FIRST BANCORP /NC/ 10-Q

Item 1 - Financial Statements First Bancorp and Subsidiaries Consolidated Balance Sheets ($ in thousands - unaudited) March 31, 2024 December 31, 2023 Assets Cash and due from banks, noninterest-bearing $ 87,181 100,891 Due from banks, interest-bearing 266,661 136,964 Total cash and cash equivalents 353,842 237,855 Securities available for sale 2,088,483 2,189,379 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 in process of settlement 6,703 2,667 Loans 8,076,506 8,150,102 Allowance for credit losses on loans ( 110,067 ) ( 109,853 ) Net loans 7,966,439 8,040,249 Premises and equipment, net 150,546 150,957 Operating right-of-use lease assets 16,551 17,063 Accrued interest receivable 35,147 37,351 Goodwill 478,750 478,750 Other intangible assets, net 30,886 32,858 Bank-owned life insurance 185,061 183,897 Other assets 253,562 210,238 Total assets $ 12,091,597 12,114,942 Liabilities Deposits: Noninterest-bearing deposits $ 3,362,265 3,379,876 Interest-bearing deposits 6,941,046 6,651,723 Total deposits 10,303,311 10,031,599 Borrowings 332,335 630,158 Accrued interest payable 9,847 5,699 Operating lease liabilities 17,343 17,833 Other liabilities 52,662 57,273 Total liabilities 10,715,498 10,742,562 Commitments and contingencies Shareholders' Equity Preferred stock, no par value per share. Authorized: 5,000,000 shares Issued & outstanding: none as of March 31, 2024 and December 31, 2023 — — Common stock, no par value per share. Authorized: 60,000,000 shares Issued & outstanding: 41,156,286 shares and 41,109,987 shares as of March 31, 2024 and December 31, 2023, respectively 965,429 963,990 Retained earnings 732,643 716,420 Stock in rabbi trust assumed in acquisition ( 1,396 ) ( 1,385 ) Rabbi trust obligation 1,396 1,385 Accumulated other comprehensive loss ( 321,973 ) ( 308,030 ) Total shareholders’ equity 1,376,099 1,372,380 Total liabilities and shareholders’ equity $ 12,091,597 12,114,942 See accompanying notes to unaudited consolidated financial statements. Page 4 Index First Bancorp and Subsidiaries Consolidated Statements of Income Three Months Ended March 31, ($ in thousands, except share data - unaudited) 2024 2023 Interest Income Interest and fees on loans $ 109,756 99,380 Interest on investment securities: Taxable interest income 12,728 13,416 Tax-exempt interest income 1,117 1,130 Other, principally overnight investments 2,971 3,248 Total interest income 126,572 117,174 Interest Expense Interest on deposits 39,135 18,918 Interest on borrowings 8,205 5,770 Total interest expense 47,340 24,688 Net interest income 79,232 92,486 Provision for credit losses 1,200 12,502 Net interest income after provision for credit losses 78,032 79,984 Noninterest Income Service charges on deposit accounts 3,868 3,894 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 SBA consulting fees 257 521 SBA loan sale gains 895 255 Bank-owned life insurance income 1,164 1,046 Securities losses, net ( 975 ) — Other gains, net 459 188 Total noninterest income 12,938 13,536 Noninterest Expense Salaries 27,642 29,321 Employee benefits 6,269 6,393 Total personnel expense 33,911 35,714 Occupancy expense 3,663 3,688 Equipment related expenses 1,925 1,379 Merger and acquisition expenses — 12,182 Intangibles amortization 1,759 2,145 Other operating expenses 17,929 19,067 Total noninterest expenses 59,187 74,175 Income before income taxes 31,783 19,345 Income tax expense 6,511 4,184 Net income $ 25,272 15,161 Earnings per common share: Basic $ 0.61 0.37 Diluted 0.61 0.37 Weighted average common shares outstanding: Basic 40,843,865 40,583,417 Diluted 41,249,636 41,112,692 See accompanying notes to unaudited consolidated financial statements. Page 5 Index First Bancorp and Subsidiaries Consolidated Statements of Comprehensive Income Three Months Ended March 31, ($ in thousands - unaudited) 2024 2023 Net income $ 25,272 15,161 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 ) — 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. Page 6 Index First Bancorp and Subsidiaries Consolidated Statements of Shareholders’ Equity ($ in thousands, except share data - unaudited) Common Stock Retained Earnings Stock in Rabbi Trust Assumed in Acquisition Rabbi Trust Obligation Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Amount Three Months Ended March 31, 2023 Balances, January 1, 2023 35,704 $ 725,153 648,418 ( 1,585 ) 1,585 ( 341,975 ) 1,031,596 Net income 15,161 15,161 Cash dividends declared ($ 0.22 per common share) ( 9,006 ) ( 9,006 ) Change in Rabbi Trust Obligation ( 23 ) 23 — 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 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 Net income 25,272 25,272 Cash dividends declared ($ 0.22 per common share) ( 9,049 ) ( 9,049 ) Change in Rabbi Trust Obligation ( 11 ) 11 — Stock options exercised 36 726 726 Stock withheld for payment of taxes ( 4 ) ( 126 ) ( 126 ) Stock-based compensation 14 839 839 Other comprehensive loss ( 13,943 ) ( 13,943 ) 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. Page 7 Index First Bancorp and Subsidiaries Consolidated Statements of Cash Flows Three Months Ended March 31, ($ in thousands-unaudited) 2024 2023 Cash Flows From Operating Activities Net income $ 25,272 15,161 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 Deferred tax benefit ( 379 ) ( 1,713 ) Loan discount accretion ( 2,881 ) ( 3,566 ) 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 ) Net amortization of deferred loan fees ( 418 ) ( 127 ) Depreciation of premises and equipment 2,019 1,923 Amortization of operating lease right-of-use assets 512 567 Repayments of lease obligations ( 490 ) ( 485 ) Stock-based compensation expense 662 1,118 Amortization of intangible assets 1,759 2,145 Amortization and impairment of SBA servicing assets 437 184 Fees/gains from sale of presold mortgages and SBA loans ( 1,233 ) ( 661 ) Origination of presold mortgage loans in process of settlement ( 16,241 ) ( 12,528 ) Proceeds from sales of presold mortgage loans in process of settlement 19,411 11,296 Origination of SBA loans for sale ( 15,011 ) ( 8,933 ) 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 Decrease in other liabilities ( 3,816 ) ( 3,498 ) Net cash (used) provided by operating activities ( 20,092 ) 36,615 Cash Flows From Investing Activities Proceeds from maturities, calls and principal repayments of securities available for sale 81,700 58,856 Proceeds from maturities, calls and principal repayments of securities held to maturity 5,940 759 Proceeds from sales of securities available for sale — 111,863 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 Purchases of premises and equipment ( 1,641 ) ( 346 ) Proceeds from sales of premises and equipment 10 15 Net cash received in acquisition activities — 22,610 Net cash provided by investing activities 171,104 32,378 Cash Flows From Financing Activities Net increase in deposits 271,429 98,742 Advances from other borrowings 481,000 929,000 Repayment of other borrowings ( 779,012 ) ( 649,034 ) Cash dividends paid – common stock ( 9,042 ) ( 7,852 ) Proceeds from stock option exercises 726 3,215 Payment of taxes related to stock withheld ( 126 ) — 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 Cash and cash equivalents, end of period $ 353,842 713,382 (Continued) Page 8 Index First Bancorp and Subsidiaries Consolidated Statements of Cash Flows Three Months Ended March 31, ($ in thousands-unaudited) 2024 2023 Supplemental Disclosures of Cash Flow Information: Cash paid during the period for interest $ 42,825 19,333 Cash paid during the period for income taxes 22 46 Non-cash: Unrealized (loss) gain on securities available for sale, net of taxes ( 13,962 ) 27,908 Non-cash: Foreclosed loans transferred to other real estate — 288 Non-cash: Accrued dividends at end of period 9,052 9,010 Acquisition of GrandSouth Bancorporation — See Note 2 See accompanying notes to consolidated financial statements. Page 9 Index First Bancorp and Subsidiaries Notes to Consolidated Financial Statements (unaudited) Note 1. Organization and Basis of Presentation The consolidated financial statements include the accounts of First Bancorp (the “Company”) and its wholly owned subsidiary First Bank (the “Bank”). The Bank has three wholly owned subsidiaries that are fully consolidated, SBA Complete, Inc. (“SBA Complete”), Magnolia Financial, Inc. ("Magnolia Financial"), and First Troy SPE, LLC. All significant intercompany accounts and transactions have been eliminated. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes necessary for complete financial statements in accordance with GAAP. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of 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 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 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 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. 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. Page 10 Index Note 2. Acquisitions On January 1, 2023, the Company completed its acquisition of GrandSouth Bancorporation ("GrandSouth"), in an all-stock transaction pursuant to the Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), dated June 21, 2022, between the Company and GrandSouth. At the closing of the transaction, GrandSouth merged into the Company. Following the merger of the Company and GrandSouth, GrandSouth Bank, a wholly-owned subsidiary of GrandSouth, merged into the Bank with the Bank being the surviving entity. The results of GrandSouth are included beginning on the January 1, 2023 acquisition date. Pursuant to the Merger Agreement, each share of common and preferred stock of GrandSouth issued and outstanding immediately prior to the effective time of the acquisition was converted into 0.91 shares of the Company's common stock. As a result, the Company issued 5,032,834 shares of the Company common stock effective January 1, 2023. In addition, GrandSouth common stock options outstanding at the merger effective time were converted to options to acquire 0.91 shares of the Company's common stock resulting in 542,345 options with an average exercise price of approximately $ 20.14 . The total consideration transferred at the close of the transaction was $ 229.5 million which was determined based on the number of shares issued and the closing market price of the Company's stock immediately prior to the merger effective time of $ 42.84 . In addition to the stock issued, the fair value of the converted stock options calculated in accordance with FASB Accounting Standards Codification ("ASC") 805-30-55 was included in the total consideration of the transaction. As a result of the merger, eight branches in South Carolina were added to the Company's branch network. The acquisition accomplished the Company's strategic initiative to expand its presence in South Carolina, specifically in the high-growth markets of the state including Greenville, Charleston and Columbia. Significant synergies were anticipated to be gained from the acquisition, with asset growth and revenue enhancement opportunities from the new markets and expanded customer base. Accordingly, the Company recognized goodwill in the transaction related primarily to the reasons noted, as well as the positive earnings of GrandSouth. This transaction was accounted for using the acquisition method of accounting for business combinations, and accordingly, the assets acquired, intangible assets identified, and liabilities assumed of GrandSouth were recorded based on estimates of fair values as of January 1, 2023. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. Estimated fair values were based on management’s best estimates, using the information available at the date of acquisition, including the use of third-party valuation specialists. Management has finalized the valuations of all acquired assets and liabilities assumed in the GrandSouth acquisition. The following table summarizes the estimated fair value of acquired assets, identified intangible assets, and liabilities assumed as of January 1, 2023. Following the table is a discussion of valuation approaches utilized in 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. Page 11 Index ($ in thousands) Fair Value Estimate Assets acquired: Cash and cash equivalents $ 22,610 Securities available for sale 112,363 Loans, gross 996,833 Allowance for loan losses ( 5,610 ) Premises and equipment 20,268 Core deposit intangible 28,840 Operating right-of-use lease assets 732 Other assets 27,163 Total 1,203,199 Liabilities assumed: Deposits 1,045,308 Borrowings 38,800 Other liabilities 4,089 Total 1,088,197 Net identifiable assets acquired 115,002 Less: Total consideration 229,489 Goodwill recorded related to acquisition of GrandSouth $ 114,487 The following is a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed included in the table above. Cash and cash equivalents: This consists primarily of cash and due from banks, and interest-bearing deposits with banks. The carrying amount of these assets was a reasonable estimate of fair value based on the short-term nature of these assets. Securities available for sale: Fair value of securities was measured based on quoted market prices, where available. If a quoted market price was not available, fair value was estimated using quoted market prices for similar securities and adjusted for differences between the quoted instrument and the instrument being valued. Substantially all of the securities acquired from GrandSouth were liquidated at their recorded fair value upon close of the transaction or shortly thereafter. There was no gain or loss recorded on the sale of acquired securities. Loans: Fair value of loans acquired was based on a discounted cash flow methodology that considered factors including loan type and related collateral, classification status, remaining term of the loan, fixed or variable interest rate, amortization status, and current discount rates. Expected cash flows were derived using inputs consistent with management's assessment of credit risk for allowance measurement, including estimated future credit losses and estimated prepayments. A total fair value 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 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: ($ in thousands) January 1, 2023 PCD Loans: Par value $ 152,487 Allowance for credit losses ( 5,610 ) Non-credit discount ( 1,370 ) Purchase price 145,507 Non-PCD Loans: Fair Value 845,716 Gross contractual amounts receivable 865,132 Estimate of contractual cash flows not expected to be collected 22,542 Page 12 Index Premises: Land and buildings held for use were valued at appraised values, which reflected considerations of recent disposition values for similar property types with adjustments for characteristics of individual properties. Intangible assets: Core deposit intangible ("CDI") asset represents the value of the relationships with deposit customers. The fair value for the core deposit intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of deposit base, net maintenance cost attributable to customer deposits and an estimate of the cost associated with alternative funding sources. The discount rates used for CDI assets were based on market rates. The CDI is being amortized over 10 years utilizing the sum of the months digits accelerated method, which results in a weighted-average amortization period of approximately 41 months. Lease Assets and Lease Liabilities: Lease assets and lease liabilities were measured using a methodology that involved estimating the future lease payments over the remaining lease term with discounting using a discount rate. The lease term was determined for individual leases based on management's assessment of the probability of exercising existing renewal options. Deposits: The fair values used for the demand and savings deposits by definition equal the amount payable on demand at the acquisition date. Fair values for time deposits were estimated using a discounted cash flow analysis applying interest rates currently offered to the contractual interest rates on such time deposits. Borrowings: The fair values of long-term debt instruments were estimated based on quoted market prices for instrument if available, or for similar instruments if not available. Note 3. Securities 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 Amortized Cost Fair Value Unrealized Amortized Cost Fair Value Unrealized Gains (Losses) Gains (Losses) Securities available for sale: U.S. Treasuries $ 124,876 123,770 — ( 1,106 ) 174,785 172,570 — ( 2,215 ) Government-sponsored enterprise securities 71,965 59,959 — ( 12,006 ) 71,964 60,266 — ( 11,698 ) Mortgage-backed securities 2,291,854 1,886,949 22 ( 404,927 ) 2,323,674 1,937,784 30 ( 385,920 ) Corporate bonds 18,676 17,805 — ( 871 ) 19,676 18,759 — ( 917 ) Total available for sale $ 2,507,371 2,088,483 22 ( 418,910 ) 2,590,099 2,189,379 30 ( 400,750 ) Securities held to maturity: Mortgage-backed securities $ 11,369 10,682 — ( 687 ) 12,085 11,447 — ( 638 ) State and local governments 514,258 425,973 5 ( 88,290 ) 521,593 438,176 39 ( 83,456 ) 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 ("GSEs"), except for private mortgage-backed securities with a fair value of $ 0.7 million as of March 31, 2024 and December 31, 2023. Page 13 Index The following table presents information regarding all securities with unrealized losses at March 31, 2024: Securities in an Unrealized Loss Position for Less than 12 Months Securities in an Unrealized Loss Position for More than 12 Months Total ($ in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasuries $ — — 123,770 1,106 123,770 1,106 Government-sponsored enterprise securities — — 59,959 12,006 59,959 12,006 Mortgage-backed securities 448 1 1,895,026 405,613 1,895,474 405,614 Corporate bonds — — 16,055 871 16,055 871 State and local governments 5,356 26 420,149 88,264 425,505 88,290 Total unrealized loss position $ 5,804 27 2,514,959 507,860 2,520,763 507,887 The following table presents information regarding all securities with unrealized losses at December 31, 2023: Securities in an Unrealized Loss Position for Less than 12 Months Securities in an Unrealized Loss Position for More than 12 Months Total ($ in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses US Treasury securities $ — — 172,570 2,215 172,570 2,215 Government-sponsored enterprise securities — — 60,266 11,698 60,266 11,698 Mortgage-backed securities 1,117 5 1,945,830 386,553 1,946,947 386,558 Corporate bonds — — 17,008 917 17,008 917 State and local governments — — 432,476 83,456 432,476 83,456 Total unrealized loss position $ 1,117 5 2,628,150 484,839 2,629,267 484,844 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 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. The state and local government investments are comprised almost entirely of highly-rated municipal bonds issued by state and local governments throughout the nation. The Company has no significant concentrations of bond holdings from one state or local government entity. Nearly all of our mortgage-backed securities were issued by Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA"), Government National Mortgage Association ("GNMA"), or the Small Business Administration ("SBA"), each of which is a government agency or GSE and guarantees the repayment of the securities. 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. Page 14 Index 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. Securities Available for Sale Securities Held to Maturity ($ in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Due within one year $ 127,379 126,214 — — Due after one year but within five years 10,000 8,595 1,997 1,805 Due after five years but within ten years 78,138 66,725 148,754 126,626 Due after ten years — — 363,507 297,542 Mortgage-backed securities 2,291,854 1,886,949 11,369 10,682 Total securities $ 2,507,371 2,088,483 525,627 436,655 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 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 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. 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 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. Page 15 Index Note 4. Loans, Allowance for Credit Losses, and Asset Quality Information The following is a summary of the major categories of total loans outstanding: ($ in thousands) March 31, 2024 December 31, 2023 Amount Percentage Amount Percentage Commercial and industrial $ 872,623 11 % $ 905,862 11 % Construction, development & other land loans 904,216 11 % 992,980 12 % Commercial real estate - owner occupied 1,238,759 15 % 1,259,022 16 % Commercial real estate - non owner occupied 2,524,221 31 % 2,528,060 31 % Multi-family real estate 457,142 6 % 421,376 5 % Residential 1-4 family real estate 1,684,173 21 % 1,639,469 20 % Home equity loans/lines of credit 328,466 4 % 335,068 4 % Consumer loans 66,666 1 % 68,443 1 % Subtotal 8,076,266 100 % 8,150,280 100 % Unamortized net deferred loan fees 240 ( 178 ) Total loans $ 8,076,506 $ 8,150,102 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) March 31, 2024 December 31, 2023 Guaranteed portions of SBA loans included in table above $ 35,984 35,462 Unguaranteed portions of SBA loans included in table above 106,375 107,784 Total SBA loans included in the table above $ 142,359 143,246 Sold portions of SBA loans with servicing retained - not included in tables above $ 344,115 349,275 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 ("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) March 31, 2024 December 31, 2023 Nonaccrual loans $ 35,622 32,208 Modifications to borrowers in financial distress 10,999 11,719 Total nonperforming loans 46,621 43,927 Foreclosed real estate 926 862 Total nonperforming assets $ 47,547 44,789 Page 16 Index 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 Commercial and industrial $ 544 12,157 12,701 Construction, development & other land loans — 61 61 Commercial real estate - owner occupied 879 8,089 8,968 Commercial real estate - non owner occupied 1,890 5,042 6,932 Residential 1-4 family real estate 1,035 3,462 4,497 Home equity loans/lines of credit 525 1,787 2,312 Consumer loans — 151 151 Total $ 4,873 30,749 35,622 The following table is a summary of the Company’s nonaccrual loans by major categories as of December 31, 2023: ($ in thousands) Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Commercial and industrial $ 944 8,932 9,876 Construction, development & other land loans — 399 399 Commercial real estate - owner occupied 960 6,082 7,042 Commercial real estate - non owner occupied 6,121 1,082 7,203 Residential 1-4 family real estate — 4,843 4,843 Home equity loans/lines of credit 534 2,169 2,703 Consumer loans — 142 142 Total $ 8,559 23,649 32,208 There was no interest income recognized during the periods presented on nonaccrual loans. The Company follows its nonaccrual policy of reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. The following table represents the accrued interest receivables written off by reversing interest income during each period indicated: ($ 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 Construction, development & other land loans — 10 — Commercial real estate - owner occupied 148 124 11 Commercial real estate - non owner occupied — 186 5 Residential 1-4 family real estate 29 38 8 Home equity loans/lines of credit 7 57 9 Consumer loans — 2 — Total $ 400 642 156 Page 17 Index The following table presents an analysis of the payment status of the Company’s loans as of March 31, 2024: ($ in thousands) Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Nonaccrual Loans Accruing Current Total Loans Receivable Commercial and industrial $ 1,850 257 12,701 857,815 872,623 Construction, development & other land loans 388 — 61 903,767 904,216 Commercial real estate - owner occupied 1,055 — 8,968 1,228,736 1,238,759 Commercial real estate - non owner occupied 6,944 95 6,932 2,510,250 2,524,221 Multi-family real estate — — — 457,142 457,142 Residential 1-4 family real estate 15,682 — 4,497 1,663,994 1,684,173 Home equity loans/lines of credit 696 222 2,312 325,236 328,466 Consumer loans 182 66 151 66,267 66,666 Total $ 26,797 640 35,622 8,013,207 8,076,266 Unamortized net deferred loan fees 240 Total loans 8,076,506 The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2023: ($ in thousands) Accruing 30-59 Days Past Due Accruing 60-89 Days Past Due Nonaccrual Loans Accruing Current Total Loans Receivable Commercial and industrial $ 3,726 257 9,876 892,003 905,862 Construction, development & other land loans 241 256 399 992,084 992,980 Commercial real estate - owner occupied 906 404 7,042 1,250,670 1,259,022 Commercial real estate - non owner occupied 361 — 7,203 2,520,496 2,528,060 Multi-family real estate — — — 421,376 421,376 Residential 1-4 family real estate 18,868 3,401 4,843 1,612,357 1,639,469 Home equity loans/lines of credit 603 349 2,703 331,413 335,068 Consumer loans 270 131 142 67,900 68,443 Total $ 24,975 4,798 32,208 8,088,299 8,150,280 Unamortized net deferred loan fees ( 178 ) Total loans 8,150,102 Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans on nonaccrual with a net book balance of $ 500,000 or greater for designation as collateral dependent loans, as well as certain other loans that may still be accruing interest and/or are less than $ 500,000 in size that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the ACL. The following table presents an analysis of collateral dependent loans of the Company as of 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 Total $ 1,560 1,141 27,541 30,242 Page 18 Index The following table presents an analysis of collateral dependent loans of the Company as of December 31, 2023: ($ in thousands) Residential Property Business Assets Commercial Property Total Collateral-Dependent Loans Commercial and industrial $ — 2,385 — 2,385 Commercial real estate - owner occupied — — 1,142 1,142 Commercial real estate - non owner occupied — — 6,121 6,121 Home equity loans/lines of credit 534 — — 534 Total $ 534 2,385 7,263 10,182 Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the ACL based on the fair value of collateral. The ACL is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. The Company's policy is to obtain third-party appraisals on any significant pieces of collateral. For loans secured by real estate, the Company's policy is to write nonaccrual loans down to 90 % of the appraised value, which considers estimated selling costs that are usually incurred when disposing of real estate collateral. For real estate collateral that is in industries which may be undergoing heightened stress due to economic or other external factors, the Company may reduce the collateral values by an additional 10 - 25 % of appraised value to recognize additional 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 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. 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 three months ended March 31, 2024 Commercial and industrial $ 21,227 ( 1,585 ) 243 409 20,294 Construction, development & other land loans 13,940 ( 79 ) 97 ( 2,175 ) 11,783 Commercial real estate - owner occupied 18,218 ( 58 ) 4 ( 1 ) 18,163 Commercial real estate - non owner occupied 24,916 ( 158 ) 2 1,492 26,252 Multi-family real estate 3,825 — — 597 4,422 Residential 1-4 family real estate 21,396 — 121 1,187 22,704 Home equity loans/lines of credit 3,339 — 5 ( 8 ) 3,336 Consumer loans 2,992 ( 235 ) 57 299 3,113 Total $ 109,853 ( 2,115 ) 529 1,800 110,067 Page 19 Index ($ 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 Construction, development & other land loans 15,128 49 ( 120 ) 370 ( 1,487 ) 13,940 Commercial real estate - owner occupied 14,972 191 ( 144 ) 465 2,734 18,218 Commercial real estate - non owner occupied 22,780 51 ( 235 ) 737 1,583 24,916 Multi-family real estate 2,957 — — 13 855 3,825 Residential 1-4 family real estate 11,354 113 ( 4 ) 377 9,556 21,396 Home equity loans/lines of credit 3,158 8 ( 309 ) 98 384 3,339 Consumer loans 2,900 1 ( 1,005 ) 248 848 2,992 Total $ 90,967 5,610 ( 10,175 ) 3,701 19,750 109,853 ($ 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 Construction, development & other land loans 15,128 49 — 65 3,744 18,986 Commercial real estate - owner occupied 14,972 191 — 36 883 16,082 Commercial real estate - non owner occupied 22,780 51 ( 235 ) 394 3,000 25,990 Multi-family real estate 2,957 — — 4 243 3,204 Residential 1-4 family real estate 11,354 113 — 146 672 12,285 Home equity loans/lines of credit 3,158 8 ( 2 ) 34 283 3,481 Consumer loans 2,900 1 ( 207 ) 36 565 3,295 Total $ 90,967 5,610 ( 2,621 ) 989 11,451 106,396 Page 20 Index Credit Quality Indicators The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type. The following describes the Company’s internal risk grades in ascending order of likelihood of loss: Risk Grade Description Pass: 1 Loans with virtually no risk, including cash secured loans. 2 Loans with documented significant overall financial strength. These loans have minimum chance of loss due to the presence of multiple sources of repayment – each clearly sufficient to satisfy the obligation. 3 Loans with documented satisfactory overall financial strength. These loans have a low loss potential due to presence of at least two clearly identified sources of repayment – each of which is sufficient to satisfy the obligation under the present circumstances. 4 Loans to borrowers with acceptable financial condition. These loans could have signs of minor operational weaknesses, lack of adequate financial information, or loans supported by collateral with questionable value or marketability. 5 Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management. Collateral is generally required and believed to provide reasonable coverage with realizable liquidation values in normal circumstances. Repayment performance is satisfactory. P (Pass) Consumer loans that are of satisfactory credit quality with borrowers who exhibit good personal credit history, average personal financial strength and moderate debt levels. These loans generally conform to Bank policy, but may include approved mitigated exceptions to the guidelines. Special Mention: 6 Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank. Classified: 7 An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. 8 Loans that have a well-defined weakness that make the collection or liquidation in full highly questionable and improbable. Loss appears imminent, but the exact amount and timing is uncertain. 9 Loans that are considered uncollectible and are in the process of being charged-off. This grade is a temporary grade assigned for administrative purposes until the charge-off is completed. F (Fail) Consumer loans with a well-defined weakness, such as exceptions of any kind with no mitigating factors, history of paying outside the terms of the note, insufficient income to support the current level of debt, etc. In the tables that follow, substantially all of the "Classified" loans have grades of 7 or Fail, with those categories having similar levels of risk. The tables below present the Company’s recorded investment in loans by credit quality indicators by year of origination or renewal as of the periods indicated. Acquired loans are presented in the year originated, not in the year of acquisition. Page 21 Index Term Loans by Year of Origination ($ in thousands) 2024 2023 2022 2021 2020 Prior Revolving Total As of March 31, 2024 Commercial and industrial Pass $ 25,321 106,744 143,282 99,028 79,075 110,534 287,258 851,242 Special Mention — 86 50 1,877 156 1,932 3,114 7,215 Classified 50 84 2,655 617 767 8,967 1,026 14,166 Total commercial and industrial 25,371 106,914 145,987 101,522 79,998 121,433 291,398 872,623 Gross charge-offs, YTD — — 255 — 121 215 994 1,585 Construction, development & other land loans Pass 32,667 317,237 292,169 91,160 29,049 58,583 77,377 898,242 Special Mention — 377 891 — 158 3,931 16 5,373 Classified 1 — 390 — 67 143 — 601 Total construction, development & other land loans 32,668 317,614 293,450 91,160 29,274 62,657 77,393 904,216 Gross charge-offs, YTD — 79 — — — — — 79 Commercial real estate - owner occupied Pass 14,382 136,686 234,302 247,327 186,254 367,230 15,762 1,201,943 Special Mention — 740 3,939 4,454 296 12,373 — 21,802 Classified — 73 1,477 1,549 1,206 10,652 57 15,014 Total commercial real estate - owner occupied 14,382 137,499 239,718 253,330 187,756 390,255 15,819 1,238,759 Gross charge-offs, YTD — — — — — 58 — 58 Commercial real estate - non owner occupied Pass 18,100 223,154 615,013 703,015 304,502 605,654 28,277 2,497,715 Special Mention — — 161 — — 17,805 1,450 19,416 Classified — — — 658 4,233 2,199 — 7,090 Total commercial real estate - non owner occupied 18,100 223,154 615,174 703,673 308,735 625,658 29,727 2,524,221 Gross charge-offs, YTD — — — — — 158 — 158 Multi-family real estate Pass 8,262 25,784 118,826 168,105 65,299 46,319 23,876 456,471 Special Mention — — — — — 671 — 671 Classified — — — — — — — — Total multi-family real estate 8,262 25,784 118,826 168,105 65,299 46,990 23,876 457,142 Gross charge-offs, YTD — — — — — — — — Residential 1-4 family real estate Pass 91,863 275,322 417,272 302,005 179,607 404,016 3,171 1,673,256 Special Mention — — — 31 63 1,471 — 1,565 Classified 262 — — 462 1,194 7,434 — 9,352 Total residential 1-4 family real estate 92,125 275,322 417,272 302,498 180,864 412,921 3,171 1,684,173 Gross charge-offs, YTD — — — — — — — — Home equity loans/lines of credit Pass 233 2,481 833 533 290 2,614 313,602 320,586 Special Mention — — — 122 — 165 17 304 Classified — — — 93 91 285 7,107 7,576 Total home equity loans/lines of credit 233 2,481 833 748 381 3,064 320,726 328,466 Gross charge-offs, YTD — — — — — — — — Consumer loans Pass 4,366 14,673 11,269 4,156 1,833 753 29,307 66,357 Special Mention — — — — — — — — Classified 134 23 38 43 — 35 36 309 Total consumer loans 4,500 14,696 11,307 4,199 1,833 788 29,343 66,666 Gross charge-offs, YTD — 4 16 2 — — 213 235 Total loans $ 195,641 1,103,464 1,842,567 1,625,235 854,140 1,663,766 791,453 8,076,266 Unamortized net deferred loan fees 240 Total loans, net of deferred loan fees 8,076,506 Total gross charge-offs, year to date $ — 83 271 2 121 431 1,207 2,115 Page 22 Index Term Loans by Year of Origination ($ in thousands) 2023 2022 2021 2020 2019 Prior Revolving Total As of December 31, 2023 Commercial and industrial Pass $ 136,735 161,131 111,069 75,312 38,495 60,626 302,684 886,052 Special Mention 2,832 2,547 167 185 448 672 1,135 7,986 Classified 1,626 1,152 720 1,389 1,647 4,487 803 11,824 Total commercial and industrial 141,193 164,830 111,956 76,886 40,590 65,785 304,622 905,862 Gross charge-offs, YTD 171 1,036 713 537 821 1,547 3,533 8,358 Construction, development & other land loans Pass 563,998 231,450 90,374 16,662 11,598 5,816 70,852 990,750 Special Mention 489 273 59 — 2 4 19 846 Classified 657 708 — — 8 11 — 1,384 Total construction, development & other land loans 565,144 232,431 90,433 16,662 11,608 5,831 70,871 992,980 Gross charge-offs, YTD — — — — — 120 — 120 Commercial real estate - owner occupied Pass 210,449 323,852 299,135 196,343 92,452 86,784 23,198 1,232,213 Special Mention 338 2,533 271 817 5,755 2,253 — 11,967 Classified 4,456 1,505 1,721 895 2,288 3,904 73 14,842 Total commercial real estate - owner occupied 215,243 327,890 301,127 198,055 100,495 92,941 23,271 1,259,022 Gross charge-offs, YTD — — 49 — — 92 3 144 Commercial real estate - non owner occupied Pass 509,596 748,854 722,472 287,235 119,515 84,690 29,001 2,501,363 Special Mention 11,353 199 36 393 1,183 5,942 342 19,448 Classified 871 32 14 4,214 634 1,484 — 7,249 Total commercial real estate - non owner occupied 521,820 749,085 722,522 291,842 121,332 92,116 29,343 2,528,060 Gross charge-offs, YTD — — 235 — — — — 235 Multi-family real estate Pass 57,378 137,533 139,879 43,881 12,231 10,323 20,151 421,376 Special Mention — — — — — — — — Classified — — — — — — — — Total multi-family real estate 57,378 137,533 139,879 43,881 12,231 10,323 20,151 421,376 Gross charge-offs, YTD — — — — — — — — Residential 1-4 family real estate Pass 363,410 400,483 317,515 186,459 94,567 260,102 3,247 1,625,783 Special Mention 681 41 202 64 587 1,987 — 3,562 Classified 1,848 50 474 741 472 6,539 — 10,124 Total residential 1-4 family real estate 365,939 400,574 318,191 187,264 95,626 268,628 3,247 1,639,469 Gross charge-offs, YTD — — — — — 4 — 4 Home equity loans/lines of credit Pass 2,830 1,136 1,141 223 499 1,233 319,199 326,261 Special Mention 163 — 122 — — — 18 303 Classified 255 — 146 91 112 10 7,890 8,504 Total home equity loans/lines of credit 3,248 1,136 1,409 314 611 1,243 327,107 335,068 Gross charge-offs, YTD — — — — — — 309 309 Consumer loans Pass 16,497 12,906 4,999 2,173 432 429 30,757 68,193 Special Mention — — — — — — — — Classified 130 7 45 — 3 34 31 250 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 Unamortized net deferred loan fees ( 178 ) Total loans, net of deferred loan fees 8,150,102 Total gross charge-offs, year to date $ 205 1,115 1,070 560 821 1,764 4,640 10,175 Page 23 Index Loan Modifications to Borrowers Experiencing Financial Difficulty Occasionally, the Company modifies loans to borrowers in financial distress as a part of our loss mitigation activities. Various types of modification may be offered including principal forgiveness, term extension, payment delays, or interest rate reductions. In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession may be granted. For loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The followings tables present the amortized cost basis at 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 % Commercial real estate - non owner occupied — 115 — — 115 — % Home equity loans/lines of credit — 47 — 179 226 0.07 % Total $ 114 162 878 179 1,333 0.02 % ($ 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 - non owner occupied — 104 — 104 — % Residential 1-4 family real estate — 48 — 48 — % Home equity loans/lines of credit — 103 — 103 0.03 % Consumer loans — 228 — 228 0.34 % Total $ 156 2,055 14 2,225 0.03 % 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 Weighted Average Interest Rate Reduction Weighted Average Payment Delay (in months) Weighted Average Term Extension (in months) 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 Page 24 Index 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 (in months) 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 - non owner occupied — % 0 12 Residential 1-4 family real estate — % 0 14 Home equity loans/lines of credit — % 0 46 Consumer loans — % 0 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 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 — — Construction, development & other land loans 131 — — — Commercial real estate - owner occupied 4,378 — — — Commercial real estate - non owner occupied 115 — — — Residential 1-4 family real estate 595 76 — — Home equity loans/lines of credit 3,111 — — — Consumer loans 3 — — — $ 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) ($ in thousands) Current 30-59 Days Past Due 60-89 Days Past Due 90+ Days Past Due Commercial and industrial $ 2,841 — — — Construction, development & other land loans 362 — — — Commercial real estate - owner occupied 4,455 — — — Commercial real estate - non owner occupied 206 — — — Residential 1-4 family real estate 656 79 — — Home equity loans/lines of credit 3,114 — — — Consumer loans 6 — — — $ 11,640 79 — — 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. Page 25 Index Concentration of Credit Risk Most of the Company's business activity is with customers located within the markets where it has banking operations. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy within its markets. Approximately 88 % of the Company's loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations. There have been no material changes to the primary loan markets (as identified by counties) from year end. Allowance for Unfunded Loan Commitments In addition to the ACL on loans, the Company maintains an allowance for lending-related commitments such as unfunded loan commitments and letters of credit. The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for lending-related commitments on off-balance sheet credit exposures is adjusted as a provision for unfunded commitments expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the ACL on loans. The allowance for unfunded loan commitments of $ 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 Initial provision for credit losses on unfunded commitments acquired from GrandSouth — 1,921 1,921 Charge-offs — — — Recoveries — — — Reversal of provision for unfunded commitments ( 601 ) ( 3,858 ) ( 870 ) Ending balance $ 10,768 11,369 14,357 Allowance for Credit Losses - Securities Held to Maturity The ACL for securities held to maturity was insignificant at March 31, 2024 and December 31, 2023. Note 5. 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 Amount Accumulated Amortization Net Amount Gross Carrying Amount Accumulated Amortization Net Amount Amortizable intangible assets: Customer lists $ 2,700 2,247 453 2,700 2,167 533 Core deposit intangibles 57,890 30,605 27,285 57,890 28,932 28,958 Other intangibles 100 89 11 100 83 17 Intangibles before servicing assets 60,690 32,941 27,749 60,690 31,182 29,508 SBA servicing assets 14,190 11,053 3,137 13,966 10,616 3,350 Total amortizable intangible assets $ 74,880 43,994 30,886 74,656 41,798 32,858 Unamortizable intangible assets: Goodwill $ 478,750 478,750 Page 26 Index 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 $ 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, 2024 2023 Beginning balance, net $ 3,350 4,004 Add: New servicing assets 224 77 Less: Amortization expense and impairment charges 437 184 Ending balance, net $ 3,137 3,897 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 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. 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. These amounts will be recorded as "Intangibles amortization expense" within the noninterest expense section of the consolidated statements of income. These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortized intangible assets. ($ in thousands) Estimated Amortization Expense April 1, 2024 to December 31, 2024 $ 4,844 2025 5,672 2026 4,705 2027 3,951 2028 3,197 Thereafter 5,380 Total $ 27,749 Page 27 Index Note 6. Borrowings 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 FHLB Principal Reducing Credit 7/17/2028 None 29 0.00 % fixed FHLB Principal Reducing Credit 8/18/2028 None 148 1.00 % fixed FHLB Principal Reducing Credit 8/22/2028 None 149 1.00 % fixed FHLB Principal Reducing Credit 12/20/2028 None 312 0.50 % 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 8.23 % 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 8.33 % 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 7.74 % 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 7.58 % 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 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 March 31, 2024 337,162 5.56 % Unamortized discount on acquired borrowings ( 4,827 ) Total borrowings $ 332,335 Page 28 Index Description Due date Call Feature Balance at December 31, 2023 Interest Rate FHLB Principal Reducing Credit 6/26/2028 None $ 203 0.25 % fixed FHLB Principal Reducing Credit 7/17/2028 None 31 0.00 % fixed FHLB Principal Reducing Credit 8/18/2028 None 151 1.00 % fixed FHLB Principal Reducing Credit 8/22/2028 None 151 1.00 % fixed FHLB Principal Reducing Credit 12/20/2028 None 315 0.50 % fixed FHLB Fixed Rate Credit 1/16/2024 None 80,000 5.59 % fixed FHLB Fixed Rate Credit 2/27/2024 None 100,000 5.61 % fixed 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 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 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 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 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 6/15/2011 25,774 7.04 % at 12/31/23 adjustable rate 3 month CME Term SOFR + 1.65 % Trust Preferred Securities 6/23/2036 Quarterly by Company beginning 6/23/2011 8,248 7.47 % at 12/31/23 adjustable rate 3 month CME Term SOFR + 2.11 % Subordinated Debentures 11/30/2028 Continuous by Company beginning 11/30/2023 10,000 9.09 % at 12/31/23 adjustable rate 3 month CME Term SOFR + 3.69 % Subordinated Debentures 11/15/2030 Continuous by Company beginning 11/15/2025 18,000 4.38 % fixed Total borrowings / weighted average rate as of December 31, 2023 635,175 5.57 % Unamortized discount on acquired borrowings ( 5,017 ) Total borrowings $ 630,158 Note 7. Leases The Company enters into leases in the normal course of business. 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. 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. As permitted by applicable accounting standards, the Company has elected not to recognize leases with original lease terms of twelve months or less (short-term leases) on the Company's consolidated balance sheets. The short-term lease cost for each period presented was insignificant. Leases are classified as either operating or finance leases at the lease commencement date and 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. Page 29 Index 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 3.22 % 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) April 1, 2024 to December 31, 2024 $ 1,813 2025 1,914 2026 1,633 2027 1,359 2028 1,267 Thereafter 17,222 Total undiscounted lease payments 25,208 Less effect of discounting ( 7,865 ) Present value of estimated lease payments (lease liability) $ 17,343 Note 8. 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: Three Months Ended March 31, 2024 ($ in thousands) SERP Service cost $ — Interest cost 38 Expected return on plan assets — Amortization of net loss 25 Net periodic pension cost $ 63 Page 30 Index Three Months Ended March 31, 2023 ($ in thousands) Pension Plan SERP Total Both Plans Service cost $ — — — Interest cost 267 28 295 Expected return on plan assets ( 288 ) — ( 288 ) Amortization of net loss (gain) 180 ( 136 ) 44 Net periodic pension cost $ 159 ( 108 ) 51 The service cost component of net periodic pension cost is included in salaries and benefits expense and all other components of net periodic pension cost are included in other noninterest expense. The Company’s funding policy with respect to the SERP is to fund the related benefits from the operating cash flow of the Company. Note 9. 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. There are three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at March 31, 2024: ($ in thousands) Description of Financial Instruments Fair Value at March 31, 2024 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Recurring Securities available for sale: U.S. Treasury $ 123,770 — 123,770 — Government-sponsored enterprise securities 59,959 — 59,959 — Mortgage-backed securities 1,886,949 — 1,886,949 — Corporate bonds 17,805 — 17,805 — 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 — Nonrecurring Individually evaluated loans $ 4,638 — — 4,638 Page 31 Index The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2023: ($ in thousands) Description of Financial Instruments Fair Value at December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Recurring Securities available for sale: US Treasury securities $ 172,570 — 172,570 — Government-sponsored enterprise securities 60,266 — 60,266 — Mortgage-backed securities 1,937,784 — 1,937,784 — Corporate bonds 18,759 — 18,759 — 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 — Nonrecurring Individually evaluated loans $ 1,953 — — 1,953 The following is a description of the valuation methodologies used for financial instruments measured at fair value. Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by the Company's third-party bond accounting provider using matrix pricing. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. For the Company, Level 2 securities include mortgage-backed securities, commercial mortgage-backed obligations, government-sponsored enterprise securities, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities 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. The vast majority of the collateral is real estate. The value of real estate collateral is generally determined by third-party appraisers using an income or market valuation approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3). The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower’s financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the loans Page 32 Index 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. 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 Inputs Range (Weighted Average) 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 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 Technique Significant Unobservable Inputs Range (Weighted Average) Individually evaluated loans - collateral-dependent $ 1,953 Appraised value Discounts applied for estimated costs to sell 10 % In the above tables, weighted average discounts were calculated on relative fair value for underlying loans based on the range of discount rates applied. The discount applied for estimated costs to sell collateral on individually evaluated loans was 10%. The carrying amounts and estimated fair values of financial instruments not carried at fair value at March 31, 2024 and December 31, 2023 were as follows: March 31, 2024 December 31, 2023 ($ in thousands) Level in Fair Value Hierarchy Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Cash and due from banks, noninterest-bearing Level 1 $ 87,181 87,181 100,891 100,891 Due from banks, interest-bearing Level 1 266,661 266,661 136,964 136,964 Securities held to maturity Level 2 525,627 436,655 533,678 449,623 Total loans, net of allowance Level 3 7,966,439 7,198,019 8,040,249 7,379,079 Accrued interest receivable Level 1 35,147 35,147 37,351 37,351 Bank-owned life insurance Level 1 185,061 185,061 183,897 183,897 SBA Servicing Asset Level 3 3,137 3,984 3,351 4,049 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 Accrued interest payable Level 1 9,847 9,847 5,699 5,699 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as deferred income taxes, prepaid expense Page 33 Index accounts, income taxes currently payable, and other various accrued expenses. In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. Note 10. Stock-Based Compensation The Company recorded total stock-based compensation expense of $ 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 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 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 Number of Units Weighted-Average Grant-Date Fair Value Nonvested at January 1, 2024 291,291 $ 38.01 Granted during the period 13,905 35.26 Vested during the period ( 10,614 ) 41.62 Forfeited or expired during the period — — 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 Page 34 Index 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. Note 11. Earnings Per Share The following is a reconciliation of the numerators and denominators used in computing Basic and Diluted Earnings Per Common Share ("EPS"): For the Three Months Ended March 31, 2024 2023 ($ in thousands except per share amounts) Income (Numerator) Shares (Denominator) Per Share Amount Income (Numerator) Shares (Denominator) Per Share Amount Basic EPS: Net income $ 25,272 $ 15,161 Less: income allocated to restricted stock ( 178 ) ( 109 ) Basic EPS per common share $ 25,094 40,843,865 $ 0.61 $ 15,052 40,583,417 $ 0.37 Diluted EPS: Net income $ 25,272 40,843,865 $ 15,161 40,583,417 Effect of dilutive securities — 405,771 — 529,275 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) The components of accumulated other comprehensive income (loss) ("AOCI") for the Company are as follows: ($ in thousands) March 31, 2024 December 31, 2023 Unrealized loss on securities available for sale $ ( 418,888 ) ( 400,720 ) Deferred tax asset 96,973 92,767 Net unrealized loss on securities available for sale ( 321,915 ) ( 307,953 ) Postretirement plans liability ( 75 ) ( 100 ) Deferred tax asset 17 23 Net postretirement plans liability ( 58 ) ( 77 ) Total accumulated other comprehensive loss $ ( 321,973 ) ( 308,030 ) 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 Securities Available for Sale Postretirement Plans Asset (Liability) Total Beginning balance $ ( 307,953 ) ( 77 ) ( 308,030 ) Other comprehensive loss before reclassifications ( 14,711 ) — ( 14,711 ) Amounts reclassified from accumulated other comprehensive income 749 19 768 Net current period other comprehensive (loss) income ( 13,962 ) 19 ( 13,943 ) Ending balance $ ( 321,915 ) ( 58 ) ( 321,973 ) Page 35 Index For the Three Months Ended March 31, 2023 ($ in thousands) Unrealized Loss on Securities Available for Sale Postretirement Plans Asset (Liability) Total Beginning balance $ ( 342,017 ) 42 ( 341,975 ) Other comprehensive income before reclassifications 27,908 — 27,908 Amounts reclassified from accumulated other comprehensive income — 33 33 Net current period other comprehensive income 27,908 33 27,941 Ending balance $ ( 314,109 ) 75 ( 314,034 ) Amounts reclassified from AOCI for unrealized gain (loss) on securities available for sale represent realized securities gains or losses, net of tax effects. There were no security sales resulting in gains or losses in any period presented. Amounts reclassified from AOCI for postretirement plans asset (liability) represent amortization of amounts included in AOCI, net of taxes, and are recorded in the "Other operating expenses" line item of the consolidated statements of income. Note 13. Revenue from Contracts with Customers All of the Company’s revenues that are in the scope of the “ Revenue from Contracts with Customers ” accounting standard (“ASC 606”) are recognized within noninterest income. The following table presents the Company’s sources of noninterest income for the three months ended March 31, 2024 and 2023. Items outside the scope of ASC 606 are noted as such. 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, commissions and fees: Bankcard interchange income, net 2,314 2,582 Other service charges and fees 1,848 3,318 Commissions from the sales of financial products 1,320 1,306 SBA consulting fees 257 521 Noninterest income (in-scope of ASC 606) 9,607 11,621 Noninterest income (out-of-scope of ASC 606) 3,331 1,915 Total noninterest income $ 12,938 13,536 A description of the Company’s revenue streams accounted for under ASC 606 is detailed below. Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Overdraft fees are recognized at the point in time that the overdraft occurs. Maintenance and activity fees include account maintenance fees and transaction-based fees. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month, 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, 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. "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 and fees" includes revenue from processing wire transfers, bill pay Page 36 Index service, cashier’s checks, ATM surcharge fees, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Commissions from the sales of financial products: The Company earns commissions from the sale of wealth management products which primarily consist of commissions received on financial product sales, such as annuities. The Company’s performance obligation is generally satisfied upon the issuance of the financial product. Shortly after the policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. The Company also earns some fees from asset management, which is billed quarterly 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 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. Page 37 Index