, and 2020 are as follows:

Components of other noninterest income or noninterest expense exceeding 1% of total revenue for any of the years ended December 31, 2023, 2022, and 2021 are as follows:

($ in thousands) 2023 2022 2021

Total revenue threshold (1%) $ 5,462 4,089 3,295

Noninterest income:

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Other operating expenses – credit card rewards expense 3,841 547 3,431

Other operating expenses – FDIC insurance expense 6,982 2,913 2,332

Condensed Parent Company Information

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$ 4,597 5,611

Investment in wholly-owned subsidiaries, at equity

1,100,829 1,279,285

Investment in subsidiaries 1,478,750 1,100,829

Premises and equipment 7 7

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Liabilities and shareholders’ equity

Subordinated debt $ 27,177 —

Trust preferred securities

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($ in thousands) 2023 2022 2021

Dividends from wholly-owned subsidiaries

$ 17,400 25,300 63,100

Earnings of wholly-owned subsidiaries, net of dividends

133,147 75,697 20,899

Interest income $ 116 48 24

Dividends from subsidiaries 32,700 17,400 25,300

Total income 32,816 17,448 25,324

Interest expense 7,945 2,926 1,455

( 2,672 ) ( 1,455 ) ( 1,743 )

All other expense, net ( 939 ) ( 3,898 ) ( 779 )

$ 146,936 95,644 81,477

Other expenses 2,057 1,693 5,345

Total expense 10,002 4,619 6,800

Income before income taxes and equity in undistributed income of subsidiaries 22,814 12,829 18,524

Income tax benefit ( 2,076 ) ( 960 ) ( 1,423 )

Income before equity in undistributed income of subsidiaries 24,890 13,789 19,947

Equity in undistributed income of subsidiaries 79,241 133,147 75,697

Net income $ 104,131 146,936 95,644

CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31,

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Equity in undistributed earnings of subsidiaries ( 79,241 ) ( 133,147 ) ( 75,697 )

Decrease in other assets 4,055 3,924 5,806

(Increase) decrease in other assets ( 604 ) 4,055 3,924

Increase (decrease) in other liabilities 1,741 642 ( 859 )

Total – operating activities 18,486 23,012 66,381

Net cash provided by operating activities 26,027 18,486 23,012

Investing Activities:

Net cash received in acquisitions 4,123 — 7,379

Total - investing activities — 7,379 —

Net cash provided by investing activities 4,123 — 7,379

Financing Activities:

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Repurchases of common stock — — ( 4,036 )

Proceeds from stock option exercises 4,519 — —

Stock withheld for payment of taxes

( 743 ) ( 840 ) ( 786 )

Total - financing activities ( 31,500 ) ( 27,050 ) ( 53,111 )

Net cash used in financing activities ( 31,164 ) ( 31,500 ) ( 27,050 )

Net (decrease) increase in cash ( 1,014 ) ( 13,014 ) 3,341

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of First Bancorp (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive (loss) income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of First Bancorp (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 28, 2023 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2021 due to the adoption of ASC Topic 326, Financial Instruments - Credit Losses.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 28, 2024 expressed an adverse opinion thereon.

Basis for Opinion

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by

communicating the critical audit matters below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses

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The allowance for credit losses consists of quantitative and qualitative components.

The Company considers historical loss experience, current economic and business conditions, as well as reasonable and supportable forecasts to develop the quantitative component.

This quantitative component is then adjusted for qualitative risk factors that involve significant estimates and subjective assumptions that require a high degree of management’s judgment.

We identified management’s significant judgments and assumptions used in the determination of the qualitative factors and the selection of the relevant macroeconomic forecasts to be used in the reasonable and supportable forecast period of the allowance for credit losses as a critical audit matter.

Auditing these complex judgments and assumptions involved especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill and knowledge needed.

The Company considers historical default and loss experience, current and projected economic conditions, asset quality trends, and known and inherent risks in the portfolio to develop the quantitative component.

This quantitative component is then adjusted for qualitative risk factors that involve management assessments and subjective assumptions that require a high degree of management’s judgment.

We identified management’s judgments and assumptions used in the determination of the qualitative factors as described in Note 1 and the selection of the appropriate macroeconomic forecasts to be used in the reasonable and supportable forecast period of the allowance for credit losses as a critical audit matter.

Auditing these complex judgments and assumptions involved especially challenging auditor judgment due to the subjective nature of management’s qualitative assessment, inherent uncertainty involved in forecasting, and the nature and extent of audit effort required to address these matters, including the extent of specialized skills and knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Assessing the reasonableness of management’s significant judgments and assumptions related to evaluation of the loan portfolio and other qualitative factors for collectively evaluated loans.

• Evaluating the relevance and reliability of data used in determining the qualitative factors by verifying the data to internally developed and third-party sources, and other audit evidence gathered.

• Utilizing personnel with specialized skill and knowledge to assist with evaluating the reasonableness of the macroeconomic forecasts used in the reasonable and supportable forecast period.

/s/ BDO USA, LLP

• Assessing the reasonableness of management’s significant judgments and assumptions related to the determination of the qualitative factors for collectively evaluated loans by assessing consistent application of evaluation and conclusions reached, including consideration of contradictory evidence.

• Evaluating the relevance and reliability of data used in determining the qualitative factors by comparing the data to internally developed and third-party sources, and other audit evidence gathered.

• Utilizing personnel with specialized skill and knowledge with evaluating the reasonableness of the macroeconomic forecasts used in the reasonable and supportable forecast period by comparing to third-party sources.

Acquisition of GrandSouth Bancorporation

As described in Note 2 to the Company’s consolidated financial statements, the Company completed its acquisition of GrandSouth Bancorporation on January 1, 2023, for a total purchase consideration of $229.5 million, with total assets acquired of $1.2 billion, liabilities assumed of $1.1 billion and resulting goodwill of $114.5 million.

Determination of the acquisition date fair values of the assets acquired and liabilities assumed requires the Company to make significant estimates and assumptions.

In determining the fair values of loans acquired, the Company must determine projected prepayment and discount rates, among other assumptions.

We identified the determination of the projected prepayment and discount rate assumptions in the valuation of loans acquired as a critical audit matter.

Auditing these significant assumptions involved especially challenging and subjective auditor judgment due to the nature and extent of audit effort required to address these matters, including evaluating the appropriateness of the market data selected and use of specialized skill and knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Testing the completeness and accuracy of the loan level data utilized in the valuation of the acquisition date fair value of loans acquired by (i) evaluating the reliability of data utilized in the valuation of loans acquired and (ii) confirming loan level data with borrowers on a sample basis, and agreeing loan level data to supporting documentation.

• Utilizing personnel with specialized skill and knowledge in valuation of loans to assist with evaluation of projected prepayment and discount rate assumptions used in the valuation of the loans acquired.

This includes utilizing information obtained from market sources to test the assumptions and identify potential sources of disconfirming information.

/s/ BDO USA, P.C.

We have served as the Company's auditor since 2019.

Raleigh, North Carolina

Philadelphia, Pennsylvania

February 28, 2024

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We have audited First Bancorp’s (the “Company’s”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 28, 2023 expressed an unqualified opinion thereon.

In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated February 28, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

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We believe that our audit provides a reasonable basis for our opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

A material weakness regarding management’s failure to maintain effective information technology general controls in the areas of user access management and segregation of duties, within an application supporting the Company’s accounting and reporting processes, has been identified.

As a result, many of the Company’s manual controls dependent upon the information derived from this information technology application were also ineffective, as segregation of duties was not appropriately designed.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2023 financial statements, and this report does not affect our report dated February 28, 2024 on those financial statements.

Definition and Limitations of Internal Control over Financial Reporting

5 unchanged sentences

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

Raleigh, North Carolina

/s/ BDO USA, P.C.

Philadelphia, Pennsylvania

February 28, 2024

1 unchanged sentence

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data