What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-28 · 199 added, 206 removed, 715 unchanged (36% of the section changed)

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Return on average common equity of 5.38% was reported for the year ended December 31, 2024, as compared to 8.05% for the prior year.

• Our total assets at December 31, 2023 were $12.1 billion, a 14.0% increase from a year earlier, with growth driven by the GrandSouth acquisition, combined with organic loan growth during the year.

• Total loans outstanding increased $1.5 billion, or 22.3%, during the year, which included $1.02 billion of loans acquired from GrandSouth.

• Our total assets at December 31, 2024 were $12.1 billion, a 0.3% increase from a year earlier.

• Total loans outstanding contracted by $0.1 billion, or 0.7%, during the year.

Loans totaled $8.1 billion at December 31, 2024.

• Credit quality continues to be strong with the NPA to total assets ratio at 0.37% as of December 31, 2023, as compared to 0.36% at December 31, 2022.

• Credit quality continued to be strong with the NPA to total assets ratio at 0.39% as of December 31, 2024, as compared to 0.37% at December 31, 2023.

Net charge offs as a percentage of average loans were 0.07% for 2024, as compared to 0.08% for the prior year.

• Capital remains strong with a total CET1 ratio of 13.20%, up from 13.02% for the prior year, and total risk-based capital ratio of 15.54% as of December 31, 2023, as compared to 15.09% for the prior year.

• Capital remained strong with a total CET1 ratio of 14.35%, up from 13.20% for the prior year, and total risk-based capital ratio of 16.63% as of December 31, 2024, an increase from 15.54% for the prior year.

• We earned net income of $76.2 million, or $1.84 diluted EPS, during 2024 compared to net income of $104.1 million, or $2.53 diluted EPS, in 2023.

The main drivers to the decrease in net income were as follows:

• Net interest income increased $21.8 million, or 6.7%, driven by higher interest income offset by increased interest expense.

As noted below, 2024 results were dampened by a $13 million provision related to potential exposures from Hurricane Helene and a $36.8 million securities loss transaction that took place during the fourth quarter of 2024.

See the following for discussion of changes to net income:

• Net interest income for 2024 decreased $14.6 million, or 4.2%, driven by increased interest expense offset by higher interest income.

The NIM on a tax-equivalent basis was 2.91% for 2024, a decrease of 15 basis points from the prior year.

Despite the growth in average earning assets, the market-driven increase in rates on liabilities occurred at a more rapid pace that the increase in yields on assets which resulted in the reduction in NIM for 2023.

Despite the growth in average earning assets, the market-driven increase in rates on liabilities in the first half of 2024 occurred at a more rapid pace than the increase in yields on assets which resulted in the reduction in NIM for 2024.

• Total interest income increased $30.3 million in 2024 as compared to 2023, driven by higher interest income on loans of $22.3 million related to a combination of higher volumes of average balances and increased yields.

• The increase in interest expense of $126.0 million was driven by higher market rates which resulted in repricing of our deposits.

Also contributing to higher interest expense was the utilization of short-term borrowings to fund loan demand and deposit fluctuations and rate increases on our variable rate trust preferred debt.

• Provision for credit losses for 2023 of $17.8 million was up from $12.4 million in 2022 due primarily to the initial provision established for acquired non-PCD loans of $12.2 million, combined with organic loan growth experienced during the year.

Offsetting these increases were updated loss rates and improved economic forecasts used in our CECL model as discussed further in the "Provision for Loan Losses" section below.

• Noninterest income declined $10.5 million, which resulted primarily from lower other gains as 2022 contained several death benefit gains on our BOLI policies, lower SBA-related revenues, including consulting fees and gains on sale, which was down $3.4 million year-over-year, and lower bankcard revenues related to the Durbin limitations effective for us in July 2022.

Interest income on other interest-earning assets, primarily overnight funds, increased $12.8 million, primarily the result of higher volumes.

• The 2024 increase in interest expense of $44.9 million was driven by higher market rates in late 2023 and the first half of 2024 which resulted in repricing of our deposits and a corresponding $57.2 million increase in interest expense, especially in money market accounts which accounted for $47.9 million of the increase.

Offsetting the increase in interest expense on deposits was a reduction in interest expense on borrowings, which fell $12.4 million, primarily a result of lower average balances of borrowings outstanding.

• Provision for credit losses for 2024 of $16.4 million was down from $17.8 million in 2023 due primarily to the initial provision established for acquired non-PCD loans of $12.2 million in 2023,

lower organic loan growth in 2024 and generally positive updated economic forecasts, which are a key driver in the Company's CECL model as discussed further in the "Provision for Loan Losses" section below, and a reduction in the level of unfunded commitments.

This was partially offset by the $13 million provision related to potential exposure from Hurricane Helene in 2024.

• Noninterest income declined $39.4 million in 2024, which resulted primarily from the $38.0 million securities loss, $36.8 million of which was related to a securities loss-earnback transaction that took place in the fourth quarter of 2024.

Refer to "Noninterest Income" section below for further discussion.

• Noninterest expense increased $59.2 million, primarily related to the GrandSouth acquisition completed January 1, 2023, driving higher operating expenses, including merger expenses of $13.7 million, additional branch locations and personnel, and an increased number of customer accounts and transaction volume creating additional expense.

• Noninterest expense decreased $18.8 million in 2024, primarily related to the GrandSouth acquisition completed January 1, 2023, which resulted in merger and acquisition expense of $13.7 million in 2023.

In 2024, the Company actively managed headcount and applied additional expense controls.

Refer to "Noninterest Expense" section below for further discussion.

• Income tax expense was down $10.5 million from the prior year relative to the lower pre-tax income.

The effective tax rate of 21.1% was up slightly from the prior year related to nondeductible merger expenses.

• Income tax expense was down $5.9 million from the prior year relative to lower pre-tax income.

The 2024 effective tax rate of 22.3% was up from the prior year as the result of incremental state tax-related expenses recorded in 2024 relating to prior years.

Current Economic Conditions

Since 2022, economic activity has shown continued growth with improving gross domestic product results, low unemployment and increased demand for goods and services.

Inflationary pressures continue to a certain degree, however, monetary policy actions taken by the Federal Reserve over the last eighteen months have resulted in a significantly lower inflation rate in 2023 as compared to the prior year.

While positive indicators are present, there continues to be some uncertainty in economic conditions, and as such, we could be subject to ongoing risks which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations.

Our financial position and results of operations are susceptible, among other factors, to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors, and the decline in the value of assets held by us or securing our loans.

Recent economic activity has shown resilience with generally positive domestic results, low unemployment and increased demand for goods and services.

While inflationary pressures continue, monetary policy actions taken by the Federal Reserve over the last three years have resulted in a lower inflation rate in 2024.

A mix of positive and negative economic indicators remained present at the end of 2024 and there continues to be some uncertainty in economic conditions, and as such, we could be subject to ongoing risks, which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations.

Our financial position and results of operations are susceptible, among other factors, to the ability of our loan customers to meet their loan obligations to us, the availability of our workforce, the availability of our vendors, and the volatility in the value of assets held by us or securing our loans.

We have not realized significant negative impact on our loan portfolio or asset quality to date as a result of the current economic conditions.

However, the economic pressures and uncertainties arising from the recent expansion in economic activity, increased consumer demand and rising interest rates to combat inflation have resulted in, and may continue to result in, specific changes in consumer and business spending and borrowing habits, given the higher interest rate environment, which could make it difficult to grow assets and income.

The extent to which the current economic conditions have a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including actions taken by governmental authorities response to inflationary trends and recessionary risks.

However, the economic pressures and uncertainties, increased consumer demand and recent volatility in both short-term and long-term interest rates have resulted in, and may continue to result in, specific changes in consumer and business spending and borrowing habits, given the current and expected interest rate environment, which could make it difficult to grow assets and income.

The extent to which the current economic conditions have a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including actions taken by governmental authorities in response to inflationary trends and recessionary risks.

Critical Accounting Estimates

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We have identified the determination of our ACL and related Allowance for Unfunded Commitments, as well as business combinations, related fair value measurements and goodwill determination to be the accounting areas that require the most subjective or complex judgments, estimates, and assumptions, and where changes in those judgments, estimates, and assumptions (based on new or additional information, changes in the economic climate and/or market interest rates, etc.) could have a significant effect on our financial statements.

See the "Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience" discussion in the Financial Condition section of Management's Discussion and Analysis.

Our most significant accounting policies are presented in Note 1 to the accompanying consolidated financial statements.

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Allowance for Credit Losses on Loans and Allowance for Unfunded Commitments

While management uses the best information available to establish the ACL, future adjustments to the ACL and methodology may be necessary if economic or other conditions differ substantially from the assumptions used in

making the estimates.

We perform periodic and systematic detailed reviews of the loan portfolio to identify trends and to assess the overall collectability of the portfolio.

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Accordingly, this is a highly subjective process and requires significant judgment since it is difficult to evaluate current and future economic conditions in relation to an overall credit cycle and estimate the timing and extent of loss events that are expected to occur prior to end of a loan’s estimated life.

Our ACL is assessed at each balance sheet date and adjustments are recorded in the provision for loan losses on the consolidated statements of income.

Our ACL is assessed at each quarterly balance sheet date and adjustments are recorded in the provision for loan losses on the consolidated statements of income.

There are many factors affecting the ACL, some of which are quantitative, while others require qualitative judgment.

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Due to the inherent uncertainty in the macroeconomic forecasts, we evaluate a baseline scenario quarterly, as well as upside or downside macroeconomic scenarios to assess the most reasonable scenario based on review of the variable forecasts for each scenario, comparison to expectations, and sensitivity of variations in each scenario.

The most significant variable in the economic forecasts is the national unemployment rate and changes in unemployment forecasts can have significant impact to the estimated ACL.

The most significant variable in the economic forecasts is the national unemployment rate (which has remained relatively stable), and changes in unemployment forecasts can have significant impact to the estimated ACL.

Other economic variables include national GDP, the national commercial real estate pricing index and the national home price index.

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The methodology is based on a loss rate approach that starts with the probability of funding based on historical experience.

Similar to the methodology discussed above related to the loans receivable portfolio, adjustments are made to the historical losses for current conditions and reasonable and supportable forecasts.

Similar to the methodology discussed above

related to the loans receivable portfolio, adjustments are made to the historical losses for current conditions and reasonable and supportable forecasts.

Additional information on the loan portfolio and ACL can be found in the sections of this Item 7 titled “Nonperforming Assets” and “Allowance for Credit Losses and Loan Loss Experience” below.

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We believe that the accounting for goodwill also involves a higher degree of judgment than most other significant accounting policies.

Goodwill arising from business combinations represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed.

value of the liabilities assumed.

Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired.

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At each reporting date between annual goodwill impairment tests, we consider potential indicators of impairment.

Generally, absent potential

impairment indicators, we perform an annual assessment of whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value.

Generally, absent potential impairment indicators, we perform an annual assessment of whether the events and circumstances resulted in it being more likely than not that the fair value of any reporting unit was less than its carrying value.

Impairment indicators considered include the condition of the economy and banking industry;

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Net interest income is also influenced by external factors such as local economic conditions, competition for loans and deposits, and market interest rates.

Net interest income amounted to $346.7 million in 2023, an increase of $21.8 million, or 6.7%, from the $324.9 million in 2022.

The increase was due primarily to the increase in average earnings assets from both organic growth and the GrandSouth acquisition completed in January 2023 which contributed $1.02 billion in total loans.

For 2023, average interest-earning assets increased $1.4 billion, or 14.5%, including growth of $1.6 billion in average loans, partially offset by lower average securities.

Offsetting the higher net interest income related to the increase in average earning assets was the compression of our NIM which, on a tax-equivalent basis, declined to 3.06% in 2023 from 3.28% in 2022.

Net interest income amounted to $332.3 million in 2024, a decrease of $14.6 million, or 4.2%, from $346.8 million in 2023.

The decrease was primarily due to the increase in rates on interest-bearing deposits, specifically money market accounts, partially offset by lower interest expense on borrowings, a result of lower average balances on borrowings.

Partially offsetting the increased interest expense was increased interest income, primarily the result of higher average balances on interest-bearing assets.

Within interest-bearing assets, interest income was positively impacted by growth in the average balances of loans and other interest-earning assets, primarily overnight funds, partially offset by lower average balances on taxable securities.

In line with the lower net interest income related to the increase in the cost of interest-bearing liabilities was the compression of our NIM which, on a tax-equivalent basis, declined to 2.91% in 2024 from 3.06% in 2023.

For internal purposes, we evaluate our NIM on a tax-equivalent basis by adding the tax benefit realized from tax-exempt loans and securities to reported interest income, then dividing by total average earning assets.

We believe that analysis of NIM on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest in different periods without taking into account the different mix of taxable versus non-taxable loans and investments that may have existed during those periods.

The following is a reconciliation of reported net interest income to tax-equivalent net interest income and the resulting NIM as reported and on a tax-equivalent basis.

The following is a reconciliation of reported net interest income to tax-

equivalent net interest income and the resulting NIM as reported and on a tax-equivalent basis.

($ in thousands) Year ended December 31,

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Net interest margin, tax-equivalent 2.91 % 3.06 % 3.28 %

The decrease in our NIM was driven by the rising market interest rates as the Federal Reserve's monetary policies resulted in a 100 basis point rise in short-term rates between January and July 2023, after rates had risen 425 basis points in 2022.

The market-driven increase in rates on our liabilities occurred at a more rapid pace that the increase in yields on our assets, thus our total yield on average earning assets increased 86 basis points while our cost of

funds increased 116 basis points, driving the compression in the NIM in 2023 as compared to the prior year.

Our mix of earning assets remained fairly stable between 2022 and 2023.

Refer to the Average Balances and Net Interest Income Analysis table below for additional discussion.

Our NIM for all periods benefited from the net accretion income, primarily associated with purchase accounting premiums/discounts associated with acquisitions.

Presented in the table below is the amount of accretion which increased net interest income in each year.

Our total cost of deposits has been more impacted by the FOMC's changes in short term rates than the yield on our interest-earning assets.

The target federal funds rate peaked at 5.50% in July 2023 and remained there until beginning to decrease in September 2024, falling a total of 100 basis points by the end of 2024, helping to increase our NIM (tax-equivalent) to 3.07% in the fourth quarter of 2024 .

As shown in the chart below, our NIM (tax-equivalent) has grown 27 basis points since its recent low for the first quarter of 2024.

This NIM (tax-equivalent) expansion is the result of our yield on interest-earning assets continuing to earn at higher rates, increasing 11 basis points during the same period, while our total cost of deposits peaked in the third quarter of 2024, declining to 1.57% for the fourth quarter of 2024.

First Bancorp Comparison of Net Interest Margin (Tax-Equivalent),

Yield on Earning Assets and Total Cost of Deposits

Eight Quarters Ended December 31, 2024

Our NIM for all periods presented below benefited from the net accretion income arising from purchase accounting premiums/discounts associated with acquisitions.

Presented in the table below is the amount of accretion which increased net interest income in each year presented.

Year ended December 31,

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$ 8,938 $ 11,507 $ 5,621

Interest income - increased by accretion of loan discount on retained SBA loans

1,770 2,856 2,707

Total interest income impact 8,938 11,507 5,621

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The most significant component of the purchase accounting adjustments in each year was loan discount accretion on purchased loans.

Generally, the level of loan discount accretion will decline each year due to the natural paydowns in acquired loan portfolios.

Generally, the level of loan discount accretion will decline each year after an acquisition due to the natural reduction in the outstanding balance of acquired loans.

Alternately, levels of accretion will increase as a result of acquisitions and related additions to loan discounts on acquired portfolios which are accreted to income as experienced in 2023 with the GrandSouth acquisition.

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The GrandSouth acquired portfolio comprises the majority of the remaining unaccreted loan discount at December 31, 2024.

In addition to the loan discount accretion recorded on acquired loans, we record accretion on the discounts associated with the retained unguaranteed portions of SBA loans sold in the secondary market.

The level of SBA loan discount accretion will fluctuate relative to the SBA loan portfolio balances.

At December 31, 2023 and 2022, unaccreted loan discount on SBA loans amounted to $3.5 million and $4.3 million, respectively.

The following table presents the major components of the net interest income and NIM.

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($ in thousands) Average

Rate Interest

or Paid Average

Rate Interest

or Paid Average

Rate Interest

Volume Interest

Loans (1) (2)

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(1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown.

Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan fee amortization, in the amounts of $0.5 million , $3.1 million, and $9.7 million for 2023, 2022, and 2021, respectively.

(2) Includes accretion of discount on acquired and SBA loans of $13.3 million, $8.5 million, and $8.8 million in 2023, 2022, and 2021, respectively.

Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan (cost)/fee amortization, in the amounts of $(1.1) million , $0.5 million, and $3.1 million for 2024, 2023, and 2022, respectively.

(2) Includes accretion of discount on acquired loans of $8.9 million, $11.5 million, and $5.6 million in 2024, 2023, and 2022, respectively.

(3) Includes tax-equivalent adjustments of $3.0 million, $2.7 million and $2.8 million in 2024, 2023, and 2022, respectively, to reflect the federal and state tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status.

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Note - Changes attributable to both volume and rate are allocated equally between rate and volume variances.

Overall, as demonstrated in the above table, net interest income grew $21.8 million in 2023.

Higher earning asset volumes were the primary driver of the increase in net interest income which was offset by increases in rates on interest-bearing liabilities.

• For 2023, higher loan volume was the primary contributor to increased interest income, driving $78.2 million of the increase.

Higher market rates contributed to an additional $62.5 million of loan interest income.

Variable rate loans comprise approximately 19% of the loan portfolio and, accordingly, the magnitude of the impact we experience from each rate increase is limited.

• Decreases in the overall volume of average investment securities, somewhat offset by higher yields on the portfolio, resulted in decreased interest income of $1.2 million in 2023.

• Although partially offset by lower average balances, higher yields on other interest-earning assets (primarily interest-bearing cash balance) in 2023 resulted in a $8.3 million higher interest income for the year.

• The increase of $103.5 million in interest expense on deposits was driven by higher rates on accounts as we repriced deposits during the year in response to the market increases and to retain deposits to meet our funding needs, combined with higher volumes, primarily in money market deposit accounts and other time deposits.

• Higher levels of borrowings, primarily in short-term FHLB advances to fund loan demand and deposit fluctuations, resulted in an increase in borrowings interest expense of $16.1 million in 2023.

This was coupled with the higher cost of short-term advances and increases on our variable rate trust preferred securities, which added $6.4 million to interest expense for the year.

Provision for Loan Losses and Provision for Unfunded Commitments

The provision for loan losses has been determined under ASC 326 since our implementation of CECL.

The provision for loan losses represents our current estimate of life of loan credit losses in the loan portfolio and the provision for unfunded commitments represents expected losses on unfunded loan commitments that are expected to result in outstanding loan balances.

Our estimate of credit losses under CECL is determined using a complex model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and allowance for unfunded commitments, as well as the resulting provision for loan losses and provision for unfunded commitments.

Overall, as demonstrated in the above table, net interest income contracted $14.6 million in 2024.

Higher rates on interest-bearing liabilities were partially offset by higher rates on interest-earning assets and higher earning asset volumes.

• For 2024, higher market rates contributed to an additional $14.6 million of loan interest income while higher loan volume resulted in a $7.8 million increase in interest income.

Variable rate loans comprised approximately 23% of the loan portfolio at December 31, 2024, and, accordingly, the magnitude of the immediate yield impact we experience from each rate change is limited.

• Decreases in the overall volume of average investment securities, partially offset by higher yields on the portfolio, resulted in decreased interest income of $4.8 million in 2024.

• Higher volumes on other interest-earning assets (primarily interest-bearing cash balances) along with higher yields resulted in an increase in interest income of $12.8 million for the year.

• The increase of $57.2 million in interest expense on deposits was driven by higher rates on accounts as we repriced deposits during late 2023 and the start of 2024 in response to the market increases and to retain and grow deposits to meet our funding needs, combined with higher volumes, primarily in money market deposit accounts.

• Lower levels of borrowings, historically short-term FHLB advances to fund loan demand and deposit fluctuations, contributed $12.6 million to the decrease in borrowings interest expense, which, in total, decreased $12.4 million in 2024.

Provision for Credit Losses and Provision for Unfunded Commitments

The provision for credit losses is comprised of the provision for loan losses and the provision for unfunded commitments.

The provision recorded in each period represents the amount required such that the total ACL reflects the current estimate of life of loan credit losses in the loan portfolio and the allowance for unfunded commitments

reflects the current expected losses on unfunded loan commitments that are expected to result in outstanding loan balances.

Our estimate of credit losses is determined using a complex model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and allowance for unfunded commitments.

The allowance for unfunded commitments is included in "Other liabilities" in the consolidated balance sheets.

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The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined under the CECL model.

The primary contributor to the higher provision for 2023 was the one-time loan loss provision of $12.2 million recorded to establish an initial ACL for non-PCD loans acquired from GrandSouth in accordance with our CECL model.

The increase related to acquired and organic growth during the year was partially offset by updated economic forecasts and loss driver inputs to the CECL model.

The primary contributor to the lower provision in 2024 was the initial provision established for acquired non-PCD loans of $12.2 million recorded in 2023 as a result of the acquisition of GrandSouth.

The provision for loan losses for 2024 included $13 million related to potential credit exposure from Hurricane Helene.

We subscribe to a third-party service which provides quarterly macroeconomic scenarios for the United States economy.

For 2023, we utilized the baseline forecast, which incorporates an equal probability of the United States economy performing better or worse than the projection.

The economic forecasts throughout the year have projected general improvement of the economy demonstrated in lower projected unemployment rates, improved GDP, and increasing price indices for both commercial real estate and residential mortgages.

These improving economic projections translated to lower forecasted losses in our loan portfolio and, thus a lower estimated ACL, exclusive of portfolio growth.

Also under the CECL method, in 2023 we recorded a reduction in the provision for unfunded commitments of $1.9 million compared to $0.2 million for 2022.

For 2024, we continue to utilize the baseline forecast, which incorporates an equal probability of the United States economy performing better or worse than the projection.

The economic forecasts throughout the year have exhibited general stability of the economy demonstrated in relatively low unemployment rates, solid GDP, relatively stable consumer and producer price indices, and mixed results for real estate price indices for commercial and residential properties.

These improving economic projections translated to lower forecasted losses in our loan portfolio and, thus a lower estimated ACL, exclusive of portfolio growth and the reserves related to Hurricane Helene.

Also under the CECL method, in 2024 we recorded a reduction in the provision for unfunded commitments of $2.3 million compared to a reduction of $1.9 million for 2023.

Changes in the level of provision each year are generally related to fluctuations in the level of available credit lines and updated loss drivers.

Within the portions of Western North and South Carolina that were significantly impacted by Hurricane Helene, the Company identified borrowers with approximately $744 million of loans outstanding as of December 31, 2024.

The Company continues to update analyses to identify impacts from the storm and has applied increased reserve rates based upon severe economic factors to the loans in the path of Helene.

Additionally, the Company continues to evaluate the largest commercial loans in that population and applied incremental reserves to those loans that were suspected of having higher potential property damage or economic impact from the storm.

The incremental reserve for potential exposure from Hurricane Helene was $13.0 million and added 16 basis points to the Allowance for Credit Losses as of December 31, 2024.

Additional discussion of the CECL method and our asset quality and credit metrics, which impact our provision for credit losses, is provided in the "Nonperforming Assets" and "Allowance for Credit Losses and Loan Loss Experience" sections following.

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Our noninterest income amounted to $17.9 million in 2024, $57.3 million in 2023, and $67.8 million in 2022.

Management evaluates noninterest income on a non-GAAP basis that excludes items such as securities gains and losses and other gains and losses because we believe excluding those items results in a more meaningful reflection of noninterest income from regular operations.

We refer to this as "adjusted noninterest income." Adjusted noninterest income amounted to $54.8 million in 2023, $60.6 million in 2022, and $73.2 million in 2021.

A reconciliation of reported noninterest income to adjusted noninterest income is presented in the table below.

Drivers of the more significant fluctuations follow the table.

The decreased noninterest income for the year ended December 31, 2024 as compared to the same period in 2023 is a result of "Securities losses, net" in 2024 and lower "Other income, net," partially offset by increased "SBA loan sale gains." Details of the more significant components of noninterest income are presented in the table below.

For the year ended December 31, 2024, the change in "Other income, net" was related to the timing of the recognition of gain and loss from other investment activity, which does not include AFS or HTM securities.

Noninterest Income

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Other service charges - other 12,961 12,766 11,292

Fees from presold mortgage loans

1,613 2,102 10,975

Presold mortgage loan fees and gains on sale 2,292 1,613 2,102

Commissions from sales of financial products 5,270 5,503 5,195

SBA consulting fees

1,803 2,608 7,231

SBA loan sale gains

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Total noninterest income $ 17,899 $ 57,305 $ 67,824

Non-GAAP adjustments - exclude:

Securities losses, net — — 1,237

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

Adjusted noninterest income $ 54,828 60,645 73,200

Service charges on deposit accounts increased $1.3 million, or 8.2%, in 2023 as compared to 2022.

The increase in 2023 was driven by the higher number of new customers and transaction accounts generating fees from both the GrandSouth acquisition and organic growth.

Service charges on deposit accounts decreased $0.2 million, or 1.1%, in 2024 as compared to 2023.

Other service charges and fees - bankcard interchange income, net represents interchange income from debit and credit card transactions, net of associated interchange expense and amounted to $9.3 million in 2024, a 0.1% decrease from the $9.3 million in 2023.

The decrease of $5.7 million was a direct result of the Durbin Amendment limitation on debit card interchange fees becoming applicable to the Company beginning in July 2022.

The reduction in interchange rates was partially offset by higher volumes of accounts and transactions.

Other service charges and fees - other includes items such as ATM charges, wire transfer fees, safety deposit box rentals, fees from sales of personalized checks, and check cashing fees.

Also included in this category are SBA guarantee servicing fees and related servicing rights amortization which fluctuate based on the volume of and prepayment speeds on SBA loans serviced which have slowed down in the current year.

The increase in this item in 2023 of $1.7 million, or 14.6%, was due in part to the higher number of accounts and volume of transactions, combined with lower servicing right amortization expense given the current high interest rate environment.

SBA consulting fees and SBA loan sale gains both declined in 2023 primarily due to fewer third-party bank SBA clients, slower loan originations and lower premiums available on SBA loan sales given the market conditions during the year.

BOLI income increased 13.1% in 2023, primarily related to the acquisition of GrandSouth in the first quarter of 2023 which had $15.1 million in BOLI assets as of the date of acquisition.

Other service charges - other includes items such as ATM charges, wire transfer fees, safety deposit box rentals, fees from sales of personalized checks, and check cashing fees.

The increase in this item in 2024 was of $0.2 million, or 1.5%.

Securities losses, net was $38.0 million in 2024.

Of this balance, $36.8 million related to a securities loss-earnback transaction from the fourth quarter in which the Company sold $283.8 million of AFS securities bearing 1.62% at a loss of approximately $36.8 million and a purchased a total of $494.9 million in AFS securities bearing 5.21%.

Other gains, net amounted to a net gain of $1.0 million for 2024.

For 2022, the balance consisted primarily of death benefits realized on BOLI policies which were nominal in 2023.

For 2022, the balance consisted primarily of death benefits realized on BOLI policies which were nominal in 2023 and 2024.

The decline from 2023 to 2024 was primarily driven by SBA consulting fees, which declined from $2.6 million in 2022 to $0.3 million in 2024 as the Company ceased offering these services in early 2024.

Noninterest Expenses

Total noninterest expenses totaled $235.6 million, $254.4 million, and $195.2 million, for 2024, 2023, and 2022, respectively.

Management evaluates noninterest expense on a non-GAAP basis that excludes items such as merger and acquisition expense, amortization of intangible assets, and foreclosed property (gain) losses, because we believe excluding those items results in a more meaningful reflection of noninterest expense from regular operations.

We refer to this as "adjusted noninterest expense." The following table presents the primary components of noninterest expense and a reconciliation of reported noninterest expense to adjusted noninterest expense.

The primary contributors to the $18.8 million decrease for the year ended December 31, 2024 as compared to the same period in 2023 were the $13.7 million of "Merger and acquisition expenses" recorded in 2023 and the $1.9 million decrease in "Non-credit losses." For the year ended December 31, 2024, there was an overall effort by management to actively control headcount and expenses.

The following table presents the primary components of noninterest expense.

Noninterest Expenses

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($ in thousands) 2024 2023 2022

Salaries $ 114,377 96,321 86,815

Employee benefits 25,474 21,397 16,434

Salaries incentives and commissions expense $ 113,853 $ 114,377 $ 96,321

Employee benefit expense 26,169 25,474 21,397

Total personnel expense 140,022 139,851 117,718

Occupancy expense 14,963 12,796 11,528

Equipment related expenses 6,027 5,808 4,492

Occupancy and equipment expense 19,984 20,990 18,604

Credit card rewards and other bankcard expenses 6,572 5,288 1,653

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Non-credit losses 2,830 4,766 2,730

FDIC and corporate insurance costs 9,257 4,858 3,986

Other operating expenses 21,805 16,661 15,322

FDIC insurance costs 6,559 6,982 2,913

Corporate insurance costs 2,302 2,275 1,975

Merger and acquisition expenses — 13,695 5,072

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

Intangibles amortization expense 6,604 8,003 3,684

Foreclosed property (gains) losses, net (245) (150) (372)

Other operating expenses 21,359 21,805 16,631

Total noninterest expense $ 235,607 $ 254,379 $ 195,220

Non-GAAP adjustments - exclude:

Merger and acquisition expenses (13,695) (5,072) (16,845)

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

Foreclosed property (gains) losses, net 150 372 (24)

Adjusted noninterest expense $ 232,831 186,836 164,256

In general, the 30.3% increase in total noninterest expenses in 2023 as compared to 2022, was driven by the acquisition of eight GrandSouth branch locations and related branch and support personnel which resulted in higher salary and benefit expense (up $22.1 million, as compared to 2022) as well as other facilities (up $2.2 million from the prior year) and support-related costs.

The current year included merger and acquisition expenses of $13.7 million, an increase of $8.6 million from 2022, and higher intangible amortization which increased $4.3 million from the prior year, both of which were related to the GrandSouth acquisition.

While intangible amortization will continue, it is anticipated to be at a declining rate and we do not anticipate any additional merger and acquisition costs related to GrandSouth.

FDIC and corporate insurance costs increased $4.4 million in 2023 driven by the general FDIC rate increase effective January 1, 2023, combined with the acquired deposits from GrandSouth.

Non-credit losses increased $2.0 million as compared to the prior year driven by an increase in check fraud experienced in 2023.

The increase in bankcard expenses was related to higher volumes of customer accounts and transactions, combined with a 2022 rewards accrual reduction for expired benefits which resulted in lower expense in 2022 and a return to a more normal level of expense for 2023.

Also contributing to higher noninterest expense in 2023 were increases for software costs, data processing, professional fees, and advertising, as well as travel and training and franchise tax (both included in "other operating expenses") related to the GrandSouth acquisition, including the transition of new customers and higher account and transactions volumes.

Noninterest expenses decreased 7.4% from 2023 to 2024.

The decrease was driven by the merger and acquisition expenses of $13.7 million recorded in 2023 related to the acquisition of GrandSouth along with other elevated expenses from the acquisition.

Non-credit losses decreased $1.9 million as compared to the prior year driven by the implementation of additional measures to detect and prevent losses that led to a decrease in check fraud losses for 2024.

Impacting noninterest expense in 2023 were increases for software costs related to the GrandSouth acquisition, including the transition of new customers.

These costs did not continue in 2024.

Occupancy and equipment expense in 2023 included elevated expenses related to building repairs and maintenance.

Offsetting the previously discussed decreases in noninterest expenses, was the increase in credit card rewards and other bankcard expenses, which were related to higher volumes of customer accounts and transactions.

We recorded income tax expense of $21.9 million in 2024, $27.8 million in 2023, and $38.3 million in 2022.

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The slight increase in effective tax rate for 2023 was attributable primarily to merger and acquisition expenses recorded resulting in non-deductible adjustments for tax purposes.

The higher effective tax rate for 2024 was attributable primarily to incremental state tax-related expense related to prior years, changes in state tax income apportionment, and the negative impact of decreasing deferred tax assets related to the North Carolina corporate income tax reduction effective January 1, 2025 and for future years.

ANALYSIS OF FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION

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The diversity of the economic bases of our market areas has historically provided a stable lending environment.

Total loans amounted to $8.2 billion at December 31, 2023, an increase of $1.5 billion, or 22.3%, from December 31, 2022.

The GrandSouth acquisition was completed on January 1, 2023 and contributed $1.02 billion in loans.

The acquired loan portfolio mix was similar in nature to our portfolio mix.

Loan growth for the year was as follows:

($ in thousands)

Loans at December 31, 2022 $ 6,665,145

Organic loan growth 464,883

Growth from acquisition 1,020,074

Loans at December 31, 2023 $ 8,150,102

Organic loan growth percentage 7.0 %

Total loan growth percentage 22.3 %

Total loans amounted to $8.1 billion at December 31, 2024, a decrease of $55.4 million, or 0.7%, from December 31, 2023.

The following table provides a summary of the loan portfolio composition at each of the past five year ends.

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The largest component of our portfolio is non-owner occupied commercial real estate loans, followed by residential 1-4 family real estate and owner occupied commercial real estate loans.

As demonstrated in the table above, while there has been some variations in the relative percentage of each loan category to the total portfolio over the years, the nature of our portfolio has not changed drastically from the prior year or the historical averages.

percentage for commercial and industrial loan category in 2020 was an anomaly related to Paycheck Protection Program ("PPP") loans made under the provisions of the CARES Act, which were forgiven in accordance with the PPP loan provisions starting in late 2020 and through early 2022.

The percentage of residential real estate loans has declined somewhat over the last several years as consumers refinanced their home loans during the lower interest rate environment from 2020 through early 2022 and the Bank was able to sell more of these loans in the secondary market.

With the increase in interest rates starting in 2022, the refinance activity slowed and the Bank retained more loans in this category on the balance sheet.

As demonstrated in the table above, while there have been some variations in the relative percentage of each loan category to the total portfolio over the years, the nature of our portfolio has not changed drastically from the prior year or the historical averages.

The higher percentage for commercial and industrial loan category in 2020 was an anomaly related to PPP loans made under the provisions of the CARES Act, which were forgiven in accordance with the PPP loan provisions starting in late 2020 and through early 2022.

A summary of scheduled loan maturities, based on contractual maturity dates, over certain time periods is presented below, with fixed rate loans and adjustable rate loans shown separately.

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As of December 31, 2024, the percentages of variable rate loans and fixed rate loans as compared to total performing loans were 23% and 77%, respectively.

In recent years, the mix of variable rate loans to fixed rate loans has been shifting to more fixed rate loans given the low interest rate environment prior to mid-2022 and borrowers' preference to lock in low rates.

While fixed rate loans present risk to our Company, in particular in rising interest rate environment as we have experienced starting in 2022 and into 2023, we measure our interest rate risk closely.

During 2024, the Company continued to focus on shifting more loans to variable rates as the mix was 19% variable and 81% fixed at December 31, 2023.

While fixed rate loans present market interest rate risk, we measure our interest rate risk closely.

Refer to additional discussion in the section “Interest Rate Risk” below.

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Approximately 88% of our loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations.

The following tables provides a summary of the outstanding balances of the commercial real estate-owner occupied, commercial real estate-non owner occupied and multi-family real estate loan portfolio compositions at December 31, 2024 by geographic region.

($ in thousands) Commercial real estate - owner occupied Commercial real estate - non owner occupied Multi-family real estate Total

Charlotte, NC $ 79,605 $ 429,889 $ 55,139 $ 564,633

Piedmont Triad, NC 103,071 266,487 24,056 393,614

Research Triangle, NC 105,488 358,053 45,276 508,817

Wilmington, NC 121,805 233,196 76,481 431,482

Asheville, NC 62,520 204,189 18,698 285,407

Other areas in NC 476,594 664,105 186,496 1,327,195

Greenville-Spartanburg, SC 65,824 79,395 2,743 147,962

Columbia, SC 10,645 37,535 7,282 55,462

Charleston, SC 64,469 109,007 56,981 230,457

Other areas in SC 80,264 140,394 17,093 237,751

Other states 78,527 103,304 16,162 197,993

Total $ 1,248,812 $ 2,625,554 $ 506,407 $ 4,380,773

As noted above and described in the Item 1.

Business section, we do not have concentrations geographically or by CRE category.

Nonperforming Assets

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As a matter of policy, we generally place all loans that are past due 90 or more days on nonaccrual basis.

There were no accruing loans that are past due 90 or more days at December 31, 2023 and December 31, 2022.

There were no accruing loans that were past due 90 or more days at December 31, 2024 and December 31, 2023.

In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the originally contracted terms.

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Additional discussion of the credit quality classification status of our loans is contained in Note 4 to our consolidated financial statements.

"Commercial and industrial" is the largest category of nonaccrual loans, at $9.9 million, or 30.7% of total nonaccrual loans, followed by "Commercial real estate - non owner occupied" at $7.2 million, or 22.4% of total nonaccrual loans and "Commercial real estate - owner occupied" at $7.0 million, or 21.9% of total nonaccrual loans.

"Commercial and industrial" is the largest category of nonaccrual loans, at $9.8 million, or 30.9% of total nonaccrual loans, followed by "Residential 1-4 family real estate" at $9.5 million, or 29.9% of total nonaccrual loans and "Commercial real estate - owner occupied" at $9.4 million, or 29.5% of total nonaccrual loans.

As of December 31, 2024, SBA loans accounted for approximately $15.5 million of our nonaccrual loans, or 11.4%, of the total SBA portfolio, and carried guarantees from the SBA totaling $7.4 million.

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Refer to additional discussion of the ACL below.

As shown in Note 4 to the consolidated financial statements, our accruing past due loans (30 or more days) totaled $29.8 million at December 31, 2023, with the majority (74.8%) being in the residential 1-4 family real estate category with the increase related primarily to the timing of year end over a weekend.

As shown in Note 4 to the consolidated financial statements, our accruing past due loans (30 or more days) totaled $38.0 million at December 31, 2024, with the majority (52.8%) being in the residential 1-4 family real estate category.

We classify loans as “special mention” when there is a defined weakness or weaknesses that jeopardize the repayment by the borrower and there is a distinct possibility that we could sustain some loss if the deficiency is not corrected.

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In addition, loans that are in the risk category of "classified" which are still accruing interest totaled $34.0 million at December 31, 2024 and $22.0 million at December 31, 2023.

These loans have a great risk of further deterioration and potential loss to the Bank.

These loans have a risk of further deterioration and potential loss to the Bank.

Total foreclosed real estate amounted to $5.0 million at December 31, 2024, compared to $0.9 million in 2023.

Six property were added to foreclosed real estate during 2023 and we completed the sale of six properties during the year.

Four of the 2023 additions were within the population that sold in 2023.

Allowance for Credit Losses and Loan Loss Experience

The total allowance for credit losses amounted to $109.9 million at December 31, 2023 compared to $91.0 million at December 31, 2022.

Nine properties were added to foreclosed real estate during 2024 and we completed the sale of five properties during the year.

Two of the 2024 additions were within the population that sold in 2024.

Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience

The total ACL amounted to $122.6 million at December 31, 2024 compared to $109.9 million at December 31, 2023.

Fluctuations in the ACL 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.

As discussed previously in the Provision for Loan Losses section, much of the change to the level of ACL during the year ended December 31, 2023 is attributed to the acquisition of GrandSouth.

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

The balance of the change was a result of loan growth during the year and updated prepayment speed estimates in the CECL model, which have slowed with market rate increases, thus requiring additional allowance for the estimated longer life of loans.

Somewhat offsetting the prepayment speed assumptions in the CECL model were updated economic forecasts which have generally projected improvement of the economy demonstrated in lower projected unemployment rates, improved GDP, and increasing price indices for both commercial real estate and residential mortgages.

As discussed previously in the "Provision for Credit Losses and Provision for Unfunded Commitments" section, much of the change to the level of ACL during the year ended December 31, 2024 resulted from the provision of $13.0 million related to potential impact from Hurricane Helene.

The ACL as a percent of loans at December 31, 2024 was 1.51%, 16 basis points of which was attributable to the potential impact from Hurricane Helene.

Within the portions of Western North and South Carolina that were significantly impacted by Hurricane Helene, the Company identified borrowers with approximately $744 million of loans outstanding.

The following is a summary of the categories of those loans outstanding as of December 31, 2024:

($ in thousands) Balance

Commercial and industrial $ 10,543

Construction, development & other land loans 24,891

Commercial real estate - owner occupied 96,412

Commercial real estate - non owner occupied 287,076

Multi-family real estate 25,424

Residential 1-4 family real estate 262,166

Home equity loans/lines of credit 37,472

Consumer loans —

Total $ 743,984

The Company continues to update analyses to identify impacts from the storm and has applied increased reserve rates based upon severe economic factors to the loans in the path of Helene.

The ACL reflects our estimate of life of loan expected credit losses that will result from the inability of our borrowers to make required loan payments.

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The allocation of the ACL as presented in the following table is based on reasonable and supportable forecasts, historical data, subjective judgment, and estimates and therefore, may not be predictive of the specific amounts or loan categories in which charge-offs may ultimately occur.

In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require adjustments to the provision for loan losses in future periods if, in their opinion, the results of their review warrant such additions.

In addition, bank regulatory authorities, as part of their periodic examination of the

Bank, may require adjustments to the provision for loan losses in future periods if, in their opinion, the results of their review warrant such additions.

The following table sets forth the allocation of the ACL by loan category at the dates indicated.

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Average total securities during year, at amortized cost $ 2,900,014 $ 3,216,327 $ 3,356,486

The decrease in securities for the year ended December 31, 2023 was primarily due to regular principal repayments received on mortgage-backed securities.

We made no notable purchases of investment securities during 2023 and we continue to utilize cash flows from amortizing investments to fund loan growth and fluctuations in deposits.

The decrease in securities for the year ended December 31, 2024 was primarily due to regular principal repayments received on mortgage-backed securities as well as maturities of other securities.

Generally, we invested cash flows from amortizing investments in interest bearing cash deposits.

During 2024, we sold $426.7 million of securities, with a weighted average yield of 1.93% , at a loss of $ 41.5 million and we purchased $495.0 million of securities, with a weighted average yield of 5.21%.

Partially offsetting this loss was a $ 4.5 million gain on the sale of the Class B shares of Visa, Inc.

Also impacting the change in balances of AFS securities was the improvement in unrealized loss on AFS securities which was $368.1 million at December 31, 2024 as compared to $400.7 million at December 31, 2023.

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Yields on tax-exempt investments have been adjusted to a taxable equivalent basis using a 23.35% tax rate.

The majority of our GSE securities carry one maturity date, often with an issuer call feature.

At December 31, 2023, of the $60.3 million in AFS GSE securities, $33.8 million were issued by the FFCB, $24.9 million were issued by the FHLMC, and the remaining $1.6 million were issued by the FHLB.

Nearly all of our $1.9 billion in AFS mortgage-backed securities at December 31, 2024 were issued by the FHLMC, FNMA, GNMA, or the SBA, each of which is a government agency or a GSE and guarantees the repayment of the securities.

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Total deposits amounted to $10.5 billion at December 31, 2024, an increase of $498.9 million, or 5.0%, from December 31, 2023.

The GrandSouth acquisition was completed on January 1, 2023 and contributed $1.05 billion in deposits.

The acquired deposit portfolio mix was similar in nature to our deposits, with the exception of a slightly higher percentage of money market accounts.

Deposit growth for the year is as follows:

($ in thousands)

Deposits at December 31, 2022 $ 9,227,529

Organic deposit contraction (245,808)

Growth from acquisition 1,049,878

Deposits at December 31, 2023 $ 10,031,599

Organic deposit contraction percentage (2.7) %

Total deposit growth percentage 8.7 %

The contraction in deposits, exclusive of acquired deposits during 2023 is directly related to a strategic decision to reduce brokered deposits during the year, which accounted for $249.3 million of the reduction in organic deposits as presented in the table above.

The balance of the difference, an increase of $3.5 million, indicates the stability of our retail and commercial core deposits during a year with uncertainty and volatility experienced in the banking industry.

Deposit growth for the year was entirely organic as there were no acquisitions during 2024.

Accounting for most of the growth during 2024, retail deposits grew $501.9 million, or 5.0%, from the prior year end.

Brokered deposits ended 2024 at $9.6 million.

We continue to have a diversified and granular deposit base which has remained a stable source of funding.

At December 31, 2024, noninterest-bearing deposits accounted for 32% of total deposits.

This is down slightly from the prior year, in part due to the GrandSouth acquired deposits mix combined with changes in consumer behavior, but continues to be in line with our historical trends and contributes to our low cost of funds.

The table below presents our historical deposit mix which has remained fairly consistent and continues to be predominately transaction and non-time deposit accounts.

This contributes to our low cost of funds.

The table below presents our historical deposit mix which continues to be predominately transaction and non-time deposit accounts.

As demonstrated in the below table, total time deposits have declined to 8% of total deposits at December 31, 2024 from 13% at December 31, 2020.

Such a shift in mix is beneficial for us, as non-time deposit accounts generally carry lower interest rates compared to time deposits and allows us to reprice these deposit categories at any time.

Such a shift in mix is beneficial for us, as non-time deposit accounts generally carry lower interest rates compared to time deposits and we are able to reprice these deposit categories as market rates move over time.

Approximately 97% of our time deposits mature within one year.

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Total deposits $ 10,530,525 100 % $ 10,031,599 100 % $ 9,227,529 100 % $ 9,124,629 100 % $ 6,273,596 100 %

While our customer deposits have remained fairly stable, there continues to be competition for deposits and the market rate increases experienced starting in 2022 have resulted in changes in customer behavior driving the shift to money market accounts during 2023.

The number of net new deposit accounts continues to increase, however, we have seen the average balance per account decline as compared to the prior year.

We routinely engage in activities designed to grow and retain deposits, including emphasizing relationship banking to new and existing customers where borrowers are encouraged and normally expected to maintain deposit accounts with us;

deposits at rate levels that will attract and/or retain deposits;

While our customer deposits have remained fairly stable, there continues to be competition for deposits by both in-market and out-of-market competitors.

pricing deposits at rate levels that will attract and/or retain deposits;

and continually working to identify and introduce new products that will attract customers or enhance our appeal as a primary provider of financial services.

As of December 31, 2023, the estimated uninsured deposits we held totaled approximately $3.7 billion.

In addition, we held $355.2 million in time deposits which, by account, were in excess of the the FDIC insurance limit of $250,000.

Of these accounts, there was a total of $187.6 million which was in excess of $250,000.

This assessment of time deposit accounts does not evaluate total deposit relationships, account ownership types or other factors for determining the actual uninsured balances by customer.

The table below presents maturities of time deposits which by account are great than the FDIC insurance limit of $250,000 as of December 31, 2023.

The table below presents maturities of time deposits which are individually greater than the FDIC insurance limit of $250,000 as of December 31, 2024.

As of December 31, 2024

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Time deposits greater than the FDIC insurance limit of $250,000 $ 183,946 $ 98,753 $ 68,152 $ 10,003 $ 360,854

In addition to insured deposits of $6.3 billion or 63.3% of total deposits, we had deposits collateralized by investment securities with balances totaling $820.9 million at December 31, 2023 such that approximately 71.5% of our total deposits were insured or collateralized at that date.

At each of the past three year ends, we had no deposits issued through foreign offices.

As shown above, time deposits in excess of $250,000 totaled $360.9 million at December 31, 2024.

On an individual account basis, there was a total of $185.0 million which was in excess of $250,000.

This assessment of time deposit accounts does not evaluate total deposit relationships, account ownership types or other factors for determining the actual uninsured balances by customer.

As of December 31, 2024 and December 31, 2023, the estimated uninsured deposits we held totaled approximately $4.1 billion and $3.7 billion, respectively.

As of December 31, 2024 and December 31, 2023, respectively, our insured were $6.4 billion, or 61.0% of total deposits, and $6.3 billion or 63.3% of total deposits.

When coupled with deposits collateralized by investment securities with balances totaling $690.5 million and $820.9 million as of December 31, 2024 and December 31, 2023, respectively, approximately 67.6% and 71.5% of our total deposits were insured or collateralized as December 31, 2024 and December 31, 2023, respectively.

We do not take deposits through foreign offices.

Deposits at December 31, 2024 from foreign depositors were nominal.

We typically utilize short-term borrowings to provide balance sheet liquidity and to fund imbalances in our loan growth compared to our deposit growth.

In addition, we have long-term debt in the form of trust preferred securities and subordinated debentures.

Total borrowings at December 31, 2023 increased $342.7 million from the prior year end.

FHLB advances comprised $59.0 million of the increase and FRB borrowings under the Bank Term Funding Program comprised $249.0 million of the increase.

The short-term advances were required to fund loan growth and fluctuations in deposit balances during 2023.

As a part of the GrandSouth acquisition, we acquired $8.2 million in trust preferred securities and subordinated debentures totaling $28.0 million.

Although not the case as of December 31, 2024, we have historically utilized short-term borrowings to provide balance sheet liquidity and to fund imbalances in our loan growth compared to our deposit growth.

In addition, we have long-term debt in the form of trust preferred securities and subordinated debentures and have the availability to borrow from the FHLB or FRB.

Total borrowings at December 31, 2024 decreased $538.3 million from the prior year end.

Redemptions of FHLB advances comprised $280.0 million of the decrease and redemptions of FRB borrowings under the Bank Term Funding Program comprised $249.0 million of the decrease.

During the year, the Company redeemed $10.0 million of subordinated debentures.

Our borrowings outstanding as of the dates presented were as follows:

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As noted in the table above, at December 31, 2024, we had $77.3 million of borrowings structured as trust preferred capital securities which qualify as Tier I capital for regulatory capital adequacy requirements.

The Company issued $46.4 million of these securities with the balance assumed from several recent acquisitions, including GrandSouth as noted above.

The Company issued $46.4 million of these securities with the balance assumed from acquisitions.

The $18.0 million of unsecured subordinated debentures are borrowings issued by GrandSouth which we acquired and which qualify as Tier II capital for regulatory capital adequacy requirements.

At December 31, 2024, the Company had several sources of readily available borrowing capacity:

• A line of credit with the FHLB of approximately $1.3 billion which can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity need, and is secured by a blanket lien

on most of our real estate loan portfolio, select securities from our investment portfolio, and our FHLB stock.

There was approximately $1.1 billion available under the FHLB line at year end based on pledged collateral.

• Federal funds lines of credit from several correspondent banks totaling $265.0 million which provide for overnight unsecured federal funds purchased, all of which was available at year end.

• A $294.1 million line of credit through the Federal Reserve's Bank Term Funding Program ("BTFP"), secured by specific investment securities, of which $45.1 million was available at year end.

Effective March 11, 2024, the Federal Reserve will terminate the BTFP and no additional advances will be available.

• A line of credit with the Federal Reserve through their discount window borrowing program of approximately $561.6 million which is secured by a blanket lien on a portion of our commercial and consumer loan portfolio (excluding real estate loans) and specific investment securities.

All of this line was available at year end.

• An existing borrowing capacity with the FHLB of approximately $1.4 billion which can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity need, and is secured by a blanket lien on most of our real estate loan portfolio, select investment securities, and our FHLB stock (of which $0.8 million and $280.9 million were outstanding at December 31, 2024 and December 31, 2023, respectively).

• Federal funds lines with several correspondent banks totaling $265.0 million which provide for overnight unsecured federal funds purchased (of which none were outstanding at December 31, 2024 and December 31, 2023);

• A line of credit with the Federal Reserve through its discount window borrowing program of approximately $767.4 million which is secured by a blanket lien on a portion of our commercial and consumer loan portfolio (excluding real estate loans) and specific investment securities.

All of this line was available at both December 31, 2024 and December 31, 2023.

Refer to Note 9 to the consolidated financial statements for additional discussion of our borrowings.

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Our total liquidity ratio, including the $2.4 billion in available lines of credit, was 34.9% as of that date.

The increase in available lines of credit during 2023 was a result of additional loan and security collateral being transferred to the FHLB and the Federal Reserve to enhance the levels of off-balance sheet liquidity availability to meet demands, as necessary.

The increase in available lines of credit during 2024

was a result of the redemption of FHLB advances along with additional loan and security collateral being transferred to the FHLB and the Federal Reserve to enhance the levels of off-balance sheet liquidity.

We continue to manage liquidity sources and believe our liquidity sources, including unused lines of credit, are at an acceptable level and remain adequate to meet our operating needs in the foreseeable future.

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We had no carrying amount for these standby letters of credit.

The nature of standby letters of credit is that of a stand-alone obligation made on behalf of our customers to suppliers of the customers to guarantee payments owed to the supplier by the customer.

The nature of standby letters of credit is that of a stand-alone obligation made on behalf of our customers to suppliers of the customers to guarantee payments owed to the suppliers by the customers.

The standby letters of credit are generally for terms of one year, at which time they may be renewed for another year if both parties agree.

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It has been our experience that deposit withdrawals are generally able to be replaced with new deposits when needed or through short-term advances from the FHLB.

We believe that he Bank can meet its contractual cash obligations and existing commitments from normal operations.

We believe that the Bank can meet its contractual cash obligations and existing commitments from normal operations.

Capital Resources and Shareholders’ Equity

Shareholders’ equity at December 31, 2023 amounted to $1.4 billion compared to $1.0 billion at December 31, 2022.

The two basic components that typically have the largest impact on our shareholders’ equity are net income, which increases shareholders’ equity, and dividends declared, which decrease shareholders’ equity.

Additionally, any stock issuances can significantly increase shareholders’ equity, including those associated with acquisitions such as in 2023, and any stock repurchases reduce shareholders’ equity.

Shareholders’ equity at December 31, 2024 amounted to $1.4 billion, a $73.2 million, or 5.3%, incre ase from December 31, 2023.

Additionally, any stock issuances can significantly increase shareholders’ equity, including those associated

with acquisitions such as in 2023, and any stock repurchases reduce shareholders’ equity.

Finally, fluctuations in the amount of AOCI, generally driven by market interest rate changes resulting in increases or decreases in unrealized gains/losses on AFS securities, can have a significant impact on total equity.

In 2023, the most significant factors that impacted our shareholders' equity were (1) $229.5 million of common stock issued for the acquisition of GrandSouth which increased equity;

(2) $104.1 million net income reported for 2023, which increased equity, (3) common stock dividends declared of $36.1 million, which reduced equity;

and (4) $33.9 million reduction in equity related to changes in AOCI driven by higher unrealized losses on AFS securities.

In 2024, the most significant factors that impacted our shareholders' equity were (1) $76.2 million net income reported for 2024, which increased equity, (2) common stock dividends declared of $36.3 million, which reduced equity;

and (3) $26.0 million increase in equity related to changes in AOCI driven by lower unrealized losses on AFS securities.

As discussed in “Borrowings” above, we also currently have $77.3 million in trust preferred securities outstanding, all of which qualify as Tier I capital under regulatory standards and $18.0 million of unsecured subordinated debentures which qualify as Tier II capital for regulatory capital adequacy requirements.

32 unchanged sentences

At December 31, 2024, our leverage ratio was 11.15% compared to the regulatory well capitalized bank-level threshold of 4.00% and our total risk-based capital ratio was 16.63% compared to the 10.50% regulatory well capitalized threshold.

The increase in capital levels in 2023 was related to the growth in net income.

The increase in capital levels in 2024 was related to the growth in net income, reduction in risk weighted assets, and improvements in our AOCI unrealized losses on AFS securities, partially offset by the redemption of $10 million of subordinated debentures.

In addition to regulatory capital ratios, we also closely monitor our ratio of TCE to tangible assets, which is a non-GAAP financial measure.

16 unchanged sentences

We have no off-balance sheet arrangements of this kind other than letters of credit and repayment guarantees associated with our trust preferred securities and subordinated debentures.

In the normal course of business, we are exposed to certain risk arising from both its business operations and economic conditions.

In the normal course of business, we are exposed to certain risks arising from both our business operations and economic conditions.

As an element of our risk management strategies, we may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

17 unchanged sentences

Net interest income 332,273 346,843 325,015 246,395 218,122

Provision for (reversal of) loan losses 19,750 12,600 9,611 35,039 2,263

(Reversal of) provision for unfunded commitments (1,937) (200) 5,420 — —

Provision for credit losses 16,448 17,813 12,400 15,031 35,039

Net interest income after provision 315,825 329,030 312,615 231,364 183,083

36 unchanged sentences

Net (charge-offs) recoveries to average total loans (0.07 %) (0.08 %) (0.01 %) (0.05 %) (0.09 %)

Note - During both 2023 and 2021, the Company completed significant whole-bank acquisitions impacting the comparisons for each of those years.

Note - During both 2023 and 2021, the Company completed significant acquisitions impacting the comparisons for each of those years.

See additional discussion under "Recent Developments and Acquisitions" in Item 1.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis