FIRST BANCORP /NC/ 10-Q

Item 2 - Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition Highlights of the results for the second quarter and year to date period of 2026 are presented below. Refer also to additional discussion in the "Results of Operations" and "Financial Condition" sections following. Overview and Highlights for the Three Months Ended June 30, 2026 We earned net income of $50.5 million, or $1.22 diluted EPS, during the second quarter of 2026 compared to net income of $38.6 million, or $0.93 diluted EPS, for the second quarter of 2025 (the "like quarter"). Our increased earnings was driven by a $14.6 million increase in net interest income over the like quarter, resulting primarily from a combination of higher yield on interest earning assets and a lower cost of funds, both of which were driven by the overall interest rate environment throughout the past year. • Net interest income for the second quarter of 2026 was $111.3 million, a 15.1% increase from the $96.7 million recorded in the like quarter. There was a shift in the mix of interest-earning assets between periods, with average loans growing $708.9 million, while average taxable securities contracted $313.3 million and short-term investments contracted $61.1 million. • Net interest margin ("NIM") increased 39 basis points to 3.71% in the second quarter of 2026 from 3.32% in the like quarter as a result of the higher average balance of loans, improved yields on securities and lower cost of funds, notably money market deposits. • We remained well-capitalized by all regulatory standards. Risk-based capital ratios contracted slightly during the quarter with a total common equity Tier 1 ratio of 14.09%, Tier 1 risk-based capital ratio of 14.81% and total risk-based capital ratio of 16.06% at June 30, 2026, all down from June 30, 2025. • The provision for credit losses for the second quarter of 2026 was $1.2 million, compared to $1.0 million of net charge-offs. • Noninterest income for the quarter ended June 30, 2026 totaled $16.0 million, reflecting an increase from the $14.3 million for the like quarter, primarily from a $1.0 million increase in Other income, net. • Noninterest expense of $62.8 million increased $3.8 million, or 6.5%, from the like quarter. The increase is attributable to a $3.3 million increase in Total personnel expenses and a $1.0 million increase in Other operating expenses. Overview and Highlights for the Six Months Ended June 30, 2026 We earned net income of $97.2 million, or $2.35 diluted EPS, during the six months ended June 30, 2026 compared to net income of $75.0 million, or $1.81 diluted EPS, for the six months ended June 30, 2025 (the "like period"). Net interest income increased $28.9 million during the six months ended June 30, 2026 as compared to the like period, driving our increased earnings. This was primarily the result of higher yields on interest earning assets and a lower cost of funds, both of which were driven by this past year's overall interest rate environment. • Net interest income for the six months ended June 30, 2026 was $218.4 million, a 15.2% increase from the $189.5 million recorded for the like period. The increase in net interest income was driven by higher yields on interest earning assets and lower cost of funds. • NIM increased 41 basis points to 3.69% for the six months ended June 30, 2026 from 3.28% for the like period as a result of the higher average balances on loans, yields on loans and securities and lower cost of funds, particularly money market deposits. • For the six months ended June 30, 2026, the Company recorded $4.3 million in provision for credit losses as compared to $3.3 million for the like period. The lower provision in the like period was significantly impacted by the $5.5 million release of provision related to Hurricane Helene (the release represented a benefit of $4.2 million after-taxes or $0.10 per diluted share). The provision for credit losses in 2026 was impacted by loan growth in 2026 and net charge off activity of $2.4 million. • Noninterest income for the six months ended June 30, 2026 totaled $31.2 million, an increase of $4.0 million, from the like period primarily related to the $1.7 million increase in Other income, net and the $1.2 million increase in SBA loan sale gains. Page 35 Index • Noninterest expense increased $6.1 million to $123.0 million for the six months ended June 30, 2026 as compared to the like period, primarily driven by a $5.0 million increase in Personnel expenses and a $1.7 million increase in Other operating expenses. Total assets were $13.0 billion at June 30, 2026, a 2.9% increase from December 31, 2025. The increase was driven primarily by deposit growth generating investable funds that were deployed into loans and interest-bearing cash. The primary balance sheet changes are presented below. • Total cash and cash equivalents amounted to $550.3 million at June 30, 2026, representing a $240.7 million increase from December 31, 2025. Interest-bearing cash increased $259.1 million and was partially offset by an $18.3 million decrease in noninterest-bearing cash. • AFS securities decreased $109.5 million, or 5.3%, during the six months ended June 30, 2026. • Total loans amounted to $9.0 billion at June 30, 2026, reflecting an increase of $266.3 million, or 3.1%, from December 31, 2025. • Total deposits were $11.1 billion at June 30, 2026, an increase of $336.4 million, or 3.13%, from December 31, 2025. Deposit growth during the period arose from both noninterest-bearing deposits, which increased $110.6 million, and interest-bearing deposits, which increased $225.9 million. • Credit quality continued to be strong at June 30, 2026, with NPAs of 0.34% of total assets as of June 30, 2026, up 4 basis points from 0.30% at December 31, 2025. • Our on-balance sheet liquidity ratio was 15.7% at June 30, 2026. Available off-balance sheet sources totaled $2.4 billion at quarter end, resulting in a total liquidity ratio of 32.8%. Critical Accounting Estimates The accounting principles we follow and our methods of applying these principles conform with GAAP and with general practices followed by the banking industry. Certain policies inherently have a greater reliance on the use of estimates, assumptions, or judgments and as such, have a greater possibility of producing results that could be materially different than originally reported. 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. There have been no material changes to the Company's significant accounting policies as discussed in Note 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2025. Current Accounting Matters See Note 1 to the consolidated financial statements for information about recently announced or adopted accounting standards. RESULTS OF OPERATIONS Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (primarily loans and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (deposits and borrowed funds). Changes in the net interest income are the result of changes in volume and the net interest spread which affects NIM. Volume refers to the average dollar levels of interest-earning assets and interest-bearing liabilities. Net interest spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. NIM refers to net interest income divided by average interest-earning assets and is influenced by the level and relative mix of interest-earning Page 36 Index assets and interest-bearing liabilities. 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 for the Three Months Ended June 30, 2026 Net interest income for the second quarter of 2026 amounted to $111.3 million, an increase of $14.6 million, or 15.1%, from the $96.7 million recorded in the second quarter of 2025. The increase was primarily driven by higher yields on interest-earning assets and lower cost of funds. For the second quarter of 2026, average interest-earning assets increased $330.4 million, or 2.8%, from the comparable period of the prior year, with average loans growing $708.9 million, while average securities and short term investments declined by $317.5 million and $61.1 million respectively. The cost of interest bearing deposits decreased 20 basis points from the second quarter of 2025, with the biggest decrease coming from the cost of Money market deposits, which decreased 33 basis points and the cost of Time deposits > $250,000, which decreased 22 basis points. These changes resulted in the 39 basis point improvement in our NIM (see discussion below) from the like quarter to 3.71% for the second quarter of 2026. Page 37 Index The following table presents an analysis of net interest income for the second quarter of 2026 and 2025: Average Balances and Net Interest Income Analysis Three Months Ended June 30, 2026 2025 ($ in thousands) Average Volume Interest Earned or Paid Average Rate Average Volume Interest Earned or Paid Average Rate Assets Loans (1) (2) $ 8,896,592 $ 125,845 5.67 % $ 8,187,662 $ 112,921 5.53 % Taxable securities 2,384,076 16,925 2.84 % 2,697,338 16,857 2.50 % Non-taxable securities 283,645 1,115 1.57 % 287,848 1,116 1.55 % Short-term investments, primarily interest-bearing cash 444,845 4,430 3.99 % 505,912 5,837 4.63 % Total interest-earning assets 12,009,158 148,315 4.95 % 11,678,760 136,731 4.69 % Cash and due from banks 136,181 153,074 Premises and equipment 139,177 142,090 Other assets 664,823 484,448 Total assets $ 12,949,339 $ 12,458,372 Liabilities Interest-bearing checking $ 1,420,738 $ 2,233 0.63 % $ 1,434,559 $ 2,426 0.68 % Money market deposits 4,666,044 28,268 2.43 % 4,358,877 29,947 2.76 % Savings deposits 516,779 250 0.19 % 538,843 252 0.19 % Other time deposits 487,071 2,790 2.30 % 534,242 3,088 2.32 % Time deposits >$250,000 314,506 2,271 2.90 % 345,916 2,692 3.12 % Total interest-bearing deposits 7,405,138 35,812 1.94 % 7,212,437 38,405 2.14 % Short-term borrowings 757 1 0.72 % 848 2 1.09 % Long-term borrowings 73,950 1,236 6.70 % 91,351 1,658 7.28 % Total interest-bearing liabilities 7,479,845 37,049 1.99 % 7,304,636 40,065 2.20 % Noninterest-bearing checking 3,597,511 3,522,117 Other liabilities 167,595 101,069 Shareholders’ equity 1,704,388 1,530,550 Total liabilities and shareholders’ equity $ 12,949,339 $ 12,458,372 Net yield on interest-earning assets and net interest income $ 111,266 3.71 % $ 96,666 3.32 % Net yield on interest-earning assets and net interest income – tax-equivalent (3) $ 111,732 3.73 % $ 96,877 3.32 % Interest rate spread 2.96 % 2.49 % Average prime rate 6.75 % 7.50 % (1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown. (2) Includes accretion of discount on acquired loans of $1.1 million and $1.5 million for three months ended June 30, 2026 and 2025, respectively. (3) Includes tax-equivalent adjustments to reflect the tax benefit that we receive related to tax-exempt securities and loans as reduced by the related nondeductible portion of interest expense. Page 38 Index Overall, as demonstrated in the table above, the growth in earning assets, a shift to higher-yielding assets, increased yield on assets and a decrease in the cost of liabilities drove the expansion in NIM and net interest income. • Net interest income for the second quarter of 2026 was $111.3 million, an increase of $14.6 million from the like quarter. The increase in net interest income was primarily driven by our focused efforts to increase interest-earning assets, to improve the mix of earning assets and to manage deposit costs after the rate cuts by the Federal Reserve between September and December of 2024, which saw the federal funds rate fall 50 basis points and additional rate cuts totaling 75 basis points in the second half of 2025. We also focused on increasing loan yields as new originations were at higher rates than older loans. Further, securities yields increased as a result of the loss-earnback transactions in the third and fourth quarters of 2025 along with continued paydowns and payoffs on lower-yielding bonds. • The Company’s NIM for the second quarter of 2026 was 3.71%, an increase of 39 basis points from the like quarter. Within interest-earning assets, the 2025 securities loss-earnback transactions resulted in an increase of 30 basis points on the yield on total securities as compared to the like quarter. In addition, loan yields increased 14 basis points to 5.67%. Following the rate cuts by the Federal Reserve in the second half of 2025, the rate on interest-bearing deposits fell 20 basis points from the like quarter. • Average interest-earning assets increased $330.4 million for the three months ended June 30, 2026, including a shift to higher-yielding assets. Average loans for the three months ended June 30, 2026 were $708.9 million higher than the same period in 2025. In addition, interest rates on loans increased 14 basis points to 5.67% for the second quarter of 2026, collectively resulting in an increase of $12.9 million in interest income on loans. • Average securities for the three months ended June 30, 2026 contracted $317.5 million from the like quarter, but the yields on securities increased 0.30% to 2.70% for the second quarter of 2026, resulting in an increase in interest income on securities of $0.1 million. • Average short-term investments for the three months ended June 30, 2026 contracted $61.1 million from the same period in 2025 and yields fell 0.64% to 3.99%, resulting in a $1.4 million decrease in interest income on short-term investments. • Due to the impact of the aforementioned Federal Reserve rate cuts in 2024 and 2025 and the resulting decreased market rates partially offset by higher average balances, deposit interest expense for the three months ended June 30, 2026 decreased $2.6 million compared to the same period in 2025. Average interest-bearing deposit balances increased $192.7 million while rates on those deposits decreased 20 basis points as compared to the like quarter. The deposit changes were driven primarily by money market deposits as the average balance increased $307.2 million while the rate on those deposits fell 33 basis points, together accounting for $1.7 million of the decrease in interest expense. For internal purposes, we also evaluate our NIM on a tax equivalent basis ("NIM-T/E"), which is a non-GAAP financial measure, calculated by adding the tax benefit realized from tax-exempt loans and securities to reported interest income then dividing by total average earning assets. We believe that analysis of NIM-T/E is useful and appropriate because it allows a comparison of net interest income in different periods without taking into account the different mix of taxable versus non-taxable loans and investments that may have existed during those periods.The following is a reconciliation of reported net interest income to tax-equivalent net interest income and the resulting NIM to NIM-T/E. For the Three Months Ended June 30, ($ in thousands) 2026 2025 Net interest income, as reported $ 111,266 $ 96,666 Tax-equivalent adjustment 466 211 Net interest income, tax-equivalent $ 111,732 $ 96,877 Net interest margin, as reported 3.71 % 3.32 % Net interest margin, tax-equivalent 3.73 % 3.32 % Page 39 Index Net Interest Income for the Six Months Ended June 30, 2026 Net interest income for the six months ended June 30, 2026 amounted to $218.4 million, an increase of $28.9 million, or 15.2%, from the $189.5 million recorded in the six months ended June 30, 2025. As described above, the rate cuts by the Federal Reserve in the second half of 2024 and third quarter of 2025 decreased market rates which had resulting impacts on the rates we paid or received in 2024 and 2025. Similar to the impact during the three months ended June 30, 2026, the increase in net interest income for the six months ended June 30, 2026 was also driven by lower cost of funds, and increased yields on interest-earning assets. Our NIM increased to 3.69% for the six months ended June 30, 2026 from 3.28% for the six months ended June 30, 2025. Page 40 Index The following table presents an analysis of net interest income for the six months ended June 30, 2026 and 2025. Average Balances and Net Interest Income Analysis Six Months Ended June 30, 2026 2025 ($ in thousands) Average Volume Interest Earned or Paid Average Rate Average Volume Interest Earned or Paid Average Rate Assets Loans (1) (2) $ 8,839,477 $ 246,592 5.62 % $ 8,147,750 $ 223,418 5.52 % Taxable securities 2,412,948 34,481 2.86 % 2,663,390 32,381 2.43 % Non-taxable securities 284,176 2,230 1.57 % 288,373 2,232 1.55 % Short-term investments, primarily interest-bearing cash 361,123 7,402 4.13 % 504,652 11,324 4.52 % Total interest-earning assets 11,897,724 $ 290,705 4.92 % 11,604,165 269,355 4.67 % Cash and due from banks 141,622 143,469 Premises and equipment 139,474 142,574 Other assets 677,771 453,023 Total assets $ 12,856,591 $ 12,343,231 Liabilities Interest bearing checking $ 1,418,681 $ 4,462 0.63 % $ 1,433,066 $ 4,923 0.69 % Money market deposits 4,616,502 54,785 2.39 % 4,348,277 59,126 2.74 % Savings deposits 520,429 491 0.19 % 538,973 493 0.18 % Other time deposits 491,071 5,609 2.30 % 546,377 6,441 2.38 % Time deposits >$250,000 309,327 4,511 2.94 % 349,028 5,541 3.20 % Total interest-bearing deposits 7,356,010 69,858 1.92 % 7,215,721 76,524 2.14 % Short-term borrowings 751 2 0.66 % 822 3 0.86 % Long-term borrowings 73,904 2,463 6.72 % 91,259 3,315 7.32 % Total interest-bearing liabilities 7,430,665 72,323 1.96 % 7,307,802 79,842 2.20 % Noninterest bearing checking 3,556,662 3,449,013 Other liabilities 173,640 87,032 Shareholders’ equity 1,695,624 1,499,384 Total liabilities and shareholders’ equity $ 12,856,591 $ 12,343,231 Net yield on interest-earning assets and net interest income $ 218,382 3.69 % $ 189,513 3.28 % Net yield on interest-earning assets and net interest income – tax-equivalent (3) $ 219,327 3.71 % $ 190,161 3.30 % Interest rate spread 2.96 % 2.47 % Average prime rate 6.75 % 7.50 % (1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown. (2) Includes accretion of discount on acquired loans of $2.1 million and $3.2 million for six months ended June 30, 2026 and 2025, respectively. (3) Includes tax-equivalent adjustments to reflect the tax benefit that we receive related to tax-exempt securities and loans as reduced by the related nondeductible portion of interest expense. Page 41 Index Overall, as demonstrated in the table above, the expansion in NIM, coupled with increased earning asset volumes, drove the increase in net interest income. • During the second half of 2025, the Federal Reserve decreased the fed funds rate a total of 75 basis points. The average prime rate was 6.75% for the six months ended June 30, 2026, compared to 7.50% for the prior year period. During 2025 and 2026, the yield curve has been positively sloping beyond three years, although longer term treasury rates are still fairly close to fed funds rates. • Average loan volumes for the six months ended June 30, 2026 were $691.7 million higher than the same period in 2025 due to organic loan growth. In addition, interest rates on loans increased 10 basis points to 5.62% for the six months ended June 30, 2026, collectively resulting in an increase in loan interest income of $23.2 million. • Due to lower market rates partially offset by an overall growth of deposits, interest expense on deposits for the six months ended June 30, 2026 decreased $6.7 million compared to the same period in 2025. Average total interest-bearing deposit balances increased $140.3 million while rates on those deposits decreased 22 basis points as compared to the prior year period. Within this population, average balances on Money market deposits increased $268.2 million while rates on those accounts decreased 35 basis points as compared to the prior year, resulting in a $4.3 million decrease in interest expense. Average balances on Time deposits >$250,000 decreased $39.7 million and rates on these accounts decreased 26 basis points as compared to the prior year, collectively resulting in a $1.0 million decrease in interest expense. • Interest expense on borrowings decreased $0.9 million for the six months ended June 30, 2026 as compared to the same period in 2025 due to the $17.4 million decrease in the average volume of borrowings between periods, coupled with a 60 basis point decrease in the rates on total borrowings. We repaid fixed rate subordinated debentures in the fourth quarter of 2025. The remaining borrowings are floating rate and therefore have lower interest rates in the current interest rate environment. • Collectively, these changes resulted in an increase of 41 basis points in NIM. The following is a reconciliation of reported net interest income to tax-equivalent net interest income and the resulting NIM to NIM-T/E. For the Six Months Ended June 30, ($ in thousands) 2026 2025 Net interest income, as reported $ 218,382 $ 189,513 Tax-equivalent adjustment 945 648 Net interest income, tax-equivalent $ 219,327 $ 190,161 Net interest margin, as reported 3.69 % 3.28 % Net interest margin, tax-equivalent 3.71 % 3.30 % Page 42 Index Our NIM for all periods presented 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 time period presented. For the Three Months Ended June 30, For the Six Months Ended June 30, ($ in thousands) 2026 2025 2026 2025 Interest income – increased by accretion of loan discount on acquired loans $ 1,083 $ 1,457 $ 2,148 $ 3,246 Total interest income impact 1,083 1,457 2,148 3,246 Interest expense – increased by discount accretion of deposits (62) (102) (123) (205) Interest expense – increased by discount accretion of borrowings (87) (194) (173) (385) Total net interest expense impact (149) (296) (296) (590) Total impact on net interest income $ 934 $ 1,161 $ 1,852 $ 2,656 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 reduction in outstanding balance of acquired loans. At June 30, 2026 and 2025, unaccreted loan discounts on purchased loans amounted to $6.6 million and $11.8 million, respectively. The portfolio acquired with the GrandSouth Bancorporation acquisition on January 1, 2023 comprised the majority of the remaining unaccreted loan discount. Provision for Credit Losses 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. Refer also to “Critical Accounting Estimates” in Item 7 of the 2025 Annual Report on Form 10-K filed with the SEC for more information. The provision for credit losses was $1.2 million and $2.2 million for the three months ended June 30, 2026 and 2025, respectively, and $4.3 million and $3.3 million for the six months ended June 30, 2026 and 2025, respectively. The second quarter of 2026 included a provision for loan losses of $1.1 million and a provision for unfunded commitments expense of $22 thousand. The second quarter of 2025 included a provision for loan losses of $1.1 million and a provision for unfunded commitments of $1.1 million. In the like quarter, the provision for loan losses included a $3.5 million release of the allowance specifically attributed to Hurricane Helene. The six months ended June 30, 2026 included a provision for loan losses of $3.7 million and a provision for unfunded commitments expense of $0.6 million. The six months ended June 30, 2025 included a provision for loan losses of $2.5 million and a provision for unfunded commitments of $0.9 million. In the six months ended June 30, 2025, the provision for loan losses included a $5.5 million release of the allowance specifically attributed to Hurricane Helene. 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, Allowance for Unfunded Commitments, and Loan Loss Experience" sections following. Noninterest Income Total noninterest income for the three months ended June 30, 2026 was $16.0 million, a 12.2% increase from the $14.3 million recorded for the three months ended June 30, 2025. As compared to the second quarter of 2025, Other Income, net increased $1.0 million and Other service charges, commissions and fees decreased $0.6 million. For the six months ended June 30, 2026 and 2025, total noninterest income was $31.2 million and $27.2 million, respectively. For the year to date periods, a $1.7 million increase in Other income, net coupled with a $1.2 million increase in SBA loan sale gains account for a majority of the change. Page 43 Index Details of the more significant components of noninterest income are presented in the table below. For the Three Months Ended June 30, For the Six Months Ended June 30, ($ in thousands) 2026 2025 2026 2025 Service charges on deposit accounts $ 4,205 $ 3,976 $ 8,159 $ 7,743 Other service charges and fees - bankcard interchange income, net 2,454 2,588 4,577 4,915 Other service charges and fees - other 3,532 4,017 7,351 7,609 Presold mortgage loan fees and gains on sale 660 315 1,329 765 Commissions from sales of financial products 1,707 1,388 3,199 2,796 SBA loan sale gains 529 151 1,432 203 Bank-owned life insurance income 1,358 1,221 2,698 2,449 Other income, net 1,589 636 2,467 768 Total noninterest income $ 16,034 $ 14,292 $ 31,212 $ 27,248 Noninterest Expenses Total noninterest expenses totaled $62.8 million and $58.9 million for the three months ended June 30, 2026 and 2025, respectively, increasing $3.8 million, or 6.5%. This was primarily attributable to a $3.3 million increase in Total personnel expense primarily due to the timing of annual raises in the second quarter each year and a $0.4 million increase in Professional fees. Total noninterest expenses totaled $123.0 million and $116.8 million for the six months ended June 30, 2026 and 2025, respectively, increasing $6.1 million, or 5.3%. This was primarily attributable to a $5.0 million increase in Total personnel expense also primarily due to annual raises and a $1.1 million increase in Software licenses and other software costs, partially offset by a $0.5 million decrease in Intangibles amortization expense. The following table presents the primary components of noninterest expenses. For the Three Months Ended June 30, For the Six Months Ended June 30, ($ in thousands) 2026 2025 2026 2025 Salaries, incentives and commissions expense $ 31,529 $ 29,005 $ 61,507 $ 57,666 Employee benefit expense 6,958 6,187 13,474 12,282 Total personnel expense 38,487 35,192 74,981 69,948 Occupancy and equipment expense 4,961 5,195 10,316 10,387 Credit card rewards and other bankcard expenses 1,574 1,515 2,863 2,693 Telephone and data lines 768 1,023 1,629 1,992 Software licenses and other software costs 2,377 2,012 4,869 3,743 Data processing expense 2,550 2,300 4,926 4,801 Professional fees 1,577 1,170 3,006 2,474 Advertising and marketing 768 904 1,568 1,715 Non-credit losses 966 824 1,635 1,761 FDIC insurance costs 1,376 1,297 2,904 2,822 Corporate insurance costs 526 541 1,060 1,077 Intangibles amortization expense 1,199 1,468 2,446 2,984 Other operating expenses 5,632 5,483 10,776 10,438 Total noninterest expense $ 62,761 $ 58,924 $ 122,979 $ 116,835 Income Taxes We recorded income tax expense of $12.9 million and $11.3 million for the three months ended June 30, 2026 and 2025, respectively, resulting in effective tax rates of 20.3% and 22.6%. For the six months ended June 30, 2026 and 2025, we recorded tax expense of $25.2 million and $21.6 million, resulting in effective tax rates of 20.6% and 22.4%, respectively. Page 44 Index FINANCIAL CONDITION Total assets at June 30, 2026 amounted to $13.0 billion, a $373.3 million, or 2.9%, increase from December 31, 2025 and was primarily related to higher loans and interest-bearing cash, partially offset by a contraction in the balance of AFS securities. Total loans at June 30, 2026 were $9.0 billion, an increase of $266.3 million, or 3.1%, from December 31, 2025. The mix of our loan portfolio remained relatively unchanged from December 31, 2025 to June 30, 2026. Note 3 to the consolidated financial statements presents additional detail regarding our mix of loans. At June 30, 2026, we had no notable concentrations in geographies or industries, including in office or hospitality categories. The Company's exposure to non-owner occupied commercial office loans represented approximately 6.2% of the total portfolio at June 30, 2026, with the largest loan being $33.0 million and the average outstanding loan balance being $1.4 million. Non-owner occupied office loans were generally in non-metro markets and the 10 largest loans in this category represented less than 2% of the total loan portfolio at June 30, 2026. Total investment securities were $2.4 billion at June 30, 2026, a decrease of $112.9 million from December 31, 2025, as we did not reinvest all proceeds from prepayments and maturities. The composition of our investment portfolio remained substantially the same at June 30, 2026 as at December 31, 2025. The unrealized loss on AFS securities totaled $204.5 million at June 30, 2026. Refer to Note 2 to the consolidated financial statements for additional detailed information regarding our mix of investments and the unrealized losses for each category. Total deposits amounted to $11.1 billion at June 30, 2026, an increase of $336.4 million, or 3.1%, from December 31, 2025. The majority of the increase was attributable to growth in Noninterest-bearing checking accounts of $110.6 million and growth in Money market accounts of $244.4 million. We continue to have a diversified and granular deposit base which has remained stable with continued growth in customer deposits, primarily Noninterest-bearing checking accounts and Money market accounts. Our deposit mix has remained relatively consistent and has not changed significantly. June 30, 2026 December 31, 2025 ($ in thousands) Amount Percentage Amount Percentage Noninterest-bearing checking accounts $ 3,597,565 32 % $ 3,486,985 32 % Interest-bearing checking accounts 1,422,592 13 % 1,420,795 13 % Money market accounts 4,754,782 43 % 4,510,356 42 % Savings accounts 510,392 5 % 526,643 5 % Other time deposits 475,744 4 % 493,282 5 % Time deposits >$250,000 318,821 3 % 305,473 3 % Total customer deposits 11,079,896 100 % 10,743,534 100 % Brokered deposits 4,971 — % 4,887 — % Total deposits $ 11,084,867 100 % $ 10,748,421 100 % As of June 30, 2026, the estimated insured deposits totaled $6.5 billion, or 58.9% of total deposits, while approximately $4.6 billion of the Company's total deposits were uninsured. In addition, deposits totaling $748.7 million at June 30, 2026 were collateralized by investment securities such that approximately 65.7% of our total deposits were insured or collateralized at that date. Page 45 Index Nonperforming Assets NPAs are defined as nonaccrual loans, loans past due 90 or more days and still accruing interest, and foreclosed real estate. NPAs are summarized as follows: ($ in thousands) June 30, 2026 December 31, 2025 Nonperforming assets Nonaccrual loans $ 44,283 $ 36,315 Accruing loans 90 days or more past due — — Total nonperforming loans 44,283 36,315 Foreclosed real estate 659 1,425 Total nonperforming assets $ 44,942 $ 37,740 Asset Quality Ratios Nonperforming loans to total loans 0.49 % 0.42 % Nonperforming assets to total loans and foreclosed properties 0.50 % 0.43 % Nonperforming assets to total assets 0.34 % 0.30 % Allowance for credit losses to total loans 1.39 % 1.42 % Allowance for credit losses to nonperforming loans 282.04 % 340.30 % As shown in the table above, total NPAs at June 30, 2026 were $44.9 million, with the increase from year end primarily arising from the $8.0 million increase in Nonaccrual loans, partially offset by the $0.8 million decrease in Foreclosed real estate. Commercial real estate - owner occupied is the largest category of nonaccrual loans, at $14.3 million, or 32.2%, followed by Residential 1-4 family real estate at $9.3 million, or 20.9%, and Commercial and industrial at $8.7 million, or 19.6%. Included in various loan categories are nonaccrual SBA loans totaling $15.5 million at June 30, 2026, or 35.0% of total nonaccrual loans, and which include $9.1 million in guarantees from the SBA. As reflected in Note 3 to the accompanying consolidated financial statements, total classified loans increased 8.9% to $63.7 million at June 30, 2026 compared to $58.5 million at December 31, 2025. The increase resulted primarily from increases in Commercial real estate - non owner occupied loans of $2.6 million and Commercial and industrial loans of $1.2 million. Special mention loans decreased 16.99% to $24.4 million at June 30, 2026 compared to $29.3 million at December 31, 2025. The majority of the decrease was attributable to a decrease in Construction, development & other land loans of $3.3 million and Commercial real estate - owner occupied loans of $0.9 million. Allowance for Credit Losses, Allowance for Unfunded Commitments, and Loan Loss Experience The total allowance for credit losses amounted to $124.9 million at June 30, 2026 compared to $123.6 million at December 31, 2025. The overall ACL as a percent of total loans was 1.39% and 1.42% at June 30, 2026 and December 31, 2025, respectively. Fluctuations in the ACL are based on loan mix and growth, changes in the levels of nonperforming loans, economic forecasts impacting loss drivers, and other assumptions and inputs to the CECL model. In the portions of Western North and South Carolina that were significantly impacted by Hurricane Helene in third quarter of 2024, the Company identified borrowers who were potentially impacted. For December 31, 2025 and June 30, 2026, no incremental reserves were maintained on the commercial loan portfolio as those relationships had been reviewed, risk ratings adjusted and nonaccrual status updated. Therefore, for those relationships, the normal reserving process was applied. For the potentially impacted consumer loans, the Company applied increased reserve rates based upon severe economic factors to the approximately $253 million of loans (primarily Residential 1-4 family real estate) in the most impacted path of Hurricane Helene. This compares to consumer loans totaling $268 million at December 31, 2025. Due to the potential exposure from Hurricane Helene, the ACL on these impacted consumer loans was $1.9 million as of June 30, 2026 and December 31, 2025, adding 2 basis points to the overall ACL as a percent of total loans at both period ends. The ACL reflects our estimate of life of loan expected credit losses that will result from the inability of our borrowers to make required loan payments. We use systematic methodologies to determine the ACL for loans and the allowance for certain off-balance-sheet credit exposures. We consider the effects of past events, current conditions, Page 46 Index and reasonable and supportable forecasts on the collectability of the loan portfolio. The ACL is calculated using collectively evaluated pools for loans with similar risk characteristics applying the discounted cash flow ("DCF") method. When a loan no longer shares similar risk characteristics with its segment, the loan is evaluated on an individual basis applying a DCF or asset approach for collateral-dependent loans. For the periods indicated, the following table summarizes our balances of loans outstanding, average loans outstanding, ACL, charge-offs and recoveries, and key ratios: ($ in thousands) Six Months Ended June 30, 2026 Twelve Months Ended December 31, 2025 Six Months Ended June 30, 2025 Loans outstanding at end of period $ 8,988,748 $ 8,722,419 $ 8,225,650 Average amount of loans outstanding 8,839,477 8,283,246 8,147,750 Allowance for credit losses, at period end 124,894 123,581 120,545 Total charge-offs (3,693) (11,629) (5,874) Total recoveries 1,308 3,074 1,379 Net charge-offs $ (2,385) $ (8,555) $ (4,495) Ratios: Net charge-offs as a percent of average loans (annualized) 0.05 % 0.10 % 0.11 % Allowance for credit losses as a percent of loans at end of period 1.39 % 1.42 % 1.47 % While our estimate of the ACL involves a high degree of judgment, we believe the ACL was adequate at each period end presented. Our assessment of the ACL involves uncertainty and judgment and is subject to change in future periods. The amount of any changes could be significant if the assessment of loan quality or collateral values changes substantially with respect to one or more loan relationships or portfolios or if there is a significant change in the reasonable and supportable forecast or assumptions used to model our expected credit losses. No assurance can be given that we will not in any particular period sustain loan losses that are sizable in relation to the amounts reserved or that subsequent evaluations of the loan portfolio, in light of conditions and factors then prevailing, will not require significant changes in the ACL or future charges to earnings. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our ACL and the value of our collateral-dependent loans. Such agencies may require us to recognize adjustments to the ACL based on their judgments about information available at the time of their examinations. Refer also to “Critical Accounting Policies – Allowance for Credit Losses on Loans and Allowance for Unfunded Commitments” in Note 1 to the 2025 Annual Report on Form 10-K filed with the SEC for more information. In addition to the ACL on loans, we maintain an allowance for lending-related commitments such as unfunded loan commitments. We estimate expected credit losses associated with these commitments over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable. The allowance for lending-related commitments on off-balance sheet credit exposures is adjusted as a component of the provision for credit losses expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The allowance for unfunded commitments of $11.6 million and $11.0 million at June 30, 2026 and December 31, 2025, respectively, is classified on the consolidated balance sheets within "Other liabilities." The increase in the level of the allowance between periods was driven by an increase in balances of available lines of credit, partially offset by lower reserve rates during the six months ended June 30, 2026. Liquidity, Commitments, and Contingencies Our liquidity is determined by our ability to convert assets to cash or acquire alternative sources of funds to meet the needs of our customers who are withdrawing or borrowing funds, and to maintain required reserve levels, pay expenses and operate the Company on an ongoing basis. Our primary liquidity sources are net income from operations, cash and due from banks, federal funds sold and other short-term investments. Our securities portfolio has a high percentage of amortizing mortgage-backed securities generating monthly cash flows. In addition, the portfolio is comprised almost entirely of readily marketable securities, which could also be sold to provide cash. We Page 47 Index also maintain available lines of credit from the FHLB and the Federal Reserve, as well as federal funds lines from several correspondent banks which are summarized below. At June 30, 2026, the Company had the following sources of readily available borrowing capacity: • A $1.4 billion line of credit with the FHLB that can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity needs. As of June 30, 2026, the line of credit is secured by a blanket lien on portions of the Company's real estate loan portfolio totaling approximately $7.0 billion and the Company's FHLB stock totaling $8.9 million. Outstanding borrowings on the line totaled $0.7 million and $0.8 million at June 30, 2026 and December 31, 2025, respectively; • Federal funds lines of credit with correspondent banks totaling $285.0 million allow the Company to purchase federal funds on an overnight, unsecured basis. No borrowings were outstanding at June 30, 2026 or December 31, 2025; and • A line of credit of approximately $756.4 million through the Federal Reserve's discount window borrowing program, which was secured at June 30, 2026 by a blanket lien on a portion of the Company’s commercial and consumer loan portfolios (excluding those secured by real estate collateral) totaling approximately $321.1 million and specific investment securities with a carrying value of $616.3 million. No borrowings were outstanding at June 30, 2026 or December 31, 2025. Our overall on-balance sheet liquidity ratio was 15.7% at June 30, 2026 compared to 14.9% at December 31, 2025. We define our liquidity ratio as net liquid assets (cash, unpledged securities and other marketable assets) as a percentage of our net liabilities (unpledged deposits and borrowings). Our total liquidity ratio, including the $2.4 billion in available lines of credit, was 32.8% as of June 30, 2026. Not included in these ratios are the readily available sources of funds through brokered deposits. As of June 30, 2026, our brokered deposits availability was $1.9 billion per our internal policy. The amount and timing of our contractual obligations and commercial commitments have not changed materially since December 31, 2025, the detail of w hich is presented in the "Contractual Obligations and Other Commercial Commitments" table of our 2025 Annual Report on Form 10-K. In addition, we are not involved in any legal proceedings that, in our opinion, could have a material effect on our consolidated financial position. Off-Balance Sheet Arrangements and Derivative Financial Instruments Off-balance sheet arrangements include transactions, agreements, or other contractual arrangements pursuant to which we have obligations or provide guarantees on behalf of an unconsolidated entity. 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 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. Derivative financial instruments include futures, forwards, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We do not engage in significant derivatives activities. However, we maintain a program whereby we enter into interest rate swaps with certain commercial loan customers, with offsetting positions to dealers under a back-to-back swap program. At June 30, 2026, the Company's derivative financial instruments consisted entirely of customer back-to-back interest rate swaps which are not designated as hedges. Under this program, the Company executes interest rate swaps with commercial banking customers to facilitate their risk management strategies. Those interest rate swaps are simultaneously economically hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program are not designated as hedging instruments, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. There have been no material changes from the derivative positions discussed in Note 13 of the Company's Annual Report on Form 10-K for the year ended December 31, 2025. Page 48 Index Capital Resources There have been no material changes to the treatment of capital resources as discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company's Annual Report on Form 10-K for the year ended December 31, 2025. In addition to the risk-based capital requirements described above, we are subject to a leverage capital requirement, which calls for a minimum ratio of Tier 1 capital (as defined above) to quarterly average total assets of 3.00% to 5.00%, depending upon the institution’s composite ratings as determined by its regulators. The Federal Reserve has not advised us of any requirement specifically applicable to us. At June 30, 2026, as shown in the table below, we were well-capitalized. The capital ratios at June 30, 2026 remained materially consistent with the 2025 year end ratios. The following table presents the capital ratios for the Company and the regulatory minimums discussed above for the periods indicated: June 30, 2026 December 31, 2025 Minimum required Risk-based capital ratios: Common equity Tier 1 ratio 14.09 % 14.10 % 7.00 % Tier I capital ratio 14.81 % 14.87 % 8.50 % Total risk-based capital ratio 16.06 % 16.12 % 10.50 % Leverage capital ratio: Tier 1 capital to quarterly average total assets 11.60 % 11.21 % 4.00 % The Bank is also subject to capital requirements that do not vary materially from the Company’s capital ratios presented above. At June 30, 2026, the Bank exceeded the minimum ratios established by the regulatory authorities. In addition to regulatory capital ratios, we also closely monitor our ratio of tangible common equity ("TCE") to tangible assets (the "TCE ratio"), which is a non-GAAP financial measure. The TCE ratio excludes the effect of goodwill and other intangible assets, net of related taxes from the GAAP basis total shareholders’ common equity and GAAP basis total assets. Management believes this non-GAAP financial measure provides additional information that is useful to investors in evaluating our performance and may facilitate comparisons with other institutions in the banking industry as well as period-to-period comparisons. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, are not audited, and may not be comparable to other similarly titled financial measures used by other companies. Investors should not consider non-GAAP measures in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP. The TCE ratio was 9.83% at June 30, 2026 compared to 9.61% at December 31, 2025. Page 49 Index The following table reconciles common equity to TCE and provides the calculation of the TCE ratio: ($ in thousands) June 30, 2026 December 31, 2025 Reconciliation of Common Equity to TCE Total shareholders' common equity $ 1,716,460 $ 1,654,168 Less: Goodwill and other intangibles, net of related taxes (481,673) (483,644) TCE $ 1,234,787 $ 1,170,524 Reconciliation of Total Assets to Tangible Assets Total assets $ 13,041,615 $ 12,668,339 Less: Goodwill and other intangibles, net of related taxes (481,673) (483,644) Tangible assets $ 12,559,942 $ 12,184,695 TCE ratio 9.83 % 9.61 % Stock Repurchase Plans The following table discloses shares of our common stock repurchased during the three months ended June 30, 2026. ($ in millions, except per share data) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs(1) April 1, 2026 to April 30, 2026 — $ — — $ 34,885,489 May 1, 2026 to May 31, 2026 36,298 $ 58.47 36,298 $ 32,763,290 June 1, 2026 to June 30, 2026 — $ — — $ 32,763,290 Total 36,298 $ 58.47 36,298 $ 32,763,290 (1) On January 27, 2026, the Board of the Company reauthorized the repurchase of up to $40 million in shares of the Company's common stock in private transactions and open market purchases through January 27, 2027. Any such repurchases would be made pursuant to a plan approved by and containing provisions about the timing, purchase prices and quantities purchased determined by management in its discretion. During the quarter ended June 30, 2026, a total of 36,298 shares were repurchased at an average price per share of $58.47. As of June 30, 2026, the Company had remaining authorization to purchase up to $32.8 million of outstanding stock under the program.