What changed in this filing

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Item 1. Financial Statements

2024-05-08 compared with 2023-11-07 · 301 added, 506 removed, 873 unchanged (48% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

($ in thousands - unaudited) September 30,

($ in thousands - unaudited) March 31,

2024 December 31,

3 unchanged sentences

Securities available for sale 2,088,483 2,189,379

Securities held to maturity (fair values of $ 410,321 and $ 432,528 )

Securities held to maturity (fair values of $ 436,655 at March 31, 2024 and $ 449,623 at December 31, 2023)

525,627 533,678

Presold mortgages and SBA loans in process of settlement 8,060 1,282

Presold mortgages in process of settlement 6,703 2,667

Loans 8,076,506 8,150,102

1 unchanged sentence

Net loans 7,966,439 8,040,249

Premises and equipment 151,981 134,187

Premises and equipment, net 150,546 150,957

Operating right-of-use lease assets 16,551 17,063

1 unchanged sentence

Goodwill 478,750 478,750

Other intangible assets 34,879 12,675

Other intangible assets, net 30,886 32,858

Bank-owned life insurance 185,061 183,897

14 unchanged sentences

Issued & outstanding:

none as of September 30, 2023 and December 31, 2022

none as of March 31, 2024 and December 31, 2023

Common stock, no par value per share.

1 unchanged sentence

Issued & outstanding:

41,085,498 shares and 35,704,154 shares as of September 30, 2023 and December 31, 2022, respectively

41,156,286 shares and 41,109,987 shares as of March 31, 2024 and December 31, 2023, respectively

965,429 963,990

8 unchanged sentences

Consolidated Statements of Income

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in thousands, except share data - unaudited) 2024 2023

11 unchanged sentences

Net interest income 79,232 92,486

Provision for loan losses 1,200 5,100 16,351 8,600

(Reversal of) provision for unfunded commitments ( 1,200 ) 300 ( 1,487 ) ( 1,200 )

Total provision for credit losses — 5,400 14,864 7,400

Provision for credit losses 1,200 12,502

Net interest income after provision for credit losses 78,032 79,984

1 unchanged sentence

Service charges on deposit accounts 3,868 3,894

Other service charges and fees 5,450 6,312 16,677 21,200

Fees from presold mortgage loans 325 376 1,288 1,951

Other service charges, commissions and fees 5,612 5,920

Presold mortgage loan fees and gains on sale 338 406

Commissions from sales of financial products 1,320 1,306

2 unchanged sentences

Bank-owned life insurance income 1,164 1,046

Securities losses, net ( 975 ) —

Other gains, net 459 188

1 unchanged sentence

Noninterest Expense

Salaries expense 29,394 24,416 87,391 71,669

Employee benefits expense 6,539 4,156 19,097 16,044

Salaries 27,642 29,321

Employee benefits 6,269 6,393

Total personnel expense 33,911 35,714

2 unchanged sentences

Merger and acquisition expenses — 12,182

Intangibles amortization expense 1,953 889 6,147 2,859

Intangibles amortization 1,759 2,145

Other operating expenses 17,929 19,067

6 unchanged sentences

Diluted 0.61 0.37

Dividends declared per common share $ 0.22 0.22 0.66 0.66

Weighted average common shares outstanding:

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended September 30,

($ in thousands - unaudited) 2024 2023

Net income $ 25,272 15,161

Other comprehensive income (loss):

Unrealized losses on securities available for sale:

Unrealized losses arising during the period ( 81,515 ) ( 141,155 ) ( 77,597 ) ( 432,573 )

Tax benefit 18,871 32,437 18,719 99,405

Postretirement Plans:

Amortization of unrecognized net actuarial loss 44 44 132 132

Other comprehensive (loss) income:

Unrealized (losses) gains on securities available for sale:

Unrealized holding (losses) gains arising during the period, pretax ( 19,143 ) 35,333

Tax benefit (expense) 4,432 ( 7,425 )

Reclassification to realized losses 975 —

Tax expense ( 226 ) —

Other comprehensive loss ( 62,610 ) ( 108,684 ) ( 58,777 ) ( 333,066 )

Comprehensive (loss) income $ ( 32,717 ) ( 70,735 ) 15,680 ( 224,563 )

See accompanying notes to unaudited consolidated financial statements.

First Bancorp and Subsidiaries

Consolidated Statements of Shareholders’ Equity

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

Earnings Stock in

Acquisition Rabbi

Obligation Accumulated

Comprehensive

Shareholders’

Shares Amount

Three Months Ended September 30, 2022

Balances, July 1, 2022 35,684 $ 723,956 587,739 ( 1,573 ) 1,573 ( 249,352 ) 1,062,343

Net income 37,949 37,949

Cash dividends declared ($ 0.22 per common share)

( 7,849 ) ( 7,849 )

Change in Rabbi Trust Obligation ( 12 ) 12 —

Stock-based compensation 28 738 738

Other comprehensive loss ( 108,684 ) ( 108,684 )

Balances, September 30, 2022 35,712 $ 724,694 617,839 ( 1,585 ) 1,585 ( 358,036 ) 984,497

Three Months Ended September 30, 2023

Balances, July 1, 2023 41,083 $ 960,851 674,933 ( 1,365 ) 1,365 ( 338,142 ) 1,297,642

Net income 29,893 29,893

Cash dividends declared ($ 0.22 per common share)

( 9,035 ) ( 9,035 )

Change in Rabbi Trust Obligation ( 10 ) 10 —

Stock options exercised 2 66 66

Stock-based compensation — 1,727 1,727

Other comprehensive loss ( 62,610 ) ( 62,610 )

Balances, September 30, 2023 41,085 $ 962,644 695,791 ( 1,375 ) 1,375 ( 400,752 ) 1,257,683

Postretirement Plans:

Amortization of unrecognized net actuarial losses 25 44

Tax benefit ( 6 ) ( 11 )

Other comprehensive (loss) income ( 13,943 ) 27,941

Comprehensive income $ 11,329 43,102

See accompanying notes to unaudited consolidated financial statements.

8 unchanged sentences

Shares Amount

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Balances, January 1, 2023 35,704 $ 725,153 648,418 ( 1,585 ) 1,585 ( 341,975 ) 1,031,596

3 unchanged sentences

Change in Rabbi Trust Obligation ( 23 ) 23 —

Stock withheld for payment of taxes ( 17 ) ( 603 ) ( 603 )

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

Stock option exercises 170 3,215 3,215

Stock-based compensation 80 1,565 1,565

Other comprehensive loss ( 333,066 ) ( 333,066 )

Balances, September 30, 2022 35,712 $ 724,694 617,839 ( 1,585 ) 1,585 ( 358,036 ) 984,497

Nine Months Ended September 30, 2023

Other comprehensive income (loss) 27,941 27,941

Balances, March 31, 2023 40,987 $ 959,422 654,573 ( 1,608 ) 1,608 ( 314,034 ) 1,299,961

Three Months Ended March 31, 2024

Balances, January 1, 2024 41,110 $ 963,990 716,420 ( 1,385 ) 1,385 ( 308,030 ) 1,372,380

3 unchanged sentences

Change in Rabbi Trust Obligation ( 11 ) 11 —

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

Stock options exercised 36 726 726

2 unchanged sentences

Other comprehensive loss ( 13,943 ) ( 13,943 )

Balances, September 30, 2023 41,085 $ 962,644 695,791 ( 1,375 ) 1,375 ( 400,752 ) 1,257,683

Balances, March 31, 2024 41,156 $ 965,429 732,643 ( 1,396 ) 1,396 ( 321,973 ) 1,376,099

See accompanying notes to unaudited consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

($ in thousands-unaudited) 2024 2023

1 unchanged sentence

Net income $ 25,272 15,161

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

Provision for credit losses and unfunded commitments, net 14,864 7,400

Reconciliation of net income to net cash (used) provided by operating activities:

Provision for credit losses 1,200 12,502

Net security premium amortization 2,164 2,351

Decrease in net deferred tax asset ( 2,839 ) ( 465 )

Deferred tax benefit ( 379 ) ( 1,713 )

Loan discount accretion ( 2,881 ) ( 3,566 )

Other purchase accounting amortization and accretion, net 3,241 ( 335 )

Foreclosed property net gains ( 131 ) ( 372 )

Deposit and debt discount accretion, net 472 1,227

Foreclosed property gains, net — ( 35 )

Losses on calls of securities, net 975 —

Other gains, net ( 459 ) ( 244 )

Bank-owned life insurance income ( 1,164 ) ( 1,046 )

Decrease in net deferred loan fees ( 1,087 ) ( 570 )

Net amortization of deferred loan fees ( 418 ) ( 127 )

Depreciation of premises and equipment 2,019 1,923

8 unchanged sentences

Origination of SBA loans for sale ( 15,011 ) ( 8,933 )

Proceeds from sales of SBA and other loans 30,526 109,608

Decrease in accrued interest receivable 1,033 564

Decrease in other assets 3,253 5,925

Proceeds from sales of SBA loans 11,940 4,679

Increase in accrued interest receivable 2,204 3,707

(Increase) decrease in other assets ( 51,175 ) 8,719

Increase in accrued interest payable 4,148 3,872

Increase (decrease) in other liabilities 793 ( 8,682 )

Net cash provided by operating activities 85,769 179,209

Decrease in other liabilities ( 3,816 ) ( 3,498 )

Net cash (used) provided by operating activities ( 20,092 ) 36,615

Cash Flows From Investing Activities

Purchases of securities available for sale — ( 354,765 )

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

Proceeds from maturities, calls and principal repayments of securities available for sale 81,700 58,856

1 unchanged sentence

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

Purchases of Federal Reserve and FHLB stock, net ( 15,790 ) ( 13,826 )

Proceeds from bank owned life insurance death benefits 136 5,827

Net increase in loans ( 347,419 ) ( 422,655 )

Purchases of Federal Reserve and FHLB stock ( 15,778 ) ( 42,869 )

Redemptions of Federal Reserve and FHLB stock 28,880 15,010

Purchases of other investments ( 251 ) —

Net decrease (increase) in loans 72,244 ( 133,712 )

Proceeds from sales of foreclosed properties — 192

2 unchanged sentences

Net cash received in acquisition activities — 22,610

Net cash used by investing activities ( 95,040 ) ( 611,514 )

Net cash provided by investing activities 171,104 32,378

Cash Flows From Financing Activities

Net (decrease) increase in deposits ( 40,040 ) 105,166

Net increase in deposits 271,429 98,742

Advances from other borrowings 481,000 929,000

3 unchanged sentences

Payment of taxes related to stock withheld ( 126 ) —

Net cash provided by financing activities 12,542 240,658

Increase (decrease) in cash and cash equivalents 3,271 ( 191,647 )

Net cash (used) provided by financing activities ( 35,025 ) 374,071

Increase in cash and cash equivalents 115,987 443,064

Cash and cash equivalents, beginning of period 237,855 270,318

2 unchanged sentences

Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

($ in thousands-unaudited) 2024 2023

2 unchanged sentences

Cash paid during the period for income taxes 22 46

Unrealized loss on securities available for sale, net of taxes ( 58,878 ) ( 333,168 )

Unrealized (loss) gain on securities available for sale, net of taxes ( 13,962 ) 27,908

Foreclosed loans transferred to other real estate — 288

Accrued dividends at end of period 9,052 9,010

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

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

Acquisition of GrandSouth Bancorporation — See Note 2

2 unchanged sentences

Notes to Consolidated Financial Statements

Note 1 - Organization and Basis of Presentation

Organization and Basis of Presentation

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

5 unchanged sentences

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

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of September 30, 2023, the consolidated results of operations for the three and nine months ended September 30, 2023 and 2022, and the consolidated cash flows for the nine months ended September 30, 2023 and 2022.

In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of March 31, 2024, the consolidated results of operations for the three months ended March 31, 2024 and 2023, and the consolidated cash flows for the three months ended March 31, 2024 and 2023.

Any such adjustments were of a normal, recurring nature.

These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes in the Annual Report on Form 10-K for the year ended December 31, 2022.

These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes in the 2023 Annual Report for the year ended December 31, 2023.

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

Reference is made to Note 1 of the 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for a discussion of accounting policies and other relevant information with respect to the financial statements.

Certain reclassifications have been made to the September 30, 2022 and December 31, 2022 consolidated financial statements to be comparable to September 30, 2023.

These reclassifications had no effect on net income.

Reference is made to Note 1 of the 2023 Annual Report filed with the Securities and Exchange Commission (“SEC”) for a discussion of accounting policies and other relevant information with respect to the financial statements.

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

Accounting Standards Adopted in 2024

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

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

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

The Company adopted ASU 2022-02 effective January 1, 2023 using a modified retrospective transition approach for the amendments related to the recognition and measurement of TDRs.

The impact of the adoption resulted in an immaterial change to the allowance for credit losses ("ACL"), thus no adjustment to retained earnings was recorded.

Disclosures have been updated to reflect information on loan modifications given to borrowers experiencing financial difficulty as presented in Note 4.

TDR disclosures are presented for comparative periods only and are not required to be updated in current periods.

Additionally, the current year vintage disclosure included in Note 4 has been updated to reflect gross charge-offs by year of origination for the nine months ended September 30, 2023.

ASU 2022-03, "Fair Value Measurements (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." This ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security, and, therefore, is not considered in measuring fair value.

The Company adopted ASU 2022-03 January 1, 2023 with no material impact on its financial statements.

ASU 2022-06 , " Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 ." In 2020, the Financial Accounting Standards Board ("FASB") issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provided optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform.

The objective of the guidance in Topic 848 was to provide relief during the temporary transition period and the FASB included a sunset provision based on expectations of when the London Interbank Offered Rate ("LIBOR") would cease being

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

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

moreover, it applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

ASU 2022-06 was adopted upon issuance.

The Company will continue to elect various optional expedients for contract modifications affected by rate reference reform through the effective date of this guidance with no material effect on its financial statements.

Accounting Standards Pending Adoption

ASU 2023-02 , “ Investments—Equity Method and Joint Ventures (Topic 323):

Accounting Standards Update ("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 did not have a significant impact on the Company's consolidated financial statements.

Accounting Standards Pending Adoption

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.

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

Note 2 – Acquisitions

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

Improvements to Income Tax Disclosures” amends 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 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.

16 unchanged sentences

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 in accordance with ASC 805-10, " Business Combinations ." The $ 114.5 million in goodwill that resulted from this transaction is non-deductible for tax purposes.

Following the table is a discussion of valuation approaches utilized in estimating the fair values in accordance with ASC 805-10, " Business Combinations ." The $ 114.5 million in goodwill that resulted from this transaction is non-deductible for tax purposes.

($ in thousands) Fair Value Estimate

28 unchanged sentences

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.

A total fair value adjustment of $ 29.5 million was recorded.

Purchased loans with financial deterioration ("PCD loans") were determined based primarily on internal grades, delinquency status, and other evidence of credit deterioration.

The Company calculated the "Day 1" allowance of $ 5.6 million on PCD loans in accordance with its current expected credit loss model ("CECL") and reclassified that amount from the fair value mark to establish the initial ACL on PCD loans.

The Company calculated the initial allowance of $ 5.6 million on PCD loans in accordance with its current expected credit loss model ("CECL") and reclassified that amount from the fair value adjustment to establish the initial allowance for credit losses ("ACL") on PCD loans.

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

20 unchanged sentences

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

Supplemental Pro Forma Financial Information

The following table presents certain pro forma information as if GrandSouth had been acquired on January 1, 2022.

These results combine the historical results of GrandSouth with the Company’s results and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2022.

Merger-related costs related to this acquisition of $ 13.5 million for the nine months ended September 30, 2023 were recorded by the Company and were excluded from the pro forma information below.

There were no merger costs for the three months ended September 30, 2023.

In addition, no adjustments have been made to such pro forma information to eliminate the provision for loan losses recorded by GrandSouth in the amount of $ 1.1 million and $ 1.5 million for the three and nine months ended September 30, 2022.

Pro forma information for the three and nine months ended September 30, 2023 was adjusted to eliminate the following:

1) the non-PCD provision for loan losses recorded on the acquisition date of $ 12.2 million and 2) the initial recording of a provision for credit losses associated with GrandSouth’s unfunded commitments of $ 1.9 million.

If the GrandSouth acquisition had occurred at the beginning of 2022, the acquisition date credit loss reserve amounts would have been included in the fair value measurements of GrandSouth and also included in the goodwill calculation.

The following table also discloses the impact of the acquisition of GrandSouth from the acquisition date of January 1, 2023 through September 30, 2023.

These amounts are included in the Company’s consolidated financial

statements as of and for the three and nine months ended September 30, 2023.

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

($ in thousands) For the three months ended For the nine months ended

September 30, 2023 September 30, 2023

Revenue Net Income Revenue Net Income

Actual GrandSouth results included in statement of income since acquisition date $ 14,209 $ 4,940 $ 43,516 $ 15,891

($ in thousands) For the three months ended For the nine months ended

September 30, 2022 September 30, 2022

Revenue Net Income Revenue Net Income

Supplemental consolidated pro forma for the Company as if GrandSouth had been acquired on January 1, 2022 118,385 41,921 339,057 119,134

Note 3 – Securities

The book values and approximate fair values of investment securities at September 30, 2023 and December 31, 2022 are summarized as follows:

($ in thousands) September 30, 2023 December 31, 2022

The book values and approximate fair values of investment securities at March 31, 2024 and December 31, 2023 are summarized as follows:

($ in thousands) March 31, 2024 December 31, 2023

Value Unrealized Amortized

11 unchanged sentences

Total held to maturity $ 525,627 436,655 5 ( 88,977 ) 533,678 449,623 39 ( 84,094 )

All of the Company’s mortgage-backed securities were issued by government-sponsored enterprises ("GSE"), except for private mortgage-backed securities with a fair value of $ 0.8 million as of September 30, 2023 and December 31, 2022.

The following table presents information regarding all securities with unrealized losses at September 30, 2023:

All of the Company’s mortgage-backed securities were issued by government-sponsored enterprises ("GSEs"), except for private mortgage-backed securities with a fair value of $ 0.7 million as of March 31, 2024 and December 31, 2023.

The following table presents information regarding all securities with unrealized losses at March 31, 2024:

Securities in an Unrealized

27 unchanged sentences

Total unrealized loss position $ 1,117 5 2,628,150 484,839 2,629,267 484,844

As of September 30, 2023, the Company's securities portfolio held 656 securities of which 652 securities were in an unrealized loss position.

As of March 31, 2024, the Company's securities portfolio held 651 securities of which 631 securities were in an unrealized loss position.

As of December 31, 2023, the Company's securities portfolio held 657 securities of which 632 securities were in an unrealized loss position.

In the above tables, all of the securities that were in an unrealized loss position at September 30, 2023 and December 31, 2022 are bonds that the Company has determined are in a loss position due primarily to interest rate factors and not credit quality concerns.

In the above tables, all of the securities that were in an unrealized loss position at March 31, 2024 and December 31, 2023 are bonds that the Company has determined are in a loss position due primarily to interest rate factors and not credit quality concerns.

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

2 unchanged sentences

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

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

At September 30, 2023 and December 31, 2022, the Company determined that expected credit losses associated with held to maturity debt securities were insignificant.

The book values and approximate fair values of investment securities at September 30, 2023, by contractual maturity, are summarized in the table below.

At March 31, 2024 and December 31, 2023, the Company determined that expected credit losses associated with held to maturity securities and available for sale debt securities were insignificant.

The book values and approximate fair values of investment securities at March 31, 2024, by contractual maturity, are summarized in the table below.

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

8 unchanged sentences

Total securities $ 2,507,371 2,088,483 525,627 436,655

At September 30, 2023 and December 31, 2022, investment securities with carrying values of $ 1.6 billion and $ 758.0 million, respectively, were pledged as collateral for public deposits or at the Federal Reserve Bank of Richmond ("Federal Reserve") as security on lines of credit.

At September 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than U.S.

At March 31, 2024 and December 31, 2023, investment securities with carrying values of $ 910.8 million and $ 971.3 million, respectively, were pledged as collateral for public deposits.

In addition, at March 31, 2024 and December 31, 2023, investment securities with carrying values of $ 668.9 million and $ 679.0 million, respectively, were pledged as collateral for Federal Reserve Bank ("Federal Reserve") borrowings.

At March 31, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than U.S.

Government and its agencies or GSEs, in an amount greater than 10% of shareholders' equity.

There were no sales of investment securities during the three or nine months ended September 30, 2023 with the exception of securities acquired from GrandSouth as discussed in Note 2.

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

Included in “Other assets” in the Consolidated Balance Sheets are investments in Federal Home Loan Bank (“FHLB”) and Federal Reserve stock totaling $ 55.4 million and $ 39.6 million at September 30, 2023 and December 31, 2022, respectively.

There were no sales of investment securities during the three months ended March 31, 2024.

During that same period, the Company received proceeds from the call of a security of $ 5.2 million and recorded a $ 975.2 thousand loss related to the unamortized premium balance at the time of the call.

During the three months ended March 31, 2023, the Company sold substantially all of the securities acquired from GrandSouth at their initially recorded fair value.

Accordingly, there was no gain or loss recorded on the sale of acquired securities.

Included in “Other assets” in the consolidated balance sheets are investments in Federal Home Loan Bank (“FHLB”) and Federal Reserve stock totaling $ 41.4 million and $ 54.5 million at March 31, 2024 and December 31, 2023, respectively.

These investments do not have readily determinable fair values.

The FHLB stock had a cost and fair value of $ 22.6 million and $ 14.7 million at September 30, 2023 and December 31, 2022, respectively, and serves as part of the collateral for the Company’s line of credit with the FHLB and is also a requirement for membership in the FHLB system.

The Federal Reserve stock had a cost and fair value of $ 32.8 million and $ 24.9 million at September 30, 2023 and December 31, 2022, respectively, and is a requirement for Federal Reserve member bank qualification.

The FHLB stock had a cost of $ 8.5 million and $ 21.7 million at March 31, 2024 and December 31, 2023, respectively, and serves as part of the collateral for the Company’s line of credit with the FHLB and is also a requirement for membership in the FHLB system.

The Federal Reserve stock had a cost and fair value of $ 32.9 million and $ 32.8 million at March 31, 2024 and December 31, 2023, respectively, and is a requirement for Federal Reserve member bank qualification.

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

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

The Company owns 12,356 Class B shares of Visa, Inc.

On March 31, 2024, the Company owned 12,356 Class B shares of Visa, Inc.

(“Visa”) stock that were received upon Visa’s initial public offering.

These shares are expected to convert into Class A Visa shares subsequent to the settlement of certain litigation against Visa, to which the Company is not a party.

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

The conversion rate at September 30, 2023 was 1.5875 , which means the Company would have received approximately 19,615 Class A shares if the stock had converted on that date.

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

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

Note 4 – Loans, Allowance for Credit Losses, and Asset Quality Information

These shares were expected to convert into Class A Visa shares subsequent to the settlement of certain litigation against Visa, to which the Company is not a party.

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

The conversion rate at March 31, 2024 was 1.5875 , which means the Company would have received approximately 19,615 Class A shares if the stock had converted on that date.

As the Class B stock did not have a readily determinable fair value, it was carried at zero .

In April 2024, the Class B shares were sold at a conversion rate of 1.5875 and a gain of $ 4.5 million was recognized.

Loans, Allowance for Credit Losses, and Asset Quality Information

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

($ in thousands) September 30, 2023 December 31, 2022

($ in thousands) March 31, 2024 December 31, 2023

Amount Percentage Amount Percentage

11 unchanged sentences

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

($ in thousands) September 30, 2023 December 31, 2022

($ in thousands) March 31, 2024 December 31, 2023

Guaranteed portions of SBA loans included in table above $ 35,984 35,462

2 unchanged sentences

Sold portions of SBA loans with servicing retained - not included in tables above $ 344,115 349,275

At September 30, 2023 and December 31, 2022, there were remaining unaccreted discounts on the retained portion of sold SBA loans amounting to $ 3.6 million and $ 4.3 milion, respectively.

At September 30, 2023 and December 31, 2022, l oans in the amount of $ 6.4 billion and $ 5.3 billion, respectively, were pledged as collateral for certain borrowings.

At September 30, 2023 and December 31, 2022, total loans included loans to executive officers and directors of the Company, and their associates, totaling approximately $ 5.5 million and $ 6.0 million, respectively.

There were two new loans and advances on existing loans totaling approximately $ 45,000 for the nine months ended September 30, 2023 and repayments amounted to $ 0.5 million for that period.

Available credit on related party loans totaled $ 1.3 million and $ 1.2 million at September 30, 2023 and December 31, 2022, respectively.

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

As of September 30, 2023 and December 31, 2022, unamortized discounts on all acquired loans totaled $ 26.5 million and $ 11.6 million, respectively.

At March 31, 2024 and December 31, 2023, there were remaining unaccreted discounts on the retained portion of sold SBA loans amounting to $ 3.4 million and $ 3.5 milion, respectively.

At March 31, 2024 and December 31, 2023, l oans in the amount of $ 6.5 billion were pledged as collateral for certain borrowings.

At March 31, 2024 and December 31, 2023, total loans included loans to executive officers and directors of the Company, and their associates, totaling approximately $ 64.6 million and $ 63.7 million, respectively.

There were no new loans, advances on existing loans totaled approximately $ 1.4 million for the three months ended March 31, 2024, and repayments amounted to $ 0.5 million for that period.

Available credit on related party loans totaled $ 1.2 million and $ 2.7 million at March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024 and December 31, 2023, unamortized discounts on all acquired loans totaled $ 21.6 million and $ 24.0 million, respectively.

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

Nonperforming assets ("NPA") are defined as nonaccrual loans, modifications to borrowers in financial distress, loans past due 90 or more days and still accruing interest, foreclosed real estate, and prior to the adoption of ASU 2022-02 on January 1, 2023, TDRs.

Nonperforming assets ("NPAs") are defined as nonaccrual loans, modifications to borrowers in financial distress, loans past due 90 or more days and still accruing interest, and foreclosed real estate.

The following table summarizes the NPAs for each period presented.

($ in thousands) September 30,

($ in thousands) March 31,

2024 December 31,

1 unchanged sentence

Modifications to borrowers in financial distress 10,999 11,719

TDRs - accruing — 9,121

Total nonperforming loans 46,621 43,927

1 unchanged sentence

Total nonperforming assets $ 47,547 44,789

At September 30, 2023 and December 31, 2022, the Company had $ 3.2 million and $ 0.8 million, respectively, in residential mortgage loans in the process of foreclosure.

At September 30, 2023, there were two loans with a commitment to lend additional funds of $ 0.1 million to borrowers whose loans were nonperforming.

As of December 31, 2022, there was one such loan for an immaterial commitment to lend additional funds to the borrower whose loan was nonperforming.

The following table is a summary of the Company’s nonaccrual loans by major categories as of September 30, 2023:

At March 31, 2024 and December 31, 2023, the Company had $ 1.6 million and $ 1.0 million, respectively, in residential mortgage loans in the process of foreclosure.

At March 31, 2024 and December 31, 2023, there was one loan with a commitment to lend an immaterial amount of additional funds to a borrower whose loan was nonperforming.

The following table is a summary of the Company’s nonaccrual loans by major categories as of March 31, 2024:

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

3 unchanged sentences

Commercial real estate - non owner occupied 1,890 5,042 6,932

Multi-family real estate — — —

Residential 1-4 family real estate 1,035 3,462 4,497

8 unchanged sentences

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

Multi-family real estate — — —

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

5 unchanged sentences

The following table represents the accrued interest receivables written off by reversing interest income during each period indicated:

($ in thousands) Nine Months Ended September 30, 2023 For the Year Ended December 31, 2022 Nine Months Ended September 30, 2022

($ in thousands) Three Months Ended March 31, 2024 For the Year Ended December 31,

2023 Three Months Ended March 31, 2023

Commercial and industrial $ 216 225 123

2 unchanged sentences

Commercial real estate - non owner occupied — 186 5

Multi-family real estate — 1 —

Residential 1-4 family real estate 29 38 8

2 unchanged sentences

Total $ 400 642 156

The following table presents an analysis of the payment status of the Company’s loans as of September 30, 2023:

The following table presents an analysis of the payment status of the Company’s loans as of March 31, 2024:

($ in thousands) Accruing

32 unchanged sentences

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

The following table presents an analysis of collateral dependent loans of the Company as of September 30, 2023:

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

The following table presents an analysis of collateral dependent loans of the Company as of March 31, 2024:

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

Commercial and industrial $ — 878 — 878

Construction, development & other land loans — 263 3,452 3,715

Commercial real estate - owner occupied — — 8,645 8,645

Commercial real estate - non owner occupied — — 15,444 15,444

Residential 1-4 family real estate 1,035 — — 1,035

Home equity loans/lines of credit 525 — — 525

1 unchanged sentence

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

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

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

1 unchanged sentence

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

Residential 1-4 family real estate 157 — — — 157

Home equity loans/lines of credit 534 — — 534

Total $ 534 2,385 7,263 10,182

4 unchanged sentences

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

For real estate collateral that is in industries which may be undergoing heightened stress due to economic or other external factors, the Company may reduce the collateral values by an additional 10 - 25 % of appraised value to recognize additional

discounts that are estimated to be incurred in a near-term sale.

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

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

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

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

Fluctuations in the ACL each period are based on loan mix and growth, changes in the levels of nonperforming loans, economic forecasts impacting loss drivers, other assumptions and inputs to the CECL model, and as occurred in 2023, adjustments for acquired loan portfolios.

Much of the change to the level of ACL during the nine months ended September 30, 2023 is attributed to the acquisition of GrandSouth.

In addition to the "Day 1" allowance recorded for PCD loans of $ 5.6 million, the Company recorded a "Day 2" initial provision of $ 12.2 million related to the non-PCD loans in the GrandSouth portfolio.

The balance of the change was a result of loan growth during the period and updated prepayment speed estimates in the CECL model.

The higher rate environment has resulted in slower prepayments, thus increasing the projected ACL required.

($ in thousands) Beginning balance "Day 1" ACL for acquired PCD loans Charge-offs Recoveries Provisions / (Reversals) Ending balance

As of and for the three months ended September 30, 2023

Commercial and industrial $ 23,442 — ( 2,650 ) 450 1,202 22,444

Construction, development & other land loans 18,477 — ( 120 ) 54 ( 4,761 ) 13,650

Commercial real estate - owner occupied 16,381 — ( 24 ) 34 1,873 18,264

Commercial real estate - non owner occupied 26,274 — — 302 ( 1,240 ) 25,336

Multi-family real estate 3,946 — — 3 ( 481 ) 3,468

Residential 1-4 family real estate 14,305 — — 50 4,374 18,729

Home equity loans/lines of credit 3,717 — — 11 ( 431 ) 3,297

Consumer loans 2,688 — ( 409 ) 67 664 3,010

Total $ 109,230 — ( 3,203 ) 971 1,200 108,198

As of and for the nine months ended September 30, 2023

Commercial and industrial $ 17,718 5,197 ( 6,361 ) 1,216 4,674 22,444

Construction, development & other land loans 15,128 49 ( 120 ) 277 ( 1,684 ) 13,650

Commercial real estate - owner occupied 14,972 191 ( 24 ) 104 3,021 18,264

Commercial real estate - non owner occupied 22,780 51 ( 235 ) 734 2,006 25,336

Multi-family real estate 2,957 — — 10 501 3,468

Residential 1-4 family real estate 11,354 113 — 275 6,987 18,729

Home equity loans/lines of credit 3,158 8 ( 2 ) 85 48 3,297

Consumer loans 2,900 1 ( 833 ) 144 798 3,010

Total $ 90,967 5,610 ( 7,575 ) 2,845 16,351 108,198

The change to the level of ACL during the three months ended March 31, 2024 was determined based primarily on updated economic forecasts, which are a key assumption in the CECL model and which indicated a continued deterioration of the commercial real estate index, thus projecting a higher allowance for credit losses balance, partially offset by reductions in loan balances during the period.

($ in thousands) Beginning balance Charge-offs Recoveries Provisions / (Reversals) Ending balance

As of and for the year ended December 31, 2022

As of and for the three months ended March 31, 2024

Commercial and industrial $ 21,227 ( 1,585 ) 243 409 20,294

7 unchanged sentences

Total $ 109,853 ( 2,115 ) 529 1,800 110,067

($ in thousands) Beginning balance Charge-offs Recoveries Provisions / (Reversals) Ending balance

As of and for the three months ended September 30, 2022

($ 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

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

7 unchanged sentences

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

As of and for the nine months ended September 30, 2022

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

As of and for the three months ended March 31, 2023

Commercial and industrial $ 17,718 5,197 ( 2,177 ) 274 2,061 23,073

24 unchanged sentences

5 Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management.

Collateral is generally required and felt to provide reasonable coverage with realizable liquidation values in normal circumstances.

Collateral is generally required and believed to provide reasonable coverage with realizable liquidation values in normal circumstances.

Repayment performance is satisfactory.

15 unchanged sentences

($ in thousands) 2024 2023 2022 2021 2020 Prior Revolving Total

As of September 30, 2023

As of March 31, 2024

Commercial and industrial

58 unchanged sentences

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

3 unchanged sentences

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

3 unchanged sentences

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

3 unchanged sentences

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

3 unchanged sentences

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

3 unchanged sentences

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

3 unchanged sentences

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

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

1 unchanged sentence

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

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.

4 unchanged sentences

For loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period.

The followings tables present the amortized cost basis at September 30, 2023 of the loans modified during the three and nine months then ended for borrowers experiencing financial difficulty, by loan category and type of concession granted.

($ in thousands) Payment Delay Term Extension Combination - Interest Rate Reduction and Term Extension Total Percent of Total Class of Loans

As of and for the three months ended September 30, 2023

The followings tables present the amortized cost basis at March 31, 2024 and March 31, 2023 of the loans modified during the three months then ended for borrowers experiencing financial difficulty, by loan category and type of concession granted.

($ in thousands) Payment Delay Term Extension Combination - Term Extension and Payment Delay Combination - Interest Rate Reduction and Term Extension Total Percent of Total Class of Loans

As of and for the three months ended March 31, 2024

Commercial and industrial $ 114 — 878 — 992 0.11 %

Construction, development & other land loans — 594 — 594 0.06 %

Commercial real estate - owner occupied — 4,023 — 4,023 0.32 %

Commercial real estate - non owner occupied — 115 — — 115 — %

Residential 1-4 family real estate — 245 — 245 0.02 %

Home equity loans/lines of credit — 47 — 179 226 0.07 %

Consumer loans — 9 — 9 0.01 %

Total $ 114 162 878 179 1,333 0.02 %

As of and for the nine months ended September 30, 2023

($ in thousands) Payment Delay Term Extension Combination - Interest Rate Reduction and Term Extension Total Percent of Total Class of Loans

As of and for the three months ended March 31, 2023

Commercial and industrial $ 156 1,442 — 1,598 0.18 %

Construction, development & other land loans — 130 14 144 0.01 %

Commercial real estate - owner occupied 185 4,302 — 4,487 0.36 %

Commercial real estate - non owner occupied — 104 — 104 — %

3 unchanged sentences

Total $ 156 2,055 14 2,225 0.03 %

For the three and nine months ended September 30, 2023, there were no modifications for borrowers experiencing financial difficulty with principal forgiveness concessions.

The following tables describes the financial effect for the three and nine months ended September 30, 2023 of the modifications made for borrowers experiencing financial difficulty:

For the three months ended March 31, 2024 and March 31, 2023, there were no modifications for borrowers experiencing financial difficulty with principal forgiveness concessions.

The following table describes the financial effect for the three months ended March 31, 2024 of the modifications made for borrowers experiencing financial difficulty:

Financial Effect of Modification to Borrowers Experiencing Financial Difficulty

1 unchanged sentence

(in months) Weighted Average Term Extension

For the three months ended September 30, 2023

For the three months ended March 31, 2024

Commercial and industrial — % 36 12

Commercial real estate - non owner occupied — % 0 13

Home equity loans/lines of credit 2.09 % 0 32

The following table describes the financial effect for the three months ended March 31, 2023 of the modifications made for borrowers experiencing financial difficulty:

Financial Effect of Modification to Borrowers Experiencing Financial Difficulty

Weighted Average Interest Rate Reduction Weighted Average Payment Delay

(in months) Weighted Average Term Extension

For the three months ended March 31, 2023

Commercial and industrial — % 4 6

Construction, development & other land loans 1.50 % 0 11

Commercial real estate - owner occupied — % 0 32

Commercial real estate - non owner occupied — % 0 12

2 unchanged sentences

Consumer loans — % 0 3

For the nine months ended September 30, 2023

The Company closely monitors the performance of the loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following table depicts the performance of loans that have been modified in the last 12 months as of March 31, 2024:

Payment Status (Amortized Cost Basis)

($ in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due

Commercial and industrial $ 2,186 69 — —

5 unchanged sentences

Consumer loans 3 — — —

The Company closely monitors the performance of the loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following table depicts the performance of loans that have been modified in the last 12 months as of September 30, 2023:

$ 10,519 145 — —

The following table depicts the performance of loans that have been modified in the last 12 months as of December 31, 2023:

Payment Status (Amortized Cost Basis)

8 unchanged sentences

$ 11,640 79 — —

None of the modifications made for borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023 are considered to have had a payment default.

None of the modifications made for borrowers experiencing financial difficulty during the three months ended March 31, 2024 and March 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 three and nine months ended September 30, 2022 related to interest rate reductions combined with extension of terms.

The Company does not generally grant principal forgiveness.

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

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

The following table presents information related to loans modified in a TDR during the three and nine months ended September 30, 2022.

For the three months ended

September 30, 2022 For the nine months ended

September 30, 2022

($ in thousands) Number of Contracts Pre-Modification Restructured Balances Post-Modification Restructured Balances Number of Contracts Pre-Modification Restructured Balances Post-Modification Restructured Balances

TDRs - Accruing

Commercial and industrial — $ — — 1 $ 161 161

Construction, development & other land loans — — — 1 131 131

Residential 1-4 family real estate — — — 1 36 36

Home equity loans/lines of credit 1 176 176 3 379 379

TDRs - Nonaccrual

Commercial and industrial 1 327 327 4 627 627

Commercial real estate - owner occupied — — — 2 784 784

Residential 1-4 family real estate — — — 1 36 36

Total TDRs arising during period 2 $ 503 503 13 $ 2,154 2,154

The Company considered a TDR loan to have defaulted when it became 90 or more days delinquent under the modified terms, had been transferred to nonaccrual status, or had been transferred to foreclosed real estate.

There were no accruing TDRs that were modified in the twelve months preceding September 30, 2022 and that defaulted during the three and nine months ended September 30, 2022.

Concentration of Credit Risk

2 unchanged sentences

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

There have been no material changes to the primary loan markets (as identified by counties) from year end.

Allowance for Unfunded Loan Commitments

3 unchanged sentences

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

The allowance for unfunded loan commitments of $ 11.8 million and $ 13.3 million at September 30, 2023 and December 31, 2022, respectively, were separately classified on the Consolidated Balance Sheets within "Other liabilities."

The following table presents the balance and activity in the allowance for unfunded loan commitments for the nine months ended September 30, 2023 and 2022 and for the twelve months ended December 31, 2022:

($ in thousands) September 30, 2023 December 31, 2022 September 30, 2022

The allowance for unfunded loan commitments of $ 10.8 million and $ 11.4 million at March 31, 2024 and December 31, 2023, respectively, were separately classified on the consolidated balance sheets within "Other liabilities."

The following table presents the balance and activity in the allowance for unfunded loan commitments for the three months ended March 31, 2024 and 2023 and for the twelve months ended December 31, 2023:

($ in thousands) March 31, 2024 December 31, 2023 March 31, 2023

Beginning balance $ 11,369 13,306 13,306

"Day 2" provision for credit losses on unfunded commitments acquired from GrandSouth 1,921 — —

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

Charge-offs — — —

3 unchanged sentences

Allowance for Credit Losses - Securities Held to Maturity

The ACL for securities held to maturity was insignificant at September 30, 2023 and December 31, 2022.

Note 5 – Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount, accumulated amortization and net amount of amortizable intangible assets as of September 30, 2023 and December 31, 2022, and the carrying amount of unamortized intangible assets as of those same dates.

September 30, 2023 December 31, 2022

The ACL for securities held to maturity was insignificant at March 31, 2024 and December 31, 2023.

Goodwill and Other Intangible Assets

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

March 31, 2024 December 31, 2023

($ in thousands) Gross Carrying

13 unchanged sentences

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

Amortization expense of all other intangible assets, excluding the SBA servicing assets, totaled $ 2.0 million and $ 0.9 million for the three months ended September 30, 2023 and 2022, respectively, and $ 6.1 million and $ 2.9 million for the nine months ended September 30, 2023 and 2022, respectively.

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

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

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

The following table presents the changes in the SBA servicing assets and SBA servicing income for the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30, Nine months ended September 30,

($ in thousands) 2023 2022 2023 2022

Amortization expense of all other intangible assets, excluding the SBA servicing assets, totaled $ 1.8 million and $ 2.1 million for the three months ended March 31, 2024 and 2023, respectively.

During the three months ended March 31, 2024 and 2023, the Company recorded $ 0.7 million and $ 1.0 million, respectively in SBA guaranteed servicing fee income.

There was no impairment of SBA servicing assets at March 31, 2024 and December 31, 2023 and no significant changes in fair value assumptions from year end.

The following table presents the changes in the SBA servicing assets and SBA servicing income for the three months ended March 31, 2024 and 2023.

Three months ended March 31,

Beginning balance, net $ 3,350 4,004

New servicing assets 224 77

Amortization and impairment expense 457 707 953 2,239

Amortization expense and impairment charges 437 184

Ending balance, net $ 3,137 3,897

SBA guaranteed servicing income $ 846 1,120 2,693 2,901

A t September 30, 2023 and December 31, 2022, the Company serviced SBA loans totali ng $ 364.9 million a nd $ 392.4 million, respectively, for others.

There were no other loans serviced in any period presented.

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

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

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

No triggering events were identified during 2024 to date and, therefore, the Company did not perform interim impairment evaluations.

The Company's most recent evaluation of goodwill, 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:

($ in thousands) Total Goodwill

Balance at December 31, 2021 $ 364,263

Net activity during 2022 —

Balance at December 31, 2022 364,263

Additions from acquisition of GrandSouth 114,487

Balance at September 30, 2023 $ 478,750

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

There was no change to carrying amounts of goodwill during the first quarter of 2024.

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

2 unchanged sentences

($ in thousands) Estimated Amortization

October 1, 2023 to December 31, 2023 $ 1,856

April 1, 2024 to December 31, 2024 $ 4,844

Thereafter 5,380

Total $ 27,749

Note 6 - Borrowings

The following tables present information regarding the Company’s outstanding borrowings at September 30, 2023 and December 31, 2022 (dollars in thousands):

Description Due date Call Feature Balance at September 30, 2023 Interest Rate

FHLB Principal Reducing Credit 12/22/2023 None $ 880 1.25 % fixed

The following tables present information regarding the Company’s outstanding borrowings at March 31, 2024 and December 31, 2023 (dollars in thousands):

Description Due date Call Feature Balance at March 31, 2024 Interest Rate

FHLB Principal Reducing Credit 6/26/2028 None $ 200 0.25 % fixed

3 unchanged sentences

FHLB Principal Reducing Credit 12/20/2028 None 312 0.50 % fixed

FHLB Fixed Rate Credit 10/13/2023 None 100,000 5.46 % fixed

FHLB Fixed Rate Credit 10/20/2023 None 25,000 5.46 % fixed

FHLB Fixed Rate Credit 10/30/2023 None 50,000 5.48 % fixed

FHLB Fixed Rate Credit 11/13/2023 None 100,000 5.50 % fixed

FHLB Daily Rate Credit 9/16/2024 None 25,000 5.57 % fixed

FRB Bank Term Funding Program 12/20/2024 None 174,000 4.85 % fixed

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

FRB Bank Term Funding Program 1/10/2025 None 32,000 4.81 % fixed

Trust Preferred Securities 1/23/2034 Quarterly by Company

beginning 1/23/2009 10,310 8.28 % at 9/30/23

adjustable rate

3 month CME Term SOFR+ 2.91 %

beginning 1/23/2009 10,310 8.23 % at 3/31/24 adjustable rate 3 month CME Term SOFR+ 2.91 %

Trust Preferred Securities 1/23/2034 Quarterly by Company

beginning 1/23/2009 10,310 8.38 % at 9/30/23 adjustable rate

3 month CME Term SOFR + 3.01 %

beginning 1/23/2009 10,310 8.33 % at 3/31/24 adjustable rate 3 month CME Term SOFR + 3.01 %

Trust Preferred Securities 9/20/2034 Quarterly by Company

beginning 9/20/2009 12,372 7.81 % at 9/30/23

adjustable rate

3 month CME Term SOFR + 2.41 %

beginning 9/20/2009 12,372 7.74 % at 3/31/24 adjustable rate 3 month CME Term SOFR + 2.41 %

Trust Preferred Securities 1/7/2035 Quarterly by Company

beginning 1/7/2010 10,310 7.57 % at 9/30/23

adjustable rate

3 month CME Term SOFR + 2.00 %

beginning 1/7/2010 10,310 7.58 % at 3/31/24 adjustable rate 3 month CME Term SOFR + 2.00 %

Trust Preferred Securities 6/15/2036 Quarterly by Company

beginning 6/15/2011 25,774 7.06 % at 9/30/23

adjustable rate

3 month CME Term SOFR + 1.65 %

Trust Preferred Securities 6/23/2036 Quarterly by the Company beginning 6/23/2011 8,248 7.51 % at 9/30/23

adjustable rate

3 month CME Term SOFR + 2.11 %

Subordinated Debentures 11/30/2028 Continuous by Company beginning 11/30/2023 10,000 6.50 % fixed

beginning 6/15/2011 25,774 6.98 % at 3/31/24 adjustable rate 3 month CME Term SOFR + 1.65 %

Trust Preferred Securities 6/23/2036 Quarterly by the Company beginning 6/23/2011 8,248 7.43 % at 3/31/24 adjustable rate 3 month CME Term SOFR + 2.11 %

Subordinated Debentures 11/30/2028 Continuous by Company beginning 11/30/2023 10,000 8.99 % at 3/31/24 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 September 30, 2023

Total borrowings / weighted average rate as of March 31, 2024

337,162 5.56 %

7 unchanged sentences

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

FHLB Principal Reducing Credit 8/22/2028 None 159 1.00 % fixed

FHLB Principal Reducing Credit 12/20/2028 None 329 0.50 % fixed

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

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

1 unchanged sentence

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

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 7.06 % at 12/31/22

adjustable rate

3 month LIBOR + 2.65 %

beginning 1/23/2009 10,310 8.30 % at 12/31/23 adjustable rate 3 month CME Term SOFR + 2.91 %

Trust Preferred Securities 1/23/2034 Quarterly by Company

beginning 1/23/2009 10,310 7.16 % at 12/31/22

adjustable rate

3 month LIBOR + 2.75 %

beginning 1/23/2009 10,310 8.40 % at 12/31/23 adjustable rate 3 month CME Term SOFR + 3.01 %

Trust Preferred Securities 9/20/2034 Quarterly by Company

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

adjustable rate

3 month LIBOR + 1.39 %

beginning 9/20/2009 12,372 7.78 % at 12/31/23 adjustable rate 3 month CME Term SOFR + 2.41 %

Trust Preferred Securities 1/7/2035 Quarterly by Company

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

adjustable rate

3 month LIBOR + 2.15 %

beginning 1/7/2010 10,310 7.66 % at 12/31/23 adjustable rate 3 month CME Term SOFR + 2.00 %

Trust Preferred Securities 6/15/2036 Quarterly by Company

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

adjustable rate

3 month LIBOR + 2.00 %

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

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Total borrowings $ 630,158

Note 7 – Leases

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

As of September 30, 2023, the Company leased 17 bank branch offices for which the land and buildings are leased and ten branch offices for which the land is leased but the buildings are owned.

As of March 31, 2024, the Company leased 16 bank branch offices for which the land and buildings are leased and ten branch offices for which the land is leased but the buildings are owned.

The Company also leases office space for several operational departments.

All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from January 2024 through May 2076, some of which include options for multiple five - and ten-year extensions.

The weighted average remaining life of the lease term for these leases was 19.6 years as of September 30, 2023.

The lease agreements have maturity dates ranging from July 2024 through May 2076, some of which include options for multiple five - and ten-year extensions.

The weighted average remaining life of the lease term for these leases was 19.9 years as of March 31, 2024.

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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The short-term lease cost for each period presented was insignificant.

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

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

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

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

Right-of-use assets and lease liabilities

are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

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

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

The weighted average discount rate for leases was 3.16 % as of September 30, 2023.

Total operating lease expenses were $ 0.8 million and $ 0.7 million for the three months ended September 30, 2023 and 2022, respectively, and $ 2.3 million for the nine months ended September 30, 2023 and 2022.

The right-of-use assets and lease liabilities were $ 17.6 million and $ 18.3 million as of September 30, 2023, respectively, and were $ 18.7 million and $ 19.4 million as of December 31, 2022, respectively.

Future undiscounted lease payments for operating leases with initial terms of great than one year as of September 30, 2023 are as follows.

The weighted average discount rate for leases was 3.22 % and 3.19 % as of March 31, 2024 and December 31, 2023, respectively.

The right-of-use assets and lease liabilities were $ 16.6 million and $ 17.3 million as of March 31, 2024, respectively, and were $ 17.1 million and $ 17.8 million as of December 31, 2023, respectively.

Total operating lease expenses were $ 0.7 million and $ 0.8 million for the three months ended March 31, 2024 and 2023, respectively.

Future undiscounted lease payments for operating leases with initial terms of greater than one year as of March 31, 2024 are as follows:

($ in thousands)

October 1, 2023 to December 31, 2023 $ 661

April 1, 2024 to December 31, 2024 $ 1,813

Thereafter 17,222

2 unchanged sentences

Present value of estimated lease payments (lease liability) $ 17,343

Note 8 – Pension Plans

The Company sponsored two defined benefit pension plans – a qualified retirement plan (the “Pension Plan”) which was generally available to all employees, and a Supplemental Executive Retirement Plan (the “SERP”) which was for the benefit of certain senior management executives of the Company.

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

Although no previously accrued benefits were lost, no additional accruals of benefits under these plans for service subsequent to 2012 have been made.

The Company recorded periodic pension cost totaling $ 51,000 for the three months ended September 30, 2023 and 2022, and $ 152,000 and $ 153,000 for the nine months ended September 30, 2023 and 2022, respectively.

Pension Plans

The Company sponsors a Supplemental Executive Retirement Plan (the “SERP”) which was historically for the benefit of certain senior management executives of the Company.

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

Although no previously accrued benefits were lost, no additional accruals of benefits under this plan for service subsequent to 2012 have been made.

During 2023, the Company terminated its qualified retirement plan (the "Pension Plan") which had previously been available to all employees, although the Pension Plan had been frozen with accrual of benefits discontinued in 2012.

In 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 Company recorded periodic pension cost totaling $ 63,000 and $ 51,000 for the three months ended March 31, 2024 and 2023, respectively.

The following table contains the components of the pension cost:

For the Three Months Ended September 30,

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

Three Months Ended March 31, 2024

($ in thousands) SERP

Service cost $ —

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Expected return on plan assets —

Amortization of net loss (gain) 180 ( 136 ) 44 180 ( 136 ) 44

Amortization of net loss 25

Net periodic pension cost $ 63

For the Nine Months Ended September 30,

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

Three Months Ended March 31, 2023

($ in thousands) Pension Plan SERP Total Both Plans

Service cost $ — — —

1 unchanged sentence

Expected return on plan assets ( 288 ) — ( 288 )

Amortization of net (gain)/loss 540 ( 408 ) 132 540 ( 408 ) 132

Amortization of net loss (gain) 180 ( 136 ) 44

Net periodic pension cost $ 159 ( 108 ) 51

1 unchanged sentence

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

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

The Company did not contribute to the Pension Plan in the first nine months of 2023 and does not expect to contribute to the Pension Plan in the remainder of 2023.

On March 27, 2023, the Company’s Board of Directors approved termination of the Pension Plan to be effective during the calendar year 2023 and a termination cost estimate of $ 2.4 million was recorded in the first quarter of 2023 in the accompanying Consolidated Statements of Income.

On July 31, 2023, the Pension Plan was amended to terminate the Plan as of that date.

The Company is in the process of taking appropriate actions necessary to liquidate the Pension Plan which is anticipated to be completed during the fourth quarter of 2023.

Note 9 – Fair Value

Fair Value of Financial Instruments

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal and most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

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

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at September 30, 2023:

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at March 31, 2024:

($ in thousands)

Description of Financial Instruments

Fair Value at September 30, 2023 Quoted Prices in Active Markets for Identical Assets

Fair Value at March 31, 2024 Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other

8 unchanged sentences

Total available for sale securities $ 2,088,483 — 2,088,483 —

Derivative financial assets $ — — — —

Presold mortgages in process of settlement $ 6,703 — 6,703 —

Derivative financial liabilities $ 30 — 30 —

Individually evaluated loans $ 4,638 — — 4,638

12 unchanged sentences

Total available for sale securities $ 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 38 — — 38

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

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

Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy.

If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 in the valuation hierarchy.

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

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 U.S.

Treasury bonds, mortgage-backed securities, commercial mortgage-backed obligations, GSEs, and corporate bonds.

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

Individually evaluated loans — Fair values for individually evaluated loans are measured on a non-recurring basis and are based on (1) the underlying collateral values securing the loans, adjusted for estimated selling costs, or (2) the net present value ("PV") of the cash flows expected to be received for such loans.

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 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.

Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable.

3 unchanged sentences

Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3).

Appraisals used in this analysis are generally obtained at least annually based on when the loans first became impaired, and thus the appraisals are not necessarily as of the period ends presented.

Appraisals used in this analysis are generally obtained at least annually based on when the loans

first became impaired, and thus the appraisals are not necessarily as of the period ends presented.

Any fair value adjustments are recorded in the period incurred as provision for credit losses on the consolidated statements of income.

Foreclosed real estate — Foreclosed real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value.

Fair value is measured on a non-recurring basis and is based upon independent market prices or current appraisals that are generally prepared using an income or market valuation approach and conducted by an independent, licensed third party appraiser, adjusted for estimated selling costs (Level 3).

Appraisals used in this analysis are generally obtained at least annually based on when the assets were acquired, and thus the appraisals are not necessarily as of the period ends presented.

At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the ACL.

For any real estate valuations

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

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands) Fair Value at September 30, 2023 Valuation

For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2024, the significant unobservable inputs used in the fair value measurements were as presented in the tables below:

($ in thousands) Fair Value at March 31, 2024 Valuation

Technique Significant Unobservable

1 unchanged sentence

Individually evaluated loans - collateral-dependent $ 4,638 Appraised value Discounts applied for estimated costs to sell 10 %

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

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 follows:

($ in thousands) Fair Value at December 31, 2023 Valuation

2 unchanged sentences

Individually evaluated loans - collateral-dependent $ 1,953 Appraised value Discounts applied for estimated costs to sell 10 %

Individually evaluated loans - cash-flow dependent 3,910 PV of expected cash flows Discount rates used in the calculation of PV of expected cash flows 5.5 %- 11.1 % ( 6.76 %)

Foreclosed real estate 38 Appraised value Discounts applied for estimated costs to sell 10 %

The carrying amounts and estimated fair values of financial instruments not carried at fair value at September 30, 2023 and December 31, 2022 were as follows:

September 30, 2023 December 31, 2022

In 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 at March 31, 2024 and December 31, 2023 were as follows:

March 31, 2024 December 31, 2023

($ in thousands) Level in Fair

6 unchanged sentences

Securities held to maturity Level 2 525,627 436,655 533,678 449,623

SBA loans held for sale Level 2 2,633 2,633 — —

Total loans, net of allowance Level 3 7,966,439 7,198,019 8,040,249 7,379,079

2 unchanged sentences

SBA Servicing Asset Level 3 3,137 3,984 3,351 4,049

Deposits Level 2 10,235,403 10,225,228 9,227,529 9,218,945

Demand deposits, money market and savings Level 2 9,136,213 9,136,213 9,052,905 9,052,905

Time deposits Level 2 1,167,098 1,160,751 978,694 972,513

Borrowings Level 2 332,335 318,292 630,158 615,614

9 unchanged sentences

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

Note 10 – Stock-Based Compensation

The Company recorded total stock-based compensation expense of $ 1.2 million and $ 0.7 million for the three months ended September 30, 2023 and 2022, respectively, and $ 3.4 million and $ 1.9 million for the nine months ended September 30, 2023 and 2022, respectively.

In addition, the Company recog nized $ 278,000 an d $ 170,000 of income tax benefits related to stock-based compensation expense for the three months ended September 30, 2023 and 2022, respectively, and $ 798,000 and $ 445,000 for the nine months ended September 30, 2023 and 2022, respectively.

At September 30, 2023, the sole equity-based compensation plan of the Company was the First Bancorp 2014 Equity Plan (the "Equity Plan"), which was approved by shareholders on May 8, 2014.

As of September 30, 2023, the Equity Plan had 205,498 shares remaining available for grant.

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

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

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

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

Stock-Based Compensation

The Company recorded total stock-based compensation expense of $ 0.7 million and $ 1.1 million for the three months ended March 31, 2024 and 2023, respectively, which is included in "Total personnel expense" on the accompanying consolidated statements of income.

The Company recog nized $ 153,000 an d $ 259,000 of income tax benefits related to stock-based compensation expense in its income statement for the three months ended March 31, 2024 and 2023, respectively.

At March 31, 2024, the sole equity-based compensation plan of the Company was the First Bancorp 2014 Equity Plan (the "Equity Plan"), which was approved by shareholders on May 8, 2014.

As of March 31, 2024, the Equity Plan had 191,593 shares remaining available for grant.

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

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

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

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

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

Upon forfeiture, any previously recognized compensation cost is reversed.

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

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

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

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

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

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

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

In addition to employee equity awards, the Company's practice is to grant common shares, valued at approximately $ 37,500 for the current year, to each non-employee director (currently 14 in total) in June of each year.

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

The following table presents information regarding the activity for the first nine months of 2023 related to the Company’s outstanding restricted stock awards:

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.

The grants was valued at approximately $ 37,500 in 2023 and is expected to be the same in 2024.

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

The following table presents information regarding the activity for the first three months of 2024 related to the Company’s outstanding restricted stock awards:

Long-Term Restricted Stock Awards

5 unchanged sentences

Forfeited or expired during the period — —

Nonvested at September 30, 2023 339,790 $ 37.15

Total unrecognized compensation expense as of September 30, 2023 amounted to $ 6.1 million with a weighted-average remaining term of 2.0 years.

For the nonvested awards that were outstanding at September 30, 2023, the Company expects to record $ 3.6 million in compensation expense in the next twelve months, $ 1.2 million of which is expected to be recorded in the remaining quarter of 2023.

As discussed in Note 2, in conjunction with the GrandSouth acquisition, GrandSouth common stock options outstanding at January 1, 2023 became fully vested under the change in control provisions in the GrandSouth option plans and were converted into replacement options to acquire 0.91 shares of the Company's common stock.

Stock option activity and related information is presented below as of and for the periods indicated:

Options Outstanding

Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (years) Aggregate Intrinsic Value

($ in thousands)

Balance at January 1, 2023 — $ —

Replacement options issued in conjunction with acquisition of GrandSouth 542,345 20.14

Exercised during the period ( 194,998 ) 19.33

Forfeited or expired during the period — —

Outstanding at September 30, 2023 347,347 20.59 6.01 $ 2,768

Exercisable at September 30, 2023 347,347 $ 20.59 6.01 $ 2,768

Stock options outstanding are summarized as follows as of September 30, 2023:

Shares Range Weighted Average Price Weighted Average Remaining Life in Years

111,822 $ 13.79 - 18.18

121,320 $ 18.19 18.19 5.73

114,205 $ 18.20 - 31.32

347,347 20.59 6.01

In accordance with ASC 805-30, the fair value of the replacement options issued in conjunction with the GrandSouth acquisition as of January 1, 2023 was measured using the Black-Scholes option pricing model.

The following table illustrates the assumptions for the Black-Scholes model used in determining the fair value of options granted:

For the Nine Months Ended

September 30, 2023

Fair value per option, weighted average $ 24.85

Expected life (years) 1.4 - 4.7

Expected stock price volatility, weighted average 46.39 %

Expected dividend yield 2.05 %

Risk-free interest rate, weighted average 4.18 %

Expected forfeiture rate — %

The expected life is based on historical exercises and forfeitures experience of the grantees.

The volatility is based on historical price volatility.

The risk-free interest rate is based on a U.S.

Treasury instrument with a life that is similar to the expected life of the option grant.

At September 30, 2023, the Company had no unrecognized compensation expense related to stock options.

All unexercised options expire ten years after the applicable original grant dates under the GrandSouth stock option plan.

Note 11 – Earnings Per Share

Nonvested at March 31, 2024 294,582 $ 37.31

Total unrecognized compensation expense as of March 31, 2024 amounted to $ 4.6 million with a weighted average remaining term of 1.7 years.

For the nonvested awards that were outstanding at March 31, 2024, the Company

expects to record $ 3.0 million in compensation expense in the next twelve months, $ 2.6 million of which is expected to be recorded in the remaining quarters of 2024.

Earnings Per Share

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

For the Three Months Ended September 30,

($ in thousands except per

share amounts) Income

(Numerator) Shares

(Denominator) Per Share

Amount Income

(Numerator) Shares

(Denominator) Per Share

Net income $ 29,893 $ 37,949

income allocated to restricted stock ( 247 ) ( 249 )

Basic EPS per common share $ 29,646 40,744,042 $ 0.73 $ 37,700 35,469,001 $ 1.06

Net income $ 29,893 40,744,042 $ 37,949 35,469,001

Effect of dilutive securities — 455,016 — 234,445

Diluted EPS per common share $ 29,893 41,199,058 $ 0.73 $ 37,949 35,703,446 $ 1.06

Nine Months Ended September 30,

For the Three Months Ended March 31,

($ in thousands except per

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Diluted EPS per common share $ 25,272 41,249,636 $ 0.61 $ 15,161 41,112,692 $ 0.37

Note 12 – Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss)

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

($ in thousands) September 30, 2023 December 31, 2022

($ in thousands) March 31, 2024 December 31, 2023

Unrealized loss on securities available for sale $ ( 418,888 ) ( 400,720 )

5 unchanged sentences

Total accumulated other comprehensive loss $ ( 321,973 ) ( 308,030 )

The following tables disclose the changes in AOCI for the three and nine months ended September 30, 2023 and 2022 (all amounts are net of tax):

For the Three Months Ended September 30, 2023

($ in thousands) Unrealized Loss on

Available for Sale Postretirement Plans Asset

(Liability) Total

Beginning balance $ ( 338,251 ) 109 ( 338,142 )

Other comprehensive loss before reclassifications ( 62,644 ) — ( 62,644 )

Amounts reclassified from accumulated other comprehensive income

Net current period other comprehensive (loss) income ( 62,644 ) 34 ( 62,610 )

Ending balance $ ( 400,895 ) 143 ( 400,752 )

For the Three Months Ended September 30, 2022

($ in thousands) Unrealized Loss on

Available for Sale Postretirement Plans Asset

(Liability) Total

Beginning balance $ ( 249,148 ) ( 204 ) ( 249,352 )

Other comprehensive loss before reclassifications ( 108,718 ) — ( 108,718 )

Amounts reclassified from accumulated other comprehensive income

Net current period other comprehensive (loss) income ( 108,718 ) 34 ( 108,684 )

Ending balance $ ( 357,866 ) ( 170 ) ( 358,036 )

For the Nine Months Ended September 30, 2023

The following tables disclose the changes in AOCI for the three months ended March 31, 2024 and 2023 (all amounts are net of tax):

For the Three Months Ended March 31, 2024

($ in thousands) Unrealized Loss on

6 unchanged sentences

Ending balance $ ( 321,915 ) ( 58 ) ( 321,973 )

For the Nine Months Ended September 30, 2022

For the Three Months Ended March 31, 2023

($ in thousands) Unrealized Loss on

2 unchanged sentences

Beginning balance $ ( 342,017 ) 42 ( 341,975 )

Other comprehensive loss before reclassifications ( 333,168 ) — ( 333,168 )

Other comprehensive income before reclassifications 27,908 — 27,908

Amounts reclassified from accumulated other comprehensive income

Net current-period other comprehensive (loss) income ( 333,168 ) 102 ( 333,066 )

Net current period other comprehensive income 27,908 33 27,941

Ending balance $ ( 314,109 ) 75 ( 314,034 )

2 unchanged sentences

Amounts reclassified from AOCI for postretirement plans asset (liability) represent amortization of amounts included in AOCI, net of taxes, and are recorded in the "Other operating expenses" line item of the consolidated statements of income.

Note 13 – Revenue from Contracts with Customers

Revenue from Contracts with Customers

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

The following table presents the Company’s sources of noninterest income for the three and nine months ended September 30, 2023 and 2022.

The following table presents the Company’s sources of noninterest income for the three months ended March 31, 2024 and 2023.

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

For the Three Months Ended For the Nine Months Ended

($ in thousands) September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Noninterest Income:

In-scope of ASC 606:

For the Three Months Ended

($ in thousands) March 31, 2024 March 31, 2023

Noninterest Income in-scope of ASC 606:

Service charges on deposit accounts $ 3,868 3,894

Other service charges and fees:

Other service charges, commissions and fees:

Bankcard interchange income, net 2,314 2,582

Other service charges and fees 1,848 3,318

Commissions from sales of financial products 1,207 1,391 3,926 3,487

Commissions from the sales of financial products 1,320 1,306

SBA consulting fees 257 521

7 unchanged sentences

Maintenance and activity fees include account maintenance fees and transaction-based fees.

Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month,

representing the period over which the Company satisfies the performance obligation.

Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request.

Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month, representing the period over which the Company satisfies the performance obligation.

Transaction-based fees, which include services such as ATM usage fees, stop payment charges, statement rendering, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request.

Service charges on deposits are withdrawn from the customer’s account balance.

Other service charges and fees:

Other service charges, commissions, and fees:

The Company earns interchange income on its customers’ debit and credit card usage and earns fees from other services utilized by its customers.

Interchange income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as MasterCard.

"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.

4 unchanged sentences

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.

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.

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

What changed 10-Q

Item 1. Financial Statements