UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2021~~2022

Commission File Number 0-15572

FIRST BANCORP

(Exact Name of Registrant as Specified in its Charter)

North Carolina

56-1421916

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

300 SW Broad St.,

Southern Pines

North Carolina

28387

(Address of Principal Executive Offices)

(Zip Code)

(Registrant's telephone number, including area code)

(910)

246-2500

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered:
Common Stock, No Par Value	FBNC	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of shares of the registrant's Common Stock outstanding on April 30, ~~2021~~2022 was ~~28,489,474.~~35,639,889.

INDEX

FIRST BANCORP AND SUBSIDIARIES


			Page

Part I. Financial Information

Item 1 - Financial Statements
Consolidated Balance Sheets - March 31, ~~2021~~202 2 and December 31, ~~2020~~20 21			4
Consolidated Statements of Income - For the Three Months Ended March 31, ~~2021~~202 2 and ~~2020~~202 1			5
Consolidated Statements of Comprehensive Income - For the Three Months Ended March 31, ~~2021~~202 2 and ~~2020~~202 1			6
Consolidated Statements of Shareholders’ Equity - For the Three Months Ended March 31, ~~2021~~202 2 and ~~2020~~2021			7
Consolidated Statements of Cash Flows - For the Three Months Ended March 31, ~~2021~~202 2 and ~~2020~~2021			8
Notes to Consolidated Financial Statements			9
Item 2 – Management’s Discussion and Analysis of Consolidated Results of Operations and Financial Condition			4033
Item 3 – Quantitative and Qualitative Disclosures About Market Risk			5445
Item 4 – Controls and Procedures			5647

Part II. Other Information

Item 1 – Legal Proceedings			5647
Item 1A – Risk Factors			5647
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			5647
Item 6 – Exhibits			5849
Signatures			5950

Page 2

Index

FORWARD-LOOKING STATEMENTS

Part I of this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Further, forward-looking statements are intended to speak only as of the date made. Such statements are often characterized by the use of qualifying words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” or other statements concerning our opinions or judgment about future events. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of our customers, our level of success in integrating acquisitions, actions of government regulators, the level of market interest rates, and general economic conditions, including the impact of the current pandemic. For additional information about factors that could affect the matters discussed in this paragraph, see the “Risk Factors” section of our ~~2020~~2021 Annual Report on Form 10-K and Item 1A of Part II of this report.

Page 3

Index

Part I. Financial Information

Item 1 - Financial Statements

First Bancorp and Subsidiaries

Consolidated Balance Sheets


($ in thousands)	($ in thousands)	March 31, 2021 (unaudited)		December 31, 2020	($ in thousands)	March 31, 2022 (unaudited)		December 31, 2021
ASSETS	ASSETS				ASSETS
Cash and due from banks, noninterest-bearing	Cash and due from banks, noninterest-bearing	$	71,206	93,724	Cash and due from banks, noninterest-bearing	$	124,785	128,228
Due from banks, interest-bearing	Due from banks, interest-bearing	458,860		273,566	Due from banks, interest-bearing	440,974		332,934
Total cash and cash equivalents	Total cash and cash equivalents	530,066		367,290	Total cash and cash equivalents	565,759		461,162

Securities available for sale	Securities available for sale	1,821,697		1,453,132	Securities available for sale	2,685,048		2,630,414
Securities held to maturity (fair values of $195,424 and $170,734)		198,843		167,551
Securities held to maturity (fair values of $492,307 and $511,699)					Securities held to maturity (fair values of $492,307 and $511,699)	546,090		513,825

Presold mortgages in process of settlement at fair value	Presold mortgages in process of settlement at fair value	31,869		42,271	Presold mortgages in process of settlement at fair value	5,672		19,257
SBA Loans held for sale		7,002		6,077
SBA and other loans held for sale					SBA and other loans held for sale	3,630		61,003

Loans	Loans	4,624,054		4,731,315	Loans	6,064,698		6,081,715
Allowance for credit losses on loans	Allowance for credit losses on loans	(65,849)		(52,388)	Allowance for credit losses on loans	(82,069)		(78,789)
Net loans	Net loans	4,558,205		4,678,927	Net loans	5,982,629		6,002,926

Premises and equipment	Premises and equipment	123,271		120,502	Premises and equipment	135,482		136,092
Operating right-of-use lease assets	Operating right-of-use lease assets	16,899		17,514	Operating right-of-use lease assets	20,380		20,719
Accrued interest receivable	Accrued interest receivable	18,652		20,272	Accrued interest receivable	24,728		25,896
Goodwill	Goodwill	239,272		239,272	Goodwill	364,263		364,263
Other intangible assets	Other intangible assets	14,606		15,366	Other intangible assets	16,928		17,827
Foreclosed properties	Foreclosed properties	1,811		2,424	Foreclosed properties	2,750		3,071
Bank-owned life insurance	Bank-owned life insurance	107,594		106,974	Bank-owned life insurance	164,273		165,786
Other assets	Other assets	66,607		52,179	Other assets	134,428		86,660
Total assets	Total assets	$	7,736,394	7,289,751	Total assets	$	10,652,060	10,508,901

LIABILITIES	LIABILITIES				LIABILITIES
Deposits: Noninterest bearing checking accounts		$	2,430,198	2,210,012
Interest bearing checking accounts		1,258,500		1,172,022
Deposits: Noninterest-bearing checking accounts					Deposits: Noninterest-bearing checking accounts	$	3,593,642	3,348,622
Interest-bearing checking accounts					Interest-bearing checking accounts	1,577,197		1,593,231
Money market accounts	Money market accounts	1,721,230		1,581,364	Money market accounts	2,636,913		2,562,283
Savings accounts	Savings accounts	567,715		519,266	Savings accounts	735,659		708,054
Time deposits of $100,000 or more	Time deposits of $100,000 or more	535,519		564,365	Time deposits of $100,000 or more	543,542		613,414
Other time deposits	Other time deposits	220,325		226,567	Other time deposits	298,194		299,025
Total deposits	Total deposits	6,733,487		6,273,596	Total deposits	9,385,147		9,124,629
Borrowings	Borrowings	61,342		61,829	Borrowings	67,415		67,386
Accrued interest payable	Accrued interest payable	741		904	Accrued interest payable	576		607
Operating lease liabilities	Operating lease liabilities	17,354		17,868	Operating lease liabilities	20,903		21,192
Other liabilities	Other liabilities	46,617		42,133	Other liabilities	60,529		64,512
Total liabilities	Total liabilities	6,859,541		6,396,330	Total liabilities	9,534,570		9,278,326

Commitments and contingencies	Commitments and contingencies	0		0	Commitments and contingencies	0		0

SHAREHOLDERS’ EQUITY	SHAREHOLDERS’ EQUITY				SHAREHOLDERS’ EQUITY
Preferred stock, no par value per share. Authorized: 5,000,000 shares	Preferred stock, no par value per share. Authorized: 5,000,000 shares				Preferred stock, no par value per share. Authorized: 5,000,000 shares
Issued & outstanding: none and none		0		0
Issued & outstanding: none as of March 31, 2022 and December 31, 2021					Issued & outstanding: none as of March 31, 2022 and December 31, 2021	—		—
Common stock, no par value per share. Authorized: 40,000,000 shares	Common stock, no par value per share. Authorized: 40,000,000 shares				Common stock, no par value per share. Authorized: 40,000,000 shares
Issued & outstanding: 28,489,474 and 28,579,335 shares		397,094		400,582
Issued & outstanding: 35,639,889 shares and 35,629,177 shares as of March 31, 2022 and December 31, 2021, respectively					Issued & outstanding: 35,639,889 shares and 35,629,177 shares as of March 31, 2022 and December 31, 2021, respectively	723,441		722,671
Retained earnings	Retained earnings	483,944		478,489	Retained earnings	559,004		532,874
Stock in rabbi trust assumed in acquisition	Stock in rabbi trust assumed in acquisition	(2,256)		(2,243)	Stock in rabbi trust assumed in acquisition	(1,814)		(1,803)
Rabbi trust obligation	Rabbi trust obligation	2,256		2,243	Rabbi trust obligation	1,814		1,803
Accumulated other comprehensive income (loss)		(4,185)		14,350
Accumulated other comprehensive loss					Accumulated other comprehensive loss	(164,955)		(24,970)
Total shareholders’ equity	Total shareholders’ equity	876,853		893,421	Total shareholders’ equity	1,117,490		1,230,575
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	7,736,394	7,289,751	Total liabilities and shareholders’ equity	$	10,652,060	10,508,901

See accompanying notes to unaudited consolidated financial statements.

Page 4

Index

First Bancorp and Subsidiaries

Consolidated Statements of Income

($ in thousands, except share data-unaudited) Three Months Ended
March 31,
2021 2020
INTEREST INCOME
Interest and fees on loans $ 51,073 55,297
Interest on investment securities:
Taxable interest income 5,913 5,474
Tax-exempt interest income 323 164
Other, principally overnight investments 700 1,098
Total interest income 58,009 62,033
INTEREST EXPENSE
Savings, checking and money market accounts 1,314 2,359
Time deposits of $100,000 or more 858 2,924
Other time deposits 216 490
Borrowings 383 1,501
Total interest expense 2,771 7,274
Net interest income 55,238 54,759
Provision for credit losses 0 5,590
Net interest income after provision for credit losses 55,238 49,169
NONINTEREST INCOME
Service charges on deposit accounts 2,733 3,337
Other service charges, commissions and fees 5,522 4,069
Fees from presold mortgage loans 4,544 1,841
Commissions from sales of insurance and financial products 2,190 2,068
SBA consulting fees 2,764 1,027
SBA loan sale gains 2,330 647
Bank-owned life insurance income 620 642
Other gains (losses), net (34) 74
Total noninterest income 20,669 13,705
NONINTEREST EXPENSES
Salaries expense 20,131 20,110
Employee benefits expense 4,574 4,547
Total personnel expense 24,705 24,657
Occupancy expense 2,904 2,958
Equipment related expenses 1,045 1,145
Intangibles amortization expense 897 1,055
Foreclosed property losses, net 157 159
Other operating expenses 10,357 10,102
Total noninterest expenses 40,065 40,076
Income before income taxes 35,842 22,798
Income tax expense 7,648 4,618
Net income $ 28,194 18,180
Earnings per common share:
Basic $ 0.99 0.62
Diluted 0.99 0.62
Dividends declared per common share $ 0.20 0.18
Weighted average common shares outstanding:
Basic 28,357,809 29,230,788
Diluted 28,537,853 29,399,114


	Three Months Ended March 31,
	2022		2021
($ in thousands, except share data)	(unaudited)
INTEREST INCOME
Interest and fees on loans	$	64,202	51,073
Interest on investment securities:
Taxable interest income	13,210		5,913
Tax-exempt interest income	1,048		323
Other, principally overnight investments	649		700
Total interest income	79,109		58,009
INTEREST EXPENSE
Savings, checking and money market accounts	1,185		1,314
Time deposits of $100,000 or more	430		858
Other time deposits	156		216
Borrowings	460		383
Total interest expense	2,231		2,771

Net interest income	76,878		55,238
Provision for credit losses	3,500		—
Reversal of provision for unfunded commitments	(1,500)		—
Total provision for credit losses	2,000		—
Net interest income after provision for credit losses	74,878		55,238
NONINTEREST INCOME
Service charges on deposit accounts	3,541		2,733
Other service charges, commissions and fees	7,005		5,522
Fees from presold mortgage loans	1,121		4,544
Commissions from sales of insurance and financial products	945		2,190
SBA consulting fees	780		2,764
SBA loan sale gains	3,261		2,330
Bank-owned life insurance income	976		620

Other gains (losses), net	1,622		(34)
Total noninterest income	19,251		20,669
NONINTEREST EXPENSES
Salaries expense	23,454		20,131
Employee benefits expense	5,578		4,574
Total personnel expense	29,032		24,705
Occupancy expense	3,384		2,904
Equipment related expenses	1,304		1,045
Merger and acquisition expenses	3,484		—
Intangibles amortization expense	1,017		897
Foreclosed property (gains) losses, net	(80)		157
Other operating expenses	13,324		10,357
Total noninterest expenses	51,465		40,065

Income before income taxes	42,664		35,842
Income tax expense	8,695		7,648

Net income	$	33,969	28,194

Earnings per common share:
Basic	$	0.95	0.99
Diluted	0.95		0.99

Dividends declared per common share	$	0.22	0.20

Weighted average common shares outstanding:
Basic	35,433,739		28,357,809
Diluted	35,640,978		28,537,853

See accompanying notes to unaudited consolidated financial statements.

Page 5

Index

First Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income

($ in thousands-unaudited) Three Months Ended
March 31,
2021 2020
Net income $ 28,194 18,180
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period, pretax (24,235) 20,765
Tax (expense) benefit 5,569 (4,772)
Postretirement Plans:
Amortization of unrecognized net actuarial loss 171 178
Tax benefit (40) (41)
Other comprehensive income (loss) (18,535) 16,130
Comprehensive income $ 9,659 34,310


	Three Months Ended March 31,
	2022		2021
($ in thousands)	(unaudited)
Net income	$	33,969	28,194
Other comprehensive loss:
Unrealized losses on securities available for sale:
Unrealized holding losses arising during the period, pretax	(181,795)		(24,235)
Tax benefit	41,776		5,569


Postretirement Plans:
Amortization of unrecognized net actuarial loss	44		171
Tax benefit	(10)		(40)
Other comprehensive loss	(139,985)		(18,535)
Comprehensive (loss) income	$	(106,016)	9,659

See accompanying notes to unaudited consolidated financial statements.

Page 6

Index

First Bancorp and Subsidiaries

Consolidated Statements of Shareholders’ Equity


($ in thousands, except share data - unaudited)	($ in thousands, except share data - unaudited)	Common Stock			Retained Earnings		Stock in Rabbi Trust Assumed in Acquisition	Rabbi Trust Obligation		Accumulated Other Comprehensive Income (Loss)	Total Shareholders’ Equity	($ in thousands, except share data - unaudited)	Common Stock				Retained Earnings		Stock in Rabbi Trust Assumed in Acquisition		Rabbi Trust Obligation		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
		Shares	Amount						Shares				Amount
Three Months Ended March 31, 2020
Balances, January 1, 2020		29,601	$	429,514		417,764		(2,587)		2,587	5,123			852,401
Net income					18,180						18,180
Cash dividends declared ($0.18 per common share)					(5,235)						(5,235)
Change in Rabbi Trust obligation							(15)	15			0

Stock repurchases		(576)	(20,000)								(20,000)

Stock-based compensation		16	722								722
Other comprehensive income (loss)										16,130	16,130
Balances, March 31, 2020		29,041	$	410,236	430,709		(2,602)	2,602		21,253	862,198

Three Months Ended March 31, 2021	Three Months Ended March 31, 2021											Three Months Ended March 31, 2021
Balances, January 1, 2021	Balances, January 1, 2021	28,579	$	400,582	478,489		(2,243)	2,243		14,350	893,421	Balances, January 1, 2021	28,579		$	400,582		478,489		(2,243)		2,243		14,350		893,421
Adoption of new accounting standard	Adoption of new accounting standard				(17,051)						(17,051)	Adoption of new accounting standard					(17,051)								(17,051)
Net income	Net income				28,194						28,194	Net income					28,194								28,194
Cash dividends declared ($0.20 per common share)	Cash dividends declared ($0.20 per common share)				(5,688)						(5,688)	Cash dividends declared ($0.20 per common share)					(5,688)								(5,688)
Change in Rabbi Trust obligation	Change in Rabbi Trust obligation						(13)	13			0	Change in Rabbi Trust obligation							(13)		13				—

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

Stock-based compensation												Stock-based compensation	20		651										651
Other comprehensive loss												Other comprehensive loss											(18,535)		(18,535)
Balances, March 31, 2021												Balances, March 31, 2021	28,489		$	397,094	483,944		(2,256)		2,256		(4,185)		876,853

Three Months Ended March 31, 2022												Three Months Ended March 31, 2022
Balances, January 1, 2022												Balances, January 1, 2022	35,629		$	722,671	532,874		(1,803)		1,803		(24,970)		1,230,575
Net income												Net income					33,969								33,969
Cash dividends declared ($0.22 per common share)												Cash dividends declared ($0.22 per common share)					(7,839)								(7,839)
Change in Rabbi Trust obligation												Change in Rabbi Trust obligation							(11)		11				—

Stock withheld for payment of taxes	Stock withheld for payment of taxes	(3)	(103)								(103)	Stock withheld for payment of taxes	(3)		(117)										(117)
Stock-based compensation	Stock-based compensation	20	651								651	Stock-based compensation	14		887										887
Other comprehensive income (loss)										(18,535)	(18,535)
Balances, March 31, 2021		28,489	$	397,094	483,944		(2,256)	2,256		(4,185)	876,853
Other comprehensive loss												Other comprehensive loss											(139,985)		(139,985)
Balances, March 31, 2022												Balances, March 31, 2022	35,640		$	723,441	559,004		(1,814)		1,814		(164,955)		1,117,490

See accompanying notes to unaudited consolidated financial statements.

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Index

First Bancorp and Subsidiaries

Consolidated Statements of Cash Flows


						Three Months Ended March 31,
($ in thousands-unaudited)	($ in thousands-unaudited)	Three Months Ended March 31,			($ in thousands-unaudited)	2022		2021
		2021		2020
Cash Flows From Operating Activities	Cash Flows From Operating Activities				Cash Flows From Operating Activities
Net income	Net income	$	28,194	18,180	Net income	$	33,969	28,194
Reconciliation of net income to net cash provided by operating activities:	Reconciliation of net income to net cash provided by operating activities:				Reconciliation of net income to net cash provided by operating activities:
Provision for credit losses	Provision for credit losses	0		5,590	Provision for credit losses	2,000		—
Net security premium amortization	Net security premium amortization	2,876		804	Net security premium amortization	3,437		2,876
Loan discount accretion	Loan discount accretion	(1,341)		(1,841)	Loan discount accretion	(1,671)		(1,341)
Other purchase accounting accretion and amortization, net	Other purchase accounting accretion and amortization, net	29		14	Other purchase accounting accretion and amortization, net	(172)		29
Foreclosed property losses and write-downs, net		157		159
Foreclosed property (gains) losses and write-downs, net					Foreclosed property (gains) losses and write-downs, net	(80)		157

Other losses		34		(74)
Increase in net deferred loan fees		2,845		320
Other (gains) losses, net					Other (gains) losses, net	(1,622)		34
(Decrease) increase in net deferred loan fees					(Decrease) increase in net deferred loan fees	(776)		2,845
Bank-owned life insurance income	Bank-owned life insurance income	(620)		(642)	Bank-owned life insurance income	(976)		(620)
Depreciation of premises and equipment	Depreciation of premises and equipment	1,448		1,563	Depreciation of premises and equipment	1,726		1,448
Amortization of operating lease right-of-use assets	Amortization of operating lease right-of-use assets	517		496	Amortization of operating lease right-of-use assets	339		517
Repayments of lease obligations	Repayments of lease obligations	(416)		(452)	Repayments of lease obligations	(289)		(416)
Stock-based compensation expense	Stock-based compensation expense	397		513	Stock-based compensation expense	547		397
Amortization of intangible assets	Amortization of intangible assets	897		1,055	Amortization of intangible assets	1,017		897
Amortization of SBA servicing assets	Amortization of SBA servicing assets	470		918	Amortization of SBA servicing assets	626		470
Fees/gains from sale of presold mortgages and SBA loans	Fees/gains from sale of presold mortgages and SBA loans	(6,874)		(2,488)	Fees/gains from sale of presold mortgages and SBA loans	(4,382)		(6,874)
Origination of presold mortgage loans in process of settlement	Origination of presold mortgage loans in process of settlement	(112,592)		(48,143)	Origination of presold mortgage loans in process of settlement	(46,488)		(112,592)
Proceeds from sales of presold mortgage loans in process of settlement	Proceeds from sales of presold mortgage loans in process of settlement	127,346		54,764	Proceeds from sales of presold mortgage loans in process of settlement	60,860		127,346
Origination of SBA loans for sale	Origination of SBA loans for sale	(37,359)		(36,081)	Origination of SBA loans for sale	(39,807)		(37,359)
Proceeds from sales of SBA loans		32,467		16,031
Proceeds from sales of SBA and other loans					Proceeds from sales of SBA and other loans	88,895		32,467
Decrease in accrued interest receivable	Decrease in accrued interest receivable	1,620		881	Decrease in accrued interest receivable	1,168		1,620
Increase in other assets		(5,242)		(1,096)
Increase in net deferred income tax asset		(4,596)		(63)
Decrease (increase) in other assets					Decrease (increase) in other assets	3,509		(5,242)
Decrease (increase) in net deferred income tax asset					Decrease (increase) in net deferred income tax asset	1,160		(4,596)
Decrease in accrued interest payable	Decrease in accrued interest payable	(163)		(54)	Decrease in accrued interest payable	(31)		(163)
Increase in other liabilities		639		3,318
(Decrease) increase in other liabilities					(Decrease) increase in other liabilities	(2,816)		639
Net cash provided by operating activities	Net cash provided by operating activities	30,733		13,672	Net cash provided by operating activities	100,143		30,733
Cash Flows From Investing Activities	Cash Flows From Investing Activities				Cash Flows From Investing Activities
Purchases of securities available for sale	Purchases of securities available for sale	(475,960)		(9,423)	Purchases of securities available for sale	(330,147)		(475,960)
Purchases of securities held to maturity	Purchases of securities held to maturity	(37,438)		(3,624)	Purchases of securities held to maturity	(36,089)		(37,438)
Proceeds from maturities/issuer calls of securities available for sale	Proceeds from maturities/issuer calls of securities available for sale	80,650		45,037	Proceeds from maturities/issuer calls of securities available for sale	91,421		80,650
Proceeds from maturities/issuer calls of securities held to maturity	Proceeds from maturities/issuer calls of securities held to maturity	5,780		10,075	Proceeds from maturities/issuer calls of securities held to maturity	2,684		5,780

Redemptions (purchases) of FRB and FHLB stock, net		1,836		(4,572)
Net decrease (increase) in loans		110,212		(95,680)
(Purchases) redemptions of FRB and FHLB stock, net					(Purchases) redemptions of FRB and FHLB stock, net	(9,818)		1,836
Net decrease in loans					Net decrease in loans	29,927		110,212
Proceeds from sales of foreclosed properties	Proceeds from sales of foreclosed properties	1,183		889	Proceeds from sales of foreclosed properties	520		1,183
Purchases of premises and equipment	Purchases of premises and equipment	(4,534)		(1,321)	Purchases of premises and equipment	(1,217)		(4,534)
Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	218		189	Proceeds from sales of premises and equipment	99		218

Bank-owned life insurance death benefits					Bank-owned life insurance death benefits	3,595		—
Net cash used by investing activities	Net cash used by investing activities	(318,053)		(58,430)	Net cash used by investing activities	(249,025)		(318,053)
Cash Flows From Financing Activities	Cash Flows From Financing Activities				Cash Flows From Financing Activities
Net increase in deposits	Net increase in deposits	459,906		113,664	Net increase in deposits	260,752		459,906
Net decrease in short-term borrowings		0		(48,000)
Proceeds from long-term borrowings		0		150,000

Payments on long-term borrowings	Payments on long-term borrowings	(531)		(531)	Payments on long-term borrowings	(33)		(531)
Cash dividends paid – common stock	Cash dividends paid – common stock	(5,140)		(5,328)	Cash dividends paid – common stock	(7,123)		(5,140)
Repurchases of common stock	Repurchases of common stock	(4,036)		(20,000)	Repurchases of common stock	—		(4,036)

Payment of taxes related to stock withheld	Payment of taxes related to stock withheld	(103)		0	Payment of taxes related to stock withheld	(117)		(103)
Net cash provided by financing activities	Net cash provided by financing activities	450,096		189,805	Net cash provided by financing activities	253,479		450,096
Increase in cash and cash equivalents	Increase in cash and cash equivalents	162,776		145,047	Increase in cash and cash equivalents	104,597		162,776
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	367,290		231,302	Cash and cash equivalents, beginning of period	461,162		367,290
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	530,066	376,349	Cash and cash equivalents, end of period	$	565,759	530,066

Supplemental Disclosures of Cash Flow Information:	Supplemental Disclosures of Cash Flow Information:				Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest	Cash paid during the period for interest	$	2,934	7,328	Cash paid during the period for interest	$	2,422	2,934
Cash paid during the period for income taxes	Cash paid during the period for income taxes	9,585		20	Cash paid during the period for income taxes	—		9,585
Non-cash: Unrealized (loss) gain on securities available for sale, net of taxes		(18,666)		15,993
Non-cash: Unrealized loss on securities available for sale, net of taxes					Non-cash: Unrealized loss on securities available for sale, net of taxes	(140,019)		(18,666)
Non-cash: Foreclosed loans transferred to other real estate	Non-cash: Foreclosed loans transferred to other real estate	727		662	Non-cash: Foreclosed loans transferred to other real estate	119		727
Non-cash: Accrued dividends at end of period					Non-cash: Accrued dividends at end of period	7,839		5,688
Non-cash: Initial recognition of operating lease right-of-use assets and operating lease liabilities	Non-cash: Initial recognition of operating lease right-of-use assets and operating lease liabilities	444		0	Non-cash: Initial recognition of operating lease right-of-use assets and operating lease liabilities	—		444

See accompanying notes to consolidated financial statements.

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First Bancorp and Subsidiaries

Notes to Consolidated Financial Statements


(unaudited)			~~For the Period Ended March 31, 2021~~

Note 1 - Organization and Basis of Presentation

The consolidated financial statements include the accounts of First Bancorp (the “Company”) and its wholly owned subsidiary First Bank (the “Bank”). The Bank has three wholly owned subsidiaries that are fully consolidated, SBA Complete, Inc. (“SBA Complete”), Magnolia Financial, Inc. ("Magnolia Financial"), and First Troy SPE, LLC. All significant intercompany accounts and transactions have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes necessary for complete financial statements in accordance with GAAP. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of March 31, ~~2021,~~2022, the consolidated results of operations for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, and the consolidated cash flows for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021. Any such adjustments were of a normal, recurring nature. These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes in the Annual Report on Form 10-K for the year ended December 31, 2021. Operating results for interim period are not necessarily indicative of the results that may be expected for the full year.

Reference is made to Note 1 of the ~~2020~~2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for a discussion of accounting policies and other relevant information with respect to the financial statements. ~~The results of operations for the~~To maintain consistency and comparability, certain amounts from prior periods ~~ended March 31, 2021 and 2020 are not necessarily indicative of the results~~have been reclassified to ~~be expected for the full year.~~ conform to current period presentation with no effect on net income or shareholders' equity as previously reported.

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

~~Recent Developments:~~Impact of COVID-19 - ~~The~~

Our market areas and local economies continue to show signs of recovery from the impact of the COVID-19 pandemic. However, the current pandemic ~~has continued to~~is ongoing and dynamic in nature, and there are many related uncertainties, including, among other things, its severity and new variants that may arise; its ultimate duration and infection spikes that may occur; the impact on our ~~operations in 2021. We remain committed~~customers, employees and ~~focused~~vendors; the impact on the ~~health~~financial services and ~~safety of our team members, customers,~~banking industry; and ~~communities, and we continue to have~~the ongoing impact on the economy as a many employees working remotely. The most significant effects of the pandemic that we have continued to experience in 2021 have been lower loan demand (excluding PPP loans) and high deposit growth, which has likely been impacted by stimulus payments and higher savings rates by our customers. Low interest rates have also resulted in high levels of mortgage loan refinancings, which have increased our mortgage loan sales income, but have reduced our level of mortgage loans outstanding. Thus far, we have not experienced a meaningful increase in problem loans or charge-offs.

On December 27, 2020, the Economic Aid Act was signed into law, which included another round of Paycheck Protection Program (PPP) funding. The Company began originating the new round of PPP loans in January 2021. During the first quarter of 2021, the Company funded $111 million in PPP loans, while also processing $111 million in forgiveness payments related to 2020 PPP loan originations.

In response to the pandemic onset in 2020, the Company generally offered impacted borrowers loan payment deferrals of 90 days in duration. Since that time, most of our borrowers have resumed payments and as of March 31, 2021, the Company had remaining pandemic-related loan deferrals of $5.9 million.

whole. The extent to which the COVID-19 pandemic has 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 the scope and duration of the COVID-19 pandemic and

actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.

Note 2 – Accounting ~~Policies~~

Note 1 to the 2020 Annual Report on Form 10-K filed with the SEC contains a description of the accounting policies followed by the Company and a discussion of recent accounting pronouncements. The following paragraphs update that information as necessary.Pronouncements

Accounting Standards Adopted in ~~2021~~

On January 1, 2021, the Company adopted Accounting Standards Codification ("ASC") 326 ("CECL"), which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to off-balance sheet credit exposures, such as unfunded commitments to extend credit. In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not they will be required to sell.2022

The Company ~~adopted CECL as~~did not adopt any accounting standards during the first three months of ~~January 1, 2021 using~~2022.

Accounting Standards Pending Adoption

ASU 2022-02, "Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." This Accounting Standards Update ("ASU") eliminates the ~~modified retrospective method~~accounting guidance for ~~all~~troubled debt restructurings by creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial ~~assets measured at amortized cost~~difficulty. This ASU also requires entities to disclose current period gross write-offs by year of origination for financing receivables and ~~off-balance sheet credit exposures. Results~~net investment in leases. The amendments in this ASU will be effective for ~~reporting periods~~fiscal years beginning after December 15, 2022 including interim periods within those fiscal years and early adoption is permitted. The entity must have adopted the amendments in ASU 2016-13 ("CECL") to adopt the amendments in this ASU. The Company is currently evaluating the impact of

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January 1, 2021 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”). The transition adjustment ofadopting the adoption of CECL included an increase in the allowance for credit losses on loans of $14.6 million, which is presented as a reduction to loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $7.5 million, which is recorded within Other Liabilities. The adoption of CECL had an insignificant impactnew guidance on the ~~Company's held~~consolidated financial statements but does not expect it to maturity and available for sale securities portfolios. The Company recorded a net decrease to retained earnings of $17.1 million as of January 1, 2021 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Federal banking regulatory agencies provided optional relief to delay the adverse regulatory capital impact of CECL at adoption. The Company did not elect the option.

The Company adopted CECL using the prospective transition approach for PCD assets that were previously classified as PCI under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. The amortized cost basis of the PCD assets was adjusted to reflect the addition of $0.1 million of the allowance for credit losses. The remaining noncredit discount (based on the adjusted amortized cost basis) will be accreted into interest income at a rate that approximates the effective interest rate as of January 1, 2021.

With regard to PCD assets, because the Company elected to disaggregate the former PCI pools and no longer considers these pools to be the unit of account, contractually delinquent PCD loans will be reported as nonaccrual loans using the same criteria as other loans. Similarly, although management did not reassess whether modifications to individual acquired financial assets accounted for in pools were TDRs as of the date of adoption, PCD loans that are restructured and meet the definition of troubled debt restructurings after the adoption of CECL will be reported as such.

Accrued interest for all financial instruments is included in a separate line on the face of the Consolidated Balance Sheets. The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectable interest.

The allowance for credit losses for the majority of loans was calculated using a discounted cash flow methodology applied at a loan level with a one-year reasonable and supportable forecast period and a three-year straight-line reversion period. The Company elected to use, as a practical expedient, the fair value of collateral when determining the allowance for credit losses on loans for which repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty (collateral-dependent loans).

~~The Company's CECL allowances will fluctuate over time due to macroeconomic conditions and forecasts as well as the size and composition of the loan portfolios.~~

In August 2018, the FASB amended the Compensation - Retirement Benefits – Defined Benefit Plans Topic of the Accounting Standards Codification to improve disclosure requirements for employers that sponsor defined benefit pension and other postretirement plans. The guidance removed disclosures that were no longer considered cost-beneficial, clarified the specific requirements of disclosures, and added disclosure requirements identified as relevant. The amendments were effective for the Company on January 1, 2021 and the adoption of this amendment did not have a material effect on its financial statements.

~~Securities~~- Debt securities that the Company has the positive intent and ability to hold to maturity are classified as “held to maturity” and carried at amortized cost. Debt securities not classified as held to maturity are classified as “available for sale” and carried at fair value, with unrealized holding gains and losses being reported as other comprehensive income or loss and reported as a separate component of shareholders’ equity.

Interest income includes amortization or purchase premiums or discounts. Premiums and discounts are generally amortized into income on a level yield basis, with premiums being amortized to the earliest call date and discounts being accreted to the stated maturity date. Gains and losses on sales of securities are recognized at the time of sale based upon the specific identification method.

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A debt security is placed on nonaccrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not received for a security placed on nonaccrual is reversed against interest income.

~~Allowance for Credit Losses - Securities Held to Maturity~~ - Since the adoption of ASC 326 (CECL), the Company measures expected credit losses on held to maturity debt securities on an individual security basis. Accrued interest receivable on held to maturity debt securities totaled $1.12 million at March 31, 2021 and was excluded from the estimate of credit losses.

The estimate of expected credit losses is primarily based on the ratings assigned to the securities by debt rating agencies and the average of the annual historical loss rates associated with those ratings. The Company then multiplies those loss rates, as adjusted for any modifications to reflect current conditions and reasonable and supportable forecasts as considered necessary, by the remaining lives of each individual security to arrive at a lifetime expected loss amount.

Virtually all of the mortgage-backed securities held by the Company are issued by government-sponsored corporations. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The state and local governments securities held by the Company are highly rating by major rating agencies. As a result, the allowance for credit losses on held to maturity securities was immaterial at March 31, 2021.

~~Allowance for Credit Losses - Securities Available for Sale -~~ For available for sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income with the establishment of an allowance under CECL compared to a direct write down of the security under Incurred Loss. For debt securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether any decline in fair value is due to credit loss factors. In making this assessment, management considers any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses under CECL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. At March 31, 2021, there was 0 allowance for credit losses related to the available-for-sale portfolio.

~~Accrued interest receivable on available for sale debt securities totaled $3.34 million at March 31, 2021 and was excluded from the estimate of credit losses.~~

~~Loans~~ - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $14.2 million at March 31, 2021 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under

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the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.

~~Purchased Credit Deteriorated (PCD) Loans~~ - Upon adoption of CECL, loans that were designated as purchased credit impaired (PCI) loans under the previous accounting guidance were classified as PCD loans without reassessment. The amount of PCD loans was immaterial at each period end.

In future acquisitions, the Company may purchase loans, some of which have experienced more than insignificant credit deterioration since origination. In those cases, the Company will consider internal loan grades, delinquency status and other relevant factors in assessing whether purchased loans are PCD. PCD loans are recorded at the amount paid. An initial allowance for credit losses is determined using the same methodology as other loans held for investment, but with no impact to earnings. The initial allowance for credit losses determined on a collective basis is allocated to individual loans. The sum of the loan's purchase price and allowance for credit losses becomes its initial amortized cost basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or premium, which is amortized into interest income over the life of the loan. Subsequent to initial recognition, PCD loans are subject to the same interest income recognition and impairment model as non-PCD loans, with changes to the allowance for loan losses recorded through provision expense.

~~Allowance for Credit Losses - Loans~~ - The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Estimated recoveries are considered for post-CECL adoption date charge-offs to the extend that they do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.

The allowance for credit losses is measured on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped into homogenous segments, or pools, for analysis. The Discounted Cash Flow (“DCF”) method is utilized for substantially all pools, with discounted cash flows computed for each loan in a pool based on its individual characteristics (e.g. maturity date, payment amount, interest rate, etc.), and the results are aggregated at the pool level. A probability of default and loss given default, as adjusted for recoveries (as noted above), are applied to the discounted cash flows for each pool, while considering prepayment and principal curtailment effects. The analysis produces a discounted expected cash flow total for each pool, which is then compared to the amortized cost of the pool to arrive at the expected credit loss.

In determining the proper level of default rates and loss given default, management has determined that the loss experience of the Company provides the best basis for its assessment of expected credit losses. It therefore utilized its own historical credit loss experience by each loan segment over an economic cycle, while excluding loss experience from certain acquired institutions (i.e., failed banks).

Management considers forward-looking information in estimating expected credit losses. For substantially all segments of collectively evaluated loans, the Company incorporates two or more macroeconomic drivers using a statistical regression modeling methodology. The Company subscribes to a third-party service which provides a quarterly macroeconomic baseline outlook and alternative scenarios for the United States economy. The baseline, along with the evaluation of alternative scenarios, is evaluated by management to determine the best estimate within the range of expected credit losses. The baseline forecast incorporates an equal probability of the United States economy performing better or worse than this projection. With the ongoing pandemic, along with periodic starts and stops to reopening the economy and the impact of government stimulus, the baseline and alternative scenarios have reflected a high degree of volatility in economic forecasts from month-to-month. The Company based it's adoption date allowance for credit loss adjustment primarily on the baseline forecast, which reflected ongoing threats to the economy, primarily arising from the pandemic. In reviewing the March 2021 forecasts, management noted the continued high degree of volatility of the forecasts. Given the uncertainty that the volatility is indicative of and the inherent imprecision of a forecast accurately projecting economic statistics during these unprecedented times, management elected to base its March 31, 2021 computation of the allowance for credit losses primarily on an alternative, more negative forecast, that management judged to more appropriately reflect the inherent risks to its loan portfolio. This more negative forecast's projections were materially consistent with the adoption-date forecast's projections under the baseline scenario.

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Management has also evaluated the appropriateness of the reasonable and supportable forecast scenarios utilized for each period and has made adjustments as needed. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to the long term mean of historical factors over twelve quarters using a straight-line approach. The Company generally utilizes a four-quarter forecast and a twelve-quarter reversion period to the long-term average, which is then held static for the remainder of the forecast period.

Included in its systematic methodology to determine its ACL, Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments either increase or decrease the quantitative model estimation (i.e., formulaic model results). Each period the Company considers qualitative factors that are relevant within the qualitative framework that includes the following: 1) changes in lending policies, procedures, and strategies, 2) changes in the nature and volume of the portfolio, 3) staff experience, 4) changes in volume and trends in classified loans, delinquencies and nonaccrual loans, 5) concentration risk, 6) trends in underlying collateral value, 7) external factors, including competition and legal and regulatory factors, 8) changes in the quality of the Company's loan review system, and 9) economic conditions not already captured.

The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a discounted cash flow methodology at the loan level, with loss rates, prepayment assumptions and curtailment assumptions driven by each loan’s collateral type:

~~Commercial, financial, and agricultural~~ - Risks to this loan category include industry concentration and the inability to monitor the condition of the collateral which often consists of inventory, accounts receivable and other non-real estate assets. Equipment and inventory obsolescence can also pose a risk. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt. Also included in this category for periods subsequent to March 31, 2020 are PPP loans, which are fully guaranteed by the SBA and thus have minimal risk.

~~Real estate - construction, land development, & other land loans~~ - Risks common to commercial construction loans are cost overruns, changes in market demand for property, inadequate long-term financing arrangements and declines in real estate values. Residential construction loans are susceptible to those same risks as well as those associated with residential mortgage loans (see below). Changes in market demand for property could lead to longer marketing times resulting in higher carrying costs, declining values, and higher interest rates.

~~Real estate - mortgage - residential (1-4 family) first~~ ~~- Residential mortgage loans are susceptible to weakening general economic conditions and increases in unemployment rates and declining real estate values.~~

~~Real estate - mortgage - home equity loans / lines of credit~~ - Risks common to home equity loans and lines of credit are general economic conditions, including an increase in unemployment rates, and declining real estate values which reduce or eliminate the borrower’s home equity.

~~Real estate - mortgage - commercial and other~~ - Loans in this category are susceptible to declines in occupancy rates, business failure and general economic conditions. Also, declines in real estate values and lack of suitable alternative use for the properties are risks for loans in this category.

~~Consumer loans -~~ ~~Risks common to these loans include regulatory risks, unemployment and changes in local economic conditions as well as the inability to monitor collateral consisting of personal property~~.

When management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

When the discounted cash flow method is used to determine the allowance for credit losses, management adjusts the effective interest rate used to discount expected cash flows to incorporate expected prepayments.

~~Determining the Contractual Term~~ - Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or

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~~renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.~~

~~Troubled Debt Restructurings (TDRs)~~ - A loan for which the terms have been modified resulting in a more than insignificant concession, and for which the borrower is experiencing financial difficulties, is generally considered to be a TDR. The allowance for credit loss on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.

~~Allowance for Credit Losses - Unfunded Loan Commitments~~ - Effective with the adoption of CECL, the Company estimates expected credit losses on commitments to extend credit over the contractual period in which the Company is exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancelable by the Company. The allowance for off-balance sheet credit exposures, which is reflected within "Other Liabilities," is adjusted for as an increase or decrease to the provision for credit losses. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to fund.

Note 3 ~~– Stock-Based Compensation~~

The Company recorded total stock-based compensation expense of $397,000 and $513,000 for the three months ended March 31, 2021 and 2020, respectively. The Company recognized $91,000 and $118,000 of income tax benefits related to stock-based compensation expense in the income statement for the three months ended March 31, 2021 and 2020, respectively.

At March 31, 2021, the sole equity-based compensation plan for the Company is the First Bancorp 2014 Equity Plan (the "Equity Plan"), which was approved by shareholders on May 8, 2014. As of March 31, 2021, the Equity Plan had 530,345 shares remaining available for grant.

The Equity Plan is intended to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the plans' participants with those of the Company and its shareholders. The Equity Plan allows for both grants of stock options and other types of equity-based compensation, including stock appreciation rights, restricted stock, restricted performance stock, unrestricted stock, and performance units.

Recent equity awards to employees have been made in the form of shares of restricted stock with service vesting conditions only. Compensation expense for these awards is recorded over the requisite service periods. Upon forfeiture, any previously recognized compensation cost is reversed. Upon a change in control (as defined in the Equity Plan), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested.

Certain of the Company’s equity grants contain terms that provide for a graded vesting schedule whereby portions of the award vest in increments over the requisite service period. The Company recognizes compensation expense for awards with graded vesting schedules on a straight-line basis over the requisite service period for each incremental award. Compensation expense is based on the estimated number of stock awards that will ultimately vest. Over the past five years, there have been insignificant amounts of forfeitures, and therefore the Company assumes that all awards granted with service conditions only will vest. The Company issues new shares of common stock when options are exercised.

In addition to employee equity awards, the Company's practice is to grant common shares, valued at approximately $32,000, to each non-employee director (currently 10 in total) in June of each year. Compensation expense associated with these director awards is recognized on the date of award since there are no vesting conditions.

~~The following table presents information regarding the activity for the first three months of 2021 related to the Company’s outstanding restricted stock:~~

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Long-Term Restricted Stock
Number of Units Weighted-Average
Grant-Date Fair Value
Nonvested at January 1, 2021 172,105 $ 33.80
Granted during the period 26,350 35.19
Vested during the period (6,057) 36.35
Forfeited or expired during the period (6,819) 37.32
Nonvested at March 31, 2021 185,579 $ 33.79

Total unrecognized compensation expense as of March 31, 2021 amounted to $2,576,000 with a weighted-average remaining term of 2.0 years. For the nonvested awards that are outstanding at March 31, 2021, the Company expects to record $1,542,000 in compensation expense in the next twelve months, $1,308,000 of which is expected to be recorded in the remaining quarters of 2021.

~~Note 4 – Earnings Per Common Share~~

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

For the Three Months Ended March 31,
2021 2020
($ in thousands except per
share amounts) Income
(Numerator) Shares
(Denominator) Per Share
Amount Income
(Numerator) Shares
(Denominator) Per Share
Amount
Basic EPS:
Net income $ 28,194 $ 18,180
Less: income allocated to participating securities (178) (81)
Basic EPS per common share $ 28,016 28,357,809 $ 0.99 $ 18,099 29,230,788 $ 0.62
Diluted EPS:
Net income $ 28,194 28,357,809 $ 18,180 29,230,788
Effect of Dilutive Securities 0 180,044 0 168,326
Diluted EPS per common share $ 28,194 28,537,853 $ 0.99 $ 18,180 29,399,114 $ 0.62

~~Note 5~~ – Securities

The book values and approximate fair values of investment securities at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 are summarized as follows:

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~~Index~~


($ in thousands)	($ in thousands)	March 31, 2021							December 31, 2020					($ in thousands)	March 31, 2022							December 31, 2021
		Amortized Cost		Fair Value		Unrealized			Amortized Cost		Fair Value	Unrealized			Amortized Cost				Fair Value	Unrealized		Amortized Cost			Fair Value	Unrealized
					Gains		(Losses)			Gains		(Losses)					Gains			(Losses)				Gains		(Losses)
Securities available for sale:	Securities available for sale:																	Securities available for sale:
US Treasuries														US Treasuries	$	149,534			149,391	—	(143)	$	—		—	—	—
Government-sponsored enterprise securities	Government-sponsored enterprise securities	$	70,015	67,022		0		(2,993)	70,016		70,206	371	(181)	Government-sponsored enterprise securities	71,953				64,168	—	(7,785)	71,951			69,179	—	(2,772)
Mortgage-backed securities	Mortgage-backed securities	1,711,809		1,709,811		17,167		(19,165)	1,318,998		1,337,706	20,832	(2,124)	Mortgage-backed securities	2,632,054				2,425,911	349	(206,492)	2,545,150			2,514,805	9,489	(39,834)
Corporate bonds	Corporate bonds	43,660		44,864		1,414		(210)	43,670		45,220	1,760	(210)	Corporate bonds	45,369				45,578	367	(158)	45,380			46,430	1,106	(56)
Total available for sale	Total available for sale	$	1,825,484	1,821,697		18,581		(22,368)	1,432,684		1,453,132	22,963	(2,515)	Total available for sale	$	2,898,910			2,685,048	716	(214,578)	2,662,481			2,630,414	10,595	(42,662)

Securities held to maturity:	Securities held to maturity:													Securities held to maturity:
Mortgage-backed securities	Mortgage-backed securities	$	26,977	27,999		1,022		0	29,959		30,900	941	0	Mortgage-backed securities	$	18,662			18,513	1	(150)	20,260			20,845	585	—
State and local governments	State and local governments	171,866		167,425		410		(4,851)	137,592		139,834	2,407	(165)	State and local governments	527,428				473,794	19	(53,653)	493,565			490,854	2,955	(5,666)
Total held to maturity	Total held to maturity	$	198,843	195,424		1,432		(4,851)	167,551		170,734	3,348	(165)	Total held to maturity	$	546,090			492,307	20	(53,803)	513,825			511,699	3,540	(5,666)

All of the Company’s mortgage-backed securities were issued by government-sponsored ~~corporations,~~enterprises, except for private mortgage-backed securities with a fair value of $0.9 million and ~~$1.0~~$0.9 million as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

The following table presents information regarding securities with unrealized losses at March 31, ~~2021:~~2022:


										Securities in an Unrealized Loss Position for Less than 12 Months			Securities in an Unrealized Loss Position for More than 12 Months		Total
($ in thousands)	($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months			Securities in an Unrealized Loss Position for More than 12 Months		Total		($ in thousands)	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
		Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
US Treasuries									US Treasuries	$	149,391	143	—	—	149,391	143
Government-sponsored enterprise securities	Government-sponsored enterprise securities	$	67,022	2,993	0	0	67,022	2,993	Government-sponsored enterprise securities	19,855		2,104	44,313	5,681	64,168	7,785
Mortgage-backed securities	Mortgage-backed securities	1,094,263		19,010	5,844	155	1,100,107	19,165	Mortgage-backed securities	1,656,529		133,422	705,932	73,220	2,362,461	206,642
Corporate bonds	Corporate bonds	0		0	4,790	210	4,790	210	Corporate bonds	13,914		86	928	72	14,842	158
State and local governments	State and local governments	108,006		4,851	0	0	108,006	4,851	State and local governments	431,433		46,491	40,482	7,162	471,915	53,653
Total unrealized loss position	Total unrealized loss position	$	1,269,291	26,854	10,634	365	1,279,925	27,219	Total unrealized loss position	$	2,271,122	182,246	791,655	86,135	3,062,777	268,381

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Index

The following table presents information regarding securities with unrealized losses at December 31, ~~2020:~~2021:


										Securities in an Unrealized Loss Position for Less than 12 Months			Securities in an Unrealized Loss Position for More than 12 Months		Total
($ in thousands)	($ in thousands)	Securities in an Unrealized Loss Position for Less than 12 Months			Securities in an Unrealized Loss Position for More than 12 Months		Total		($ in thousands)	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
		Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Government-sponsored enterprise securities	Government-sponsored enterprise securities	$	29,812	181	0	0	29,812	181	Government-sponsored enterprise securities	$	21,436	522	47,743	2,250	69,179	2,772
Mortgage-backed securities	Mortgage-backed securities	497,992		1,957	6,168	167	504,160	2,124	Mortgage-backed securities	1,773,022		25,977	404,484	13,857	2,177,506	39,834
Corporate bonds	Corporate bonds	3,956		45	835	165	4,791	210	Corporate bonds	999		1	945	55	1,944	56
State and local governments	State and local governments	23,310		165	0	0	23,310	165	State and local governments	228,279		3,797	34,398	1,869	262,677	5,666
Total unrealized loss position	Total unrealized loss position	$	555,070	2,348	7,003	332	562,073	2,680	Total unrealized loss position	$	2,023,736	30,297	487,570	18,031	2,511,306	48,328

As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company's security portfolio held ~~161~~600 securities ~~and 69~~of which 371 securities ~~that~~ were in an unrealized loss ~~position, respectively.~~position. In the above tables, all of the securities that were in an unrealized loss position at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 are bonds that the Company has determined

~~Page 16~~

~~Index~~

are in a loss position due primarily to interest rate factors and not credit quality concerns. In arriving at this conclusion, the Company reviewed third-party credit ratings and considered the severity of the impairment. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost.

~~NaN impairment charges were recognized for any securities during the three months ended~~At March 31, ~~2020. At adoption of CECL on January 1, 2021~~2022 and ~~at March~~December 31, 2021, the Company determined that expected credit losses associated with held to maturity debt securities was insignificant. ~~See Note 2 for additional details on the adoption of CECL as it relates to the securities portfolio.~~

The book values and approximate fair values of investment securities at March 31, ~~2021,~~2022, by contractual maturity, are summarized in the table below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


		Securities Available for Sale			Securities Held to Maturity			Securities Available for Sale			Securities Held to Maturity
($ in thousands)	($ in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value	($ in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value
Securities	Securities						Securities
Due within one year	Due within one year	$	0	0	1,587	1,620	Due within one year	$	26,102	26,381	436	440
Due after one year but within five years	Due after one year but within five years	28,660		30,023	537	557	Due after one year but within five years	152,051		151,996	—	—
Due after five years but within ten years	Due after five years but within ten years	74,015		71,578	5,355	5,389	Due after five years but within ten years	87,703		79,832	17,141	15,988
Due after ten years	Due after ten years	11,000		10,285	164,387	159,859	Due after ten years	1,000		928	509,851	457,366
Mortgage-backed securities	Mortgage-backed securities	1,711,809		1,709,811	26,977	27,999	Mortgage-backed securities	2,632,054		2,425,911	18,662	18,513
Total securities	Total securities	$	1,825,484	1,821,697	198,843	195,424	Total securities	$	2,898,910	2,685,048	546,090	492,307

At March 31, ~~2021~~2022 and December 31, ~~2020~~2021 investment securities with carrying values of ~~$718,340,000~~$852.8 million and ~~$630,303,000,~~$951.4 million, respectively, were pledged as collateral for public deposits.

At March 31, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than US Government and its agencies or government sponsored enterprises, in an amount greater than 10% of shareholders equity.

Included in ~~“other~~“Other assets” in the Consolidated Balance Sheets are investments in Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank of Richmond (“FRB”) stock totaling ~~$21,690,000~~$32.2 million and ~~$23,526,000~~$22.3 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. These investments do not have readily determinable fair values. The FHLB stock had a cost and fair value of ~~$3,970,000~~$5.3 million and ~~$5,855,000~~$4.6 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, and serves as part of the collateral for the Company’s line of credit with the FHLB and is also a requirement for membership in the FHLB system. The FRB stock had a cost and fair value of ~~$17,720,000~~$26.8 million and ~~$17,671,000~~$17.8 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, and is a requirement for FRB member bank qualification. Periodically, both the FHLB and FRB recalculate the Company’s required level of holdings, and the Company either buys more stock or redeems a portion of the stock at cost. The Company determined that neither stock was impaired at either period end.

Page 11

Index

The Company owns 12,356 Class B shares of Visa, Inc. (“Visa”) stock that were received upon Visa’s initial public offering. These shares are expected to convert into Class A Visa shares subsequent to the settlement of certain litigation against Visa, to which the Company is not a party. The Class B shares have transfer restrictions, and the conversion rate into Class A shares is periodically adjusted as Visa settles litigation. The conversion rate at March 31, ~~2021~~2022 was approximately 1.62, which means the Company would receive approximately ~~20,051~~19,993 Class A shares if the stock had converted on that date. This Class B stock does not have a readily determinable fair value and is carried at 0.zero. If a readily determinable fair value becomes available for the Class B shares, or upon the conversion to Class A shares, the Company will adjust the carrying value of the stock to its market value with a credit to earnings.

~~Page 17~~

~~Index~~

Note 64 – Loans, Allowance for Credit Losses, and Asset Quality Information

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


($ in thousands)	($ in thousands)	March 31, 2021				December 31, 2020				($ in thousands)	March 31, 2022				December 31, 2021
		Amount		Percentage		Amount		Percentage			Amount		Percentage		Amount		Percentage
All loans:	All loans:									All loans:

Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	768,318	17	%	$	782,549	17	%	Commercial, financial, and agricultural	$	603,454	10	%	$	648,997	11	%
Real estate – construction, land development & other land loans	Real estate – construction, land development & other land loans	548,508		12	%	570,672		12	%	Real estate – construction, land development & other land loans	795,886		13	%	828,549		13	%
Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages	916,169		20	%	972,378		21	%	Real estate – mortgage – residential (1-4 family) first mortgages	1,045,167		17	%	1,021,966		17	%
Real estate – mortgage – home equity loans / lines of credit	Real estate – mortgage – home equity loans / lines of credit	294,611		6	%	306,256		6	%	Real estate – mortgage – home equity loans / lines of credit	329,348		6	%	331,932		5	%
Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other	2,049,507		44	%	2,049,203		43	%	Real estate – mortgage – commercial and other	3,234,949		53	%	3,194,737		53	%
Consumer loans	Consumer loans	53,484		1	%	53,955		1	%	Consumer loans	56,822		1	%	57,238		1	%
Subtotal	Subtotal	4,630,597		100	%	4,735,013		100	%	Subtotal	6,065,626		100	%	6,083,419		100	%
Unamortized net deferred loan costs (fees)		(6,543)				(3,698)
Unamortized net deferred loan fees										Unamortized net deferred loan fees	(928)				(1,704)
Total loans	Total loans	$	4,624,054			$	4,731,315			Total loans	$	6,064,698			$	6,081,715

Included in the line item "Commercial, financial, and agricultural" in the table above are Paycheck Protection Program ("PPP") loans totaling ~~$241.4~~$15.6 million and ~~$240.5~~$39.0 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. PPP loans are fully guaranteed by the SBA. Included in unamortized net deferred loan fees are approximately ~~$9.0~~$1.3 million and ~~$6.0~~$2.6 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, in unamortized net deferred loan fees associated with PPP loans. These fees are being amortized under the effective interest method over the terms of the loans. Accelerated amortization is recorded in the periods in which principal amounts are forgiven in accordance with the terms of the program.

Included in the table above are credit card balances outstanding totaling $38.8 million and $37.9 million at March 31, 2022 and December 31, 2021, respectively. At March 31, 2022, approximately 57% of total credit card balances are business credit cards included in "commercial, financial and agricultural" above and the remaining 43% are personal credit cards included in consumer loans in the table above.

Also included in the table above are various non-PPP SBA loans, with additional information on these loans presented in the table below.


($ in thousands)	($ in thousands)	March 31, 2021		December 31, 2020	($ in thousands)	March 31, 2022		December 31, 2021
Guaranteed portions of non-PPP SBA loans included in table above	Guaranteed portions of non-PPP SBA loans included in table above	$	35,007	33,959	Guaranteed portions of non-PPP SBA loans included in table above	$	33,024	48,377
Unguaranteed portions of non-PPP SBA loans included in table above	Unguaranteed portions of non-PPP SBA loans included in table above	133,917		135,703	Unguaranteed portions of non-PPP SBA loans included in table above	126,936		122,772
Total non-PPP SBA loans included in the table above	Total non-PPP SBA loans included in the table above	$	168,924	169,662	Total non-PPP SBA loans included in the table above	$	159,960	171,149

Sold portions of SBA loans with servicing retained - not included in tables above	Sold portions of SBA loans with servicing retained - not included in tables above	$	412,472	395,398	Sold portions of SBA loans with servicing retained - not included in tables above	$	426,601	414,240

At ~~both~~ March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, there was a remaining unaccreted discount on the retained portion of sold non-PPP SBA loans amounting to ~~$7.3 million.~~$5.9 million and $6.0 million, respectively.

Loans in the amount of $5.4 billion and $4.3 billion were pledged as collateral for certain borrowings at March 31, 2022 and December 31, 2021, respectively.

Page 12

Index

The loans above also include loans to executive officers and directors serving the Company at March 31, 2022 and to their related persons, totaling approximately $6.5 million and $0.6 million at March 31, 2022 and December 31, 2021, respectively. There were $5.8 million in new loans due to the addition of new directors, there was $36,000 in advances on loans in the first three months of 2022, and repayments amounted to $21,000.The loans were made on terms and conditions applicable to similarly situated borrowers and management does not believe these loans involve more than the normal risk of collectability or present other unfavorable features.

As of March 31, 2022 and December 31, 2021, unamortized discounts on all acquired loans totaled ~~$8.2 million.~~

~~At December 31, 2020, there were remaining accretable~~$15.6 million and $17.2 million, respectively. Loan discounts ~~of $7.9 million, related to purchased non-impaired loans. The discounts~~ are generally amortized as yield adjustments over the respective lives of the loans, so long as the loans perform. ~~At December 31, 2020, the carrying value of purchased credit impaired (PCI) loans were $8.6 million.~~

~~The following table presents changes in the accretable yield for PCI loans for the three months ended March 31, 2020.~~

~~Page 18~~

~~Index~~


~~Accretable Yield for PCI loans~~			~~For the Three Months Ended March 31, 2020~~
~~Balance at beginning of period~~			~~4,149~~
~~Accretion~~			~~(567)~~
~~Reclassification from (to) nonaccretable difference~~			~~304~~
~~Other, net~~			~~(453)~~
~~Balance at end of period~~			~~3,433~~

During the first three months of 2020, the Company received $446,000 in payments that exceeded the carrying amount of the related PCI loans, of which $352,000 was recognized as loan discount accretion income and $80,000 was recorded as additional loan interest income.

Nonperforming assets are defined as nonaccrual loans, troubled debt restructured loans ~~(TDRs)~~("TDRs"), loans past due 90 or more days and still accruing interest, and foreclosed real estate. Nonperforming assets are summarized as follows.


($ in thousands)	($ in thousands)	March 31, 2021		December 31, 2020	($ in thousands)	March 31, 2022		December 31, 2021
Nonperforming assets
Nonaccrual loans	Nonaccrual loans	$	39,566	35,076	Nonaccrual loans	$	33,460	34,696
TDRs - accruing	TDRs - accruing	8,601		9,497	TDRs - accruing	12,727		13,866
Accruing loans > 90 days past due	Accruing loans > 90 days past due	0		0	Accruing loans > 90 days past due	—		1,004
Total nonperforming loans	Total nonperforming loans	48,167		44,573	Total nonperforming loans	46,187		49,566
Foreclosed real estate	Foreclosed real estate	1,811		2,424	Foreclosed real estate	2,750		3,071
Total nonperforming assets	Total nonperforming assets	$	49,978	46,997	Total nonperforming assets	$	48,937	52,637

At ~~both~~ March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~$1.9~~$1.0 million and $1.5 million, respectively, in residential mortgage loans in process of foreclosure, respectively.

The following table is a summary of the Company’s nonaccrual loans by major categories ~~for the periods indicated.~~as of March 31, 2022.

CECL Incurred Loss
($ in thousands) March 31,
2021 December 31,
2020
Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Nonaccrual Loans
Commercial, financial, and agricultural $ 0 $ 10,330 $ 10,330 9,681
Real estate – construction, land development & other land loans 227 313 540 643
Real estate – mortgage – residential (1-4 family) first mortgages 2,444 3,763 6,207 6,048
Real estate – mortgage – home equity loans / lines of credit 378 1,298 1,676 1,333
Real estate – mortgage – commercial and other 7,521 13,133 20,654 17,191
Consumer loans 0 159 159 180
Total $ 10,570 $ 28,996 $ 39,566 35,076

~~Interest income recognized during the period on nonaccrual loans was immaterial.~~


($ in thousands)	Nonaccrual Loans with No Allowance		Nonaccrual Loans with an Allowance	Total Nonaccrual Loans
Commercial, financial, and agricultural	$	3,911	8,661	12,572
Real estate – construction, land development & other land loans	928		126	1,054
Real estate – mortgage – residential (1-4 family) first mortgages	161		3,559	3,720
Real estate – mortgage – home equity loans / lines of credit	—		807	807
Real estate – mortgage – commercial and other	8,351		6,865	15,216
Consumer loans	—		91	91
Total	$	13,351	20,109	33,460

Page 1913

Index

The following table is a summary of the Company’s nonaccrual loans by major categories as of December 31, 2021.


($ in thousands)	Nonaccrual Loans with No Allowance		Nonaccrual Loans with an Allowance	Total Nonaccrual Loans
Commercial, financial, and agricultural	$	3,947	8,205	12,152
Real estate – construction, land development & other land loans	495		137	632
Real estate – mortgage – residential (1-4 family) first mortgages	858		4,040	4,898
Real estate – mortgage – home equity loans / lines of credit	—		694	694
Real estate – mortgage – commercial and other	7,648		8,583	16,231
Consumer loans	—		89	89
Total	$	12,948	21,748	34,696

There was no interest income recognized during the three month period ended March 31, 2022 or the year ended December 31, 2021 on nonaccrual loans.The Company follows its nonaccrual policy of reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status.

The following table represents the accrued interest receivables written off by reversing interest income during ~~the three months ended March 31, 2021.~~each period indicated:


~~($ in thousands)~~	~~For the Three Months Ended March 31, 2021~~
~~Commercial, financial, and agricultural~~	$	64
~~Real estate – construction, land development & other land loans~~	0
~~Real estate – mortgage – residential (1-4 family) first mortgages~~	5
~~Real estate – mortgage – home equity loans / lines of credit~~	4
~~Real estate – mortgage – commercial and other~~	~~220~~
~~Consumer loans~~	0
~~Total~~	$	~~293~~


($ in thousands)	For the Three Months Ended March 31, 2022		For the Year Ended December 31, 2021	For the Three Months Ended March 31, 2021
Commercial, financial, and agricultural	$	8	195	64
Real estate – construction, land development & other land loans	12		6	—
Real estate – mortgage – residential (1-4 family) first mortgages	10		31	5
Real estate – mortgage – home equity loans / lines of credit	2		14	4
Real estate – mortgage – commercial and other	100		453	220
Consumer loans	—		—	—
Total	$	132	699	293

The following table presents an analysis of the payment status of the Company’s loans as of March 31, ~~2021.~~2022.


($ in thousands)	($ in thousands)	Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due	Accruing 90 Days or More Past Due	Nonaccrual Loans	Accruing Current	Total Loans Receivable		($ in thousands)	Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due	Accruing 90 Days or More Past Due	Nonaccrual Loans	Accruing Current	Total Loans Receivable
Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	787	286	0	10,330	756,915	768,318		Commercial, financial, and agricultural	$	389	105	—	12,572	590,388	603,454
Real estate – construction, land development & other land loans	Real estate – construction, land development & other land loans	938		91	0	540	546,939	548,508		Real estate – construction, land development & other land loans	1,492		—	—	1,054	793,340	795,886
Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages	6,257		80	0	6,207	903,625	916,169		Real estate – mortgage – residential (1-4 family) first mortgages	8,739		20	—	3,720	1,032,688	1,045,167
Real estate – mortgage – home equity loans / lines of credit	Real estate – mortgage – home equity loans / lines of credit	487		0	0	1,676	292,448	294,611		Real estate – mortgage – home equity loans / lines of credit	891		36	—	807	327,614	329,348
Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other	628		1,352	0	20,654	2,026,873	2,049,507		Real estate – mortgage – commercial and other	2,294		—	—	15,216	3,217,439	3,234,949
Consumer loans	Consumer loans	82		68	0	159	53,175	53,484		Consumer loans	103		134	—	91	56,494	56,822
Total	Total	$	9,179	1,877	0	39,566	4,579,975	4,630,597		Total	$	13,908	295	—	33,460	6,017,963	6,065,626
Unamortized net deferred loan fees	Unamortized net deferred loan fees							(6,543)		Unamortized net deferred loan fees							(928)
Total loans	Total loans							$	4,624,054	Total loans							$	6,064,698

Page 14

Index

The following table presents an analysis of the payment status of the Company’s loans as of December 31, ~~2020.~~2021.


($ in thousands)	($ in thousands)	Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due	Accruing 90 Days or More Past Due	Nonaccrual Loans	Accruing Current	Total Loans Receivable		($ in thousands)	Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due	Accruing 90 Days or More Past Due	Nonaccrual Loans	Accruing Current	Total Loans Receivable
Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	1,464	1,101	0	9,681	770,166	782,412		Commercial, financial, and agricultural	$	377	93	—	12,152	636,375	648,997
Real estate – construction, land development & other land loans	Real estate – construction, land development & other land loans	572		0	0	643	569,307	570,522		Real estate – construction, land development & other land loans	4,046		—	286	632	823,585	828,549
Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages	10,146		869	0	6,048	951,088	968,151		Real estate – mortgage – residential (1-4 family) first mortgages	6,571		1,488	—	4,898	1,009,009	1,021,966
Real estate – mortgage – home equity loans / lines of credit	Real estate – mortgage – home equity loans / lines of credit	1,088		42	0	1,333	303,693	306,156		Real estate – mortgage – home equity loans / lines of credit	489		124	718	694	329,907	331,932
Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other	2,540		3,111	0	17,191	2,022,422	2,045,264		Real estate – mortgage – commercial and other	164		1,496	—	16,231	3,176,846	3,194,737
Consumer loans	Consumer loans	180		36	0	180	53,521	53,917		Consumer loans	116		62	—	89	56,971	57,238
Purchased credit impaired		328		112	719	0	7,432	8,591
Total	Total	$	16,318	5,271	719	35,076	4,677,629	4,735,013		Total	$	11,763	3,263	1,004	34,696	6,032,693	6,083,419
Unamortized net deferred loan fees	Unamortized net deferred loan fees							(3,698)		Unamortized net deferred loan fees							(1,704)
Total loans	Total loans							$	4,731,315	Total loans							$	6,081,715

~~Page 20~~

~~Index~~

~~The following table presents an analysis of collateral-dependent loans of the Company as of March 31, 2021.~~

($ in thousands) Residential Property Business Assets Land Commercial Property Other Total Collateral-Dependent Loans
Commercial, financial, and agricultural $ 400 4,916 0 974 0 6,290
Real estate – construction, land development & other land loans 0 0 547 0 0 547
Real estate – mortgage – residential (1-4 family) first mortgages 3,434 0 0 0 0 3,434
Real estate – mortgage – home equity loans / lines of credit 378 0 0 0 0 378
Real estate – mortgage – commercial and other 0 0 4,664 14,956 0 19,620
Consumer loans 0 0 0 0 4 4
Total $ 4,212 4,916 5,211 15,930 4 30,273

The Company designates individually evaluated loans on nonaccrual with a net book balance of $250,000 or greater as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans on nonaccrual with a net book balance of $350,000 or greater for designation as collateral dependent loans, as well as certain other loans that may still be accruing interest and/or are less than $350,000 in size that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses.

The following table presents an analysis of collateral-dependent loans of the Company as of March 31, 2022.


($ in thousands)	Residential Property		Business Assets	Land	Commercial Property	Total Collateral-Dependent Loans
Commercial, financial, and agricultural	$	—	9,508	—	—	9,508
Real estate – construction, land development & other land loans	—		—	928	—	928
Real estate – mortgage – residential (1-4 family) first mortgages	161		—	—	—	161

Real estate – mortgage – commercial and other	—		—	—	11,081	11,081

Total	$	161	9,508	928	11,081	21,678

The following table presents an analysis of collateral-dependent loans of the Company as of December 31, 2021.


($ in thousands)	Residential Property		Business Assets	Land	Commercial Property	Total Collateral-Dependent Loans
Commercial, financial, and agricultural	$	—	7,886	—	—	7,886
Real estate – construction, land development & other land loans	—		—	533	—	533
Real estate – mortgage – residential (1-4 family) first mortgages	871		—	—	—	871

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

Total	$	871	7,886	533	10,743	20,033

Page 15

Index

Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

The Company's policy is to obtain third-party appraisals on any significant pieces of collateral. For loans secured by real estate, the Company's policy is to write nonaccrual loans down to 90% of the appraised value, which considers estimated selling costs. For real estate collateral that is in industries ~~that are~~which may be undergoing heightened stress ~~such as hotel loans in the current environment,~~due to economic or other external factors, the Company ~~often discounts~~may reduce the collateral values by an additional 10-25% ~~due~~ to recognize additional discounts that are estimated to be incurred in a near-term sale. For non real-estate collateral secured loans, the Company generally writes nonaccrual loans down to 75% of the appraised value, which provides for selling costs and liquidity discounts that are usually incurred when disposing of non real-estate collateral. For reviewed loans that are not on nonaccrual basis, the Company assigns a specific allowance based on the parameters noted above.

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

~~The following table presents the activity in the allowance for loan losses for all loans for the three months ended March 31, 2021 (under the CECL methodology).~~

Page 21

~~Index~~

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

($ in thousands) Commercial,
Financial,
and
Agricultural Real Estate
–
Construction,
Land
Development
& Other Land
Loans Real Estate
–
Residential
(1-4 Family)
First
Mortgages Real Estate
– Mortgage
– Home
Equity
Lines of
Credit Real Estate
– Mortgage
–
Commercial
and Other Consumer Loans Unallocated Total
As of and for the year ended December 31, 2020
Beginning balance $ 4,553 1,976 3,832 1,127 8,938 972 0 21,398
Charge-offs (5,608) (51) (478) (524) (968) (873) 0 (8,502)
Recoveries 745 1,552 754 487 621 294 0 4,453
Provisions 11,626 1,878 3,940 1,285 15,012 1,085 213 35,039
Ending balance $ 11,316 5,355 8,048 2,375 23,603 1,478 213 52,388
Ending balances as of December 31, 2020: Allowance for loan losses
Individually evaluated for impairment $ 3,546 30 800 0 2,175 0 0 6,551
Collectively evaluated for impairment $ 7,742 5,325 7,141 2,375 21,428 1,475 213 45,699
Purchased credit impaired $ 28 0 107 0 0 3 0 138
Loans receivable as of December 31, 2020:
Ending balance – total $ 782,549 570,672 972,378 306,256 2,049,203 53,955 0 4,735,013
Unamortized net deferred loan fees (3,698)
Total loans $ 4,731,315
Ending balances as of December 31, 2020: Loans
Individually evaluated for impairment $ 7,700 677 9,303 15 18,582 4 0 36,281
Collectively evaluated for impairment $ 774,712 569,845 958,848 306,141 2,026,682 53,913 0 4,690,141
Purchased credit impaired $ 137 150 4,227 100 3,939 38 0 8,591

~~Page 22~~16

Index

The following table presents the activity in the ~~allowance~~Allowance for ~~loan losses~~Credit Losses ("ACL") on loans for each of the ~~three months ended March 31, 2020 (under the Incurred Loss methodology).~~periods indicated.

($ in thousands) Commercial,
Financial,
and
Agricultural Real Estate
–
Construction,
Land
Development
& Other Land
Loans Real Estate
–
Residential
(1-4 Family)
First
Mortgages Real Estate
– Mortgage
– Home
Equity
Lines of
Credit Real Estate
– Mortgage
–
Commercial
and Other Consumer Loans Unallocated Total
As of and for the three months ended March 31, 2020
Beginning balance $ 4,553 1,976 3,832 1,127 8,938 972 0 21,398
Charge-offs (2,460) (40) (195) (68) (263) (287) 0 (3,313)
Recoveries 217 290 91 83 47 95 0 823
Provisions 1,894 373 645 252 2,191 235 0 5,590
Ending balance $ 4,204 2,599 4,373 1,394 10,913 1,015 0 24,498
Ending balances as of March 31, 2020: Allowance for loan losses
Individually evaluated for impairment $ 1,093 73 739 90 1,233 0 0 3,228
Collectively evaluated for impairment $ 3,069 2,526 3,528 1,304 9,680 1,006 0 21,113
Purchased credit impaired $ 42 0 106 0 0 9 0 157
Loans receivable as of March 31, 2020:
Ending balance – total $ 521,470 590,485 1,083,022 331,170 1,970,716 54,133 0 4,550,996
Unamortized net deferred loan costs 1,712
Total loans $ 4,552,708
Ending balances as of March 31, 2020: Loans
Individually evaluated for impairment $ 3,050 756 9,915 433 11,862 0 0 26,016
Collectively evaluated for impairment $ 518,233 589,566 1,067,805 330,644 1,954,834 54,059 0 4,515,141
Purchased credit impaired $ 187 163 5,302 93 4,020 74 0 9,839


($ in thousands)	Commercial, Financial, and Agricultural		Real Estate – Construction, Land Development & Other Land Loans	Real Estate – Residential (1-4 Family) First Mortgages	Real Estate – Mortgage – Home Equity Lines of Credit	Real Estate – Mortgage – Commercial and Other	Consumer Loans	Unallocated	Total
As of and for the three months ended March 31, 2022
Beginning balance	$	16,249	16,519	8,686	4,337	30,342	2,656	—	78,789
Charge-offs	(790)		—	—	(41)	(45)	(167)	—	(1,043)
Recoveries	247		137	4	233	155	47	—	823
Provisions / (Reversals)	307		(599)	(531)	(2,455)	6,875	(97)	—	3,500
Ending balance	$	16,013	16,057	8,159	2,074	37,327	2,439	—	82,069


($ in thousands)	Commercial, Financial, and Agricultural		Real Estate – Construction, Land Development & Other Land Loans	Real Estate – Residential (1-4 Family) First Mortgages	Real Estate – Mortgage – Home Equity Lines of Credit	Real Estate – Mortgage – Commercial and Other	Consumer Loans	Unallocated	Total
As of and for the year ended December 31, 2021
Beginning balance	$	11,316	5,355	8,048	2,375	23,603	1,478	213	52,388
Adjustment for implementation of CECL	3,067		6,140	2,584	2,580	(257)	674	(213)	14,575
Allowance for acquired PCD loans	2,917		165	222	92	1,489	10	—	4,895
Charge-offs	(3,722)		(245)	(273)	(400)	(2,295)	(667)	—	(7,602)
Recoveries	1,744		948	761	578	533	358	—	4,922
Provisions/(Reversals)	927		4,156	(2,656)	(888)	7,269	803	—	9,611
Ending balance	$	16,249	16,519	8,686	4,337	30,342	2,656	—	78,789


($ in thousands)	Commercial, Financial, and Agricultural		Real Estate – Construction, Land Development & Other Land Loans	Real Estate – Residential (1-4 Family) First Mortgages	Real Estate – Mortgage – Home Equity Lines of Credit	Real Estate – Mortgage – Commercial and Other	Consumer Loans	Unallocated	Total
As of and for the three months ended March 31, 2021
Beginning balance	$	11,316	5,355	8,048	2,375	23,603	1,478	213	52,388
Adjustment for implementation of CECL	3,067		6,140	2,584	2,580	(257)	674	(213)	14,575
Charge-offs	(1,438)		(66)	(38)	(131)	(510)	(134)	—	(2,317)
Recoveries	514		294	87	11	262	35	—	1,203
Provisions/(Reversals)	147		(1,589)	(1,685)	(526)	3,409	244	—	—
Ending balance	$	13,606	10,134	8,996	4,309	26,507	2,297	—	65,849

Page 2317

Index

~~The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2020.~~

($ in thousands) Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment
Impaired loans with no related allowance recorded:
Commercial, financial, and agricultural $ 3,688 4,325 — 750
Real estate – mortgage – construction, land development & other land loans 554 694 — 308
Real estate – mortgage – residential (1-4 family) first mortgages 4,115 4,456 — 4,447
Real estate – mortgage –home equity loans / lines of credit 15 27 — 264
Real estate – mortgage –commercial and other 11,763 13,107 — 9,026
Consumer loans 4 4 — 1
Total impaired loans with no allowance $ 20,139 22,613 — 14,796
Impaired loans with an allowance recorded:
Commercial, financial, and agricultural $ 4,012 4,398 3,546 5,139
Real estate – mortgage – construction, land development & other land loans 123 131 30 502
Real estate – mortgage – residential (1-4 family) first mortgages 5,188 5,361 800 5,186
Real estate – mortgage –home equity loans / lines of credit 0 0 0 21
Real estate – mortgage –commercial and other 6,819 7,552 2,175 5,786
Consumer loans 0 0 0 0
Total impaired loans with allowance $ 16,142 17,442 6,551 16,634

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

The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

~~Page 24~~

~~Index~~

The following describes the Company’s internal risk grades in ascending order of likelihood of loss:


	Risk Grade	Description
Pass:
	1	Loans with virtually no risk, including cash secured loans.
	2	Loans with documented significant overall financial strength. These loans have minimum chance of loss due to the presence of multiple sources of repayment – each clearly sufficient to satisfy the obligation.
	3	Loans with documented satisfactory overall financial strength. These loans have a low loss potential due to presence of at least two clearly identified sources of repayment – each of which is sufficient to satisfy the obligation under the present circumstances.
	4	Loans to borrowers with acceptable financial condition. These loans could have signs of minor operational weaknesses, lack of adequate financial information, or loans supported by collateral with questionable value or marketability.
	5	Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management. Collateral is generally required and felt to provide reasonable coverage with realizable liquidation values in normal circumstances. Repayment performance is satisfactory.
	P (Pass)	Consumer loans (<$500,000) that are of satisfactory credit quality with borrowers who exhibit good personal credit history, average personal financial strength and moderate debt levels. These loans generally conform to Bank policy, but may include approved mitigated exceptions to the guidelines.
Special Mention:
	6	Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank.
Classified:
	7	An existing loan inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.
	8	Loans that have a well-defined weakness that make the collection or liquidation in full highly questionable and improbable. Loss appears imminent, but the exact amount and timing is uncertain.
	9	Loans that are considered uncollectible and are in the process of being charged-off. This grade is a temporary grade assigned for administrative purposes until the charge-off is completed.
	F (Fail)	Consumer loans (<$500,000) with a well-defined weakness, such as exceptions of any kind with no mitigating factors, history of paying outside the terms of the note, insufficient income to support the current level of debt, etc.

~~Page 25~~

~~Index~~

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

Term Loans by Year of Origination
($ in thousands) 2021 2020 2019 2018 2017 Prior Revolving Total
Commercial, financial, and agricultural
Pass 147,842 293,349 105,182 87,514 21,260 27,420 66,442 749,009
Special Mention 22 653 3,690 2,900 49 42 452 7,808
Classified 177 4,067 3,724 2,729 255 48 501 11,501
Total commercial, financial, and agricultural 148,041 298,069 112,596 93,143 21,564 27,510 67,395 768,318
Real estate – construction, land development & other land loans
Pass 104,771 311,765 70,727 12,754 12,577 11,343 18,161 542,098
Special Mention 48 4,037 55 3 116 254 109 4,622
Classified 28 486 217 292 88 414 263 1,788
Total real estate – construction, land development & other land loans 104,847 316,288 70,999 13,049 12,781 12,011 18,533 548,508
Real estate – mortgage – residential (1-4 family) first mortgages
Pass 26,304 172,807 170,991 180,894 119,528 213,166 7,325 891,015
Special Mention 638 1,459 291 313 384 3,963 23 7,071
Classified 431 1,406 2,508 2,210 1,180 9,910 438 18,083
Total real estate – mortgage – residential (1-4 family) first mortgages 27,373 175,672 173,790 183,417 121,092 227,039 7,786 916,169
Real estate – mortgage – home equity loans / lines of credit
Pass 175 531 1,139 1,827 1,810 1,388 279,116 285,986
Special Mention 0 0 18 0 0 20 1,298 1,336
Classified 0 162 137 0 0 738 6,252 7,289
Total real estate – mortgage – home equity loans / lines of credit 175 693 1,294 1,827 1,810 2,146 286,666 294,611
Real estate – mortgage – commercial and other
Pass 180,222 699,117 349,785 222,224 189,511 326,685 26,465 1,994,009
Special Mention 3,833 15,743 2,775 2,940 3,394 1,915 817 31,417
Classified 379 6,569 6,783 2,842 2,900 4,346 262 24,081
Total real estate – mortgage – commercial and other 184,434 721,429 359,343 228,006 195,805 332,946 27,544 2,049,507
Consumer loans
Pass 4,696 26,569 5,675 2,872 1,281 1,293 10,626 53,012
Special Mention 0 0 0 0 0 0 76 76
Classified 0 88 45 28 0 84 151 396
Total consumer loans 4,696 26,657 5,720 2,900 1,281 1,377 10,853 53,484
Total 469,566 1,538,808 723,742 522,342 354,333 603,029 418,777 4,630,597
Unamortized net deferred loan fees (6,543)
Total loans 4,624,054

~~Page 26~~

~~Index~~

In the ~~table above,~~tables that follow, substantially all of the "Classified Loans" have grades of 7 or Fail, with those categories having similar levels of risk. The amount of revolving lines of credit that converted to term loans during the period was immaterial.

The ~~following table presents~~tables below present the Company’s recorded investment in loans by credit quality indicators by year of origination or renewal as of ~~December 31, 2020.~~the periods indicated. Acquired loans are presented in the year originated, not in the year of acquisition.

($ in thousands) Pass Special
Mention Loans Classified
Accruing Loans Classified
Nonaccrual
Loans Total
Commercial, financial, and agricultural $ 762,091 9,553 1,087 9,681 782,412
Real estate – construction, land development & other land loans 560,845 7,877 1,157 643 570,522
Real estate – mortgage – residential (1-4 family) first mortgages 943,455 7,609 11,039 6,048 968,151
Real estate – mortgage – home equity loans / lines of credit 297,795 1,468 5,560 1,333 306,156
Real estate – mortgage – commercial and other 1,988,684 34,588 4,801 17,191 2,045,264
Consumer loans 53,488 80 169 180 53,917
Purchased credit impaired 6,901 85 1,605 0 8,591
Total $ 4,613,259 61,260 25,418 35,076 4,735,013
Unamortized net deferred loan fees (3,698)
Total loans 4,731,315

Page 18

Index


	Term Loans by Year of Origination
($ in thousands)	2022		2021	2020	2019	2018	Prior	Revolving	Total
As of March 31, 2022
Commercial, financial, and agricultural
Pass	$	35,980	177,169	105,179	66,635	62,972	29,478	105,225	582,638
Special Mention	—		125	399	621	2,633	216	2,504	6,498
Classified	119		2,454	1,417	2,136	6,908	577	707	14,318
Total commercial, financial, and agricultural	36,099		179,748	106,995	69,392	72,513	30,271	108,436	603,454
Real estate – construction, land development & other land loans
Pass	113,568		488,287	94,674	59,914	9,256	12,619	9,836	788,154
Special Mention	—		38	726	4,117	107	98	5	5,091
Classified	1,416		148	45	944	71	17	—	2,641
Total real estate – construction, land development & other land loans	114,984		488,473	95,445	64,975	9,434	12,734	9,841	795,886
Real estate – mortgage – residential (1-4 family) first mortgages
Pass	53,280		277,391	206,074	114,970	76,281	290,677	8,318	1,026,991
Special Mention	—		512	448	328	201	3,331	96	4,916
Classified	136		391	480	895	940	9,410	1,008	13,260
Total real estate – mortgage – residential (1-4 family) first mortgages	53,416		278,294	207,002	116,193	77,422	303,418	9,422	1,045,167
Real estate – mortgage – home equity loans / lines of credit
Pass	306		2,258	410	299	1,254	2,244	315,092	321,863
Special Mention	48		187	—	—	—	18	1,112	1,365
Classified	18		163	96	75	—	327	5,441	6,120
Total real estate – mortgage – home equity loans / lines of credit	372		2,608	506	374	1,254	2,589	321,645	329,348
Real estate – mortgage – commercial and other
Pass	275,364		1,315,875	716,571	307,705	184,889	337,011	57,982	3,195,397
Special Mention	521		2,042	4,737	4,849	3,708	3,103	1,340	20,300
Classified	124		4,979	249	2,953	5,910	4,832	205	19,252
Total real estate – mortgage – commercial and other	276,009		1,322,896	721,557	315,507	194,507	344,946	59,527	3,234,949
Consumer loans
Pass	5,115		29,404	6,453	2,313	1,407	923	10,998	56,613
Special Mention	—		—	—	—	—	—	—	—
Classified	—		141	11	1	—	17	39	209
Total consumer loans	5,115		29,545	6,464	2,314	1,407	940	11,037	56,822
Total	$	485,995	2,301,564	1,137,969	568,755	356,537	694,898	519,908	6,065,626
Unamortized net deferred loan fees									(928)
Total loans									6,064,698

Page 19

Index


	Term Loans by Year of Origination
($ in thousands)	2021		2020	2019	2018	2017	Prior	Revolving	Total
As of December 31, 2021
Commercial, financial, and agricultural
Pass	$	204,945	138,540	71,369	66,645	16,009	17,492	112,933	627,933
Special Mention	225		1,255	1,313	2,729	225	9	2,348	8,104
Classified	1,609		793	1,703	7,096	511	96	1,152	12,960
Total commercial, financial, and agricultural	206,779		140,588	74,385	76,470	16,745	17,597	116,433	648,997
Real estate – construction, land development & other land loans
Pass	573,613		133,888	69,066	12,455	9,764	8,190	13,737	820,713
Special Mention	41		737	5,095	110	104	2	9	6,098
Classified	1,541		49	47	83	14	4	—	1,738
Total real estate – construction, land development & other land loans	575,195		134,674	74,208	12,648	9,882	8,196	13,746	828,549
Real estate – mortgage – residential (1-4 family) first mortgages
Pass	241,619		224,617	120,097	82,531	86,074	234,950	11,051	1,000,939
Special Mention	888		615	516	229	323	3,237	94	5,902
Classified	419		156	535	1,185	653	11,246	931	15,125
Total real estate – mortgage – residential (1-4 family) first mortgages	242,926		225,388	121,148	83,945	87,050	249,433	12,076	1,021,966
Real estate – mortgage – home equity loans / lines of credit
Pass	3,111		498	439	1,304	245	1,649	317,319	324,565
Special Mention	194		—	15	—	—	19	1,341	1,569
Classified	75		97	71	—	—	607	4,948	5,798
Total real estate – mortgage – home equity loans / lines of credit	3,380		595	525	1,304	245	2,275	323,608	331,932
Real estate – mortgage – commercial and other
Pass	1,328,156		796,992	355,885	211,118	197,165	197,659	66,104	3,153,079
Special Mention	1,759		4,849	5,801	3,741	2,072	1,801	1,440	21,463
Classified	7,147		413	2,110	6,025	3,897	603	—	20,195
Total real estate – mortgage – commercial and other	1,337,062		802,254	363,796	220,884	203,134	200,063	67,544	3,194,737
Consumer loans
Pass	14,960		25,431	2,965	1,722	673	525	10,810	57,086
Special Mention	—		4	—	—	—	—	—	4
Classified	—		73	—	8	—	25	42	148
Total consumer loans	14,960		25,508	2,965	1,730	673	550	10,852	57,238
Total	$	2,380,302	1,329,007	637,027	396,981	317,729	478,114	544,259	6,083,419
Unamortized net deferred loan fees									(1,704)
Total loans									6,081,715

Page 20

Index

Troubled Debt Restructurings

The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, extension of terms and other actions intended to minimize potential losses.

The vast majority of the Company’s ~~TDR's~~TDRs modified during the periods ended March 31, ~~2021~~2022 and March 31, ~~2020~~2021 related to interest rate reductions combined with extension of terms. The Company does not generally grant principal forgiveness.

The Company’s ~~TDR's~~TDRs can be classified as either nonaccrual or accruing based on the loan’s payment status. The ~~TDR's~~TDRs that are nonaccrual are reported within the nonaccrual loan totals presented previously.

~~As of~~

At March 31, ~~2021, the Company had granted short-term deferrals related~~2022 there were 2 loans with immaterial commitments to ~~the COVID-19 pandemic for $5.9 million of loans that were otherwise performing prior~~lend additional funds to ~~modification. Pursuant to the CARES Act and banking regulator guidance, these~~debtors whose loans were ~~not considered TDRs.~~modified as a TDR. At December 31, 2021, there were no commitments to lend additional funds to debtors whose loans were modified as a TDR.

The following table presents information related to loans modified in a TDR during the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021.

~~Page 27~~

~~Index~~


($ in thousands)	($ in thousands)	For the three months ended March 31, 2021					For the three months ended March 31, 2020					($ in thousands)	For the three months ended March 31, 2022					For the three months ended March 31, 2021
		Number of Contracts	Pre- Modification Restructured Balances		Post- Modification Restructured Balances		Number of Contracts	Pre- Modification Restructured Balances		Post- Modification Restructured Balances			Number of Contracts	Pre- Modification Restructured Balances		Post- Modification Restructured Balances		Number of Contracts	Pre- Modification Restructured Balances		Post- Modification Restructured Balances
TDRs – Accruing	TDRs – Accruing											TDRs – Accruing
Commercial, financial, and agricultural		0	$	0	$	0	2	$	143	$	143
Real estate – construction, land development & other land loans		0	0		0		0	0		0

Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages	0	0		0		0	0		0		Real estate – mortgage – residential (1-4 family) first mortgages	1	36		36		—	—		—
Real estate – mortgage – home equity loans / lines of credit		0	0		0		0	0		0

Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other	1	160		160		0	0		0		Real estate – mortgage – commercial and other	—	—		—		1	160		160
Consumer loans		0	0		0		0	0		0

TDRs – Nonaccrual	TDRs – Nonaccrual											TDRs – Nonaccrual
Commercial, financial, and agricultural	Commercial, financial, and agricultural	1	111		108		0	0		0		Commercial, financial, and agricultural	1	41		41		1	111		108
Real estate – construction, land development & other land loans		0	0		0		0	0		0

Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages	0	0		0		0	0		0		Real estate – mortgage – residential (1-4 family) first mortgages	1	36		36		—	—		—
Real estate – mortgage – home equity loans / lines of credit		0	0		0		0	0		0

Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other	0	0		0		0	0		0		Real estate – mortgage – commercial and other	1	540		540		—	—		—
Consumer loans		0	0		—		0	0		0

Total TDRs arising during period	Total TDRs arising during period	2	$	271	$	268	2	$	143	$	143	Total TDRs arising during period	4	$	653	$	653	2	$	271	$	268

The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to foreclosed real estate. There were no accruing ~~TDR's~~TDRs that were modified in the previous twelve months and that defaulted during the three months ended March 31, ~~2021~~2022 or ~~2020.~~2021.

Concentration of Credit Risk

Most of the Company's business activity is with customers located within the markets where it has banking operations. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy within its markets. Approximately 89% of the Company's loan portfolio is secured by real estate and is therefore susceptible to changes in real estate valuations.

Allowance for Credit Losses - Unfunded Loan Commitments

In addition to the allowance for credit losses on loans, the Company maintains an allowance for lending-related commitments such as unfunded loan commitments and letters of credit. ~~Under CECL, the~~The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for lending-related commitments on off-balance sheet credit exposures is adjusted as a provision for ~~credit loss~~unfunded commitments expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments

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Index

expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on ~~loans, and are discussed in Note 2.~~loans. The allowance for credit losses for unfunded loan commitments of ~~$8.1~~$12.0 million and ~~$0.6~~$13.5 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, is separately classified on the ~~balance sheet~~Consolidated Balance Sheets within ~~Other Liabilities.~~ "Other liabilities".

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, ~~2021.~~

~~Page 28~~

~~Index~~

2022.


($ in thousands)	Total Allowance for Credit Losses - Unfunded Loan Commitments
Beginning balance at December 31, ~~2020~~2021	$	~~582~~
~~Adjustment for implementation of CECL on January 1, 2021~~	~~7,504~~13,506
Charge-offs	0—
Recoveries	0—
~~Provisions~~Reversal of provision for ~~credit losses on~~ unfunded commitments	0 (1,500)
Ending balance at March 31, ~~2021~~2022	$	~~8,086~~12,006

Allowance for Credit Losses - Securities Held to Maturity

~~As previously discussed, the~~The allowance for credit losses for securities held to maturity was immaterial at March 31, 2022 and December 31, 2021.

Note 75 – Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, and the carrying amount of unamortized intangible assets as of those same dates.


		March 31, 2021			December 31, 2020			March 31, 2022			December 31, 2021
($ in thousands)	($ in thousands)	Gross Carrying Amount		Accumulated Amortization	Gross Carrying Amount	Accumulated Amortization	($ in thousands)	Gross Carrying Amount		Accumulated Amortization	Gross Carrying Amount	Accumulated Amortization
Amortizable intangible assets:	Amortizable intangible assets:						Amortizable intangible assets:
Customer lists	Customer lists	$	7,613	3,023	7,613	2,814	Customer lists	$	2,700	1,501	2,700	1,386
Core deposit intangibles	Core deposit intangibles	28,440		24,500	28,440	23,832	Core deposit intangibles	29,050		18,972	29,050	18,076
SBA servicing asset		10,583		4,658	9,976	4,188
SBA servicing assets							SBA servicing assets	12,677		7,086	11,932	6,460
Other	Other	1,403		1,252	1,403	1,232	Other	100		40	100	33
Total	Total	$	48,039	33,433	47,432	32,066	Total	$	44,527	27,599	43,782	25,955
Unamortizable intangible assets:	Unamortizable intangible assets:						Unamortizable intangible assets:
Goodwill	Goodwill	$	239,272		239,272		Goodwill	$	364,263		364,263

SBA servicing assets are recorded for the portions of SBA loans that the Company has sold but continues to service for a fee. Servicing assets are initially recorded at fair value and amortized over the expected lives of the related loans and are tested for impairment on a quarterly basis. SBA servicing asset amortization expense is recorded within noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions, and fees." As derived from the table above, the Company had a SBA servicing asset at March 31, ~~2021~~2022 with a remaining book value of ~~$5,925,000.~~$5.6 million. The Company recorded ~~$607,000~~$0.7 million and ~~$217,000~~$0.6 million in new servicing assets associated with the guaranteed portion of SBA loans sold during the first three months of ~~2021~~2022 and ~~2020,~~2021, respectively. During the first three months of ~~2021~~2022 and ~~2020,~~2021, the Company recorded ~~$470,000~~$0.6 million and ~~$918,000,~~$0.5 million, respectively, in related servicing asset amortization expense. Included in the amortization expense for the first three months of 2020 was an impairment charge of approximately $500,000 due to a decrease in the fair value of the asset resulting from deterioration in market conditions atAt March 31, ~~2020. At March 31, 2021~~2022 and December 31, ~~2020,~~2021, the Company serviced ~~for others~~ SBA loans ~~totaling $412.5~~totaling $426.6 million ~~and $395.4~~and $414.2 million, ~~respectively.~~respectively, for others. There were no other loans serviced in any period presented.

Amortization expense of all other intangible assets, excluding the SBA servicing ~~asset,~~assets, totaled ~~$897,000~~$1.0 million and ~~$1,055,000~~$0.9 million for the three months ended March 31, 2022 and 2021, ~~and 2020,~~ respectively.

There were no changes to the carrying amounts of goodwill for the three months ended March 31, 2022.

Goodwill is evaluated for impairment on at least an annual basis, with the annual evaluation occurring onas of October 31 of each year. ~~During~~The Company performed the ~~period ended March 31, 2020, the economic turmoil and market volatility resulting from the COVID-19 crisis resulted in a substantial decrease~~required annual impairment testing in the Company's stock price and market capitalization. Management believed such decrease was a triggering indicator requiring an interim goodwill impairment quantitative analysis. In this analysis, the Company determined that 0ne of its goodwill was impaired as of March 31, 2020. Due to improving economic conditions and increases in the Company's stock price and market capitalization at year end 2020 and the firstfourth quarter of ~~2021, no triggering events were identified and therefore, the Company did not perform an interim impairment evaluation at December 31, 2020 or March 31,~~ 2021.

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Index

Management evaluated the events and circumstances in the first quarter of 2022 that could indicate that goodwill might be impaired and concluded that a subsequent interim test was not necessary.

The following table presents the estimated amortization expense schedule related to acquisition-related amortizable intangible assets. These amounts will be recorded as "Intangibles amortization expense" within the noninterest expense section of the Consolidated Statements of Income. These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortized intangible assets. ~~income within~~


($ in thousands)	Estimated Amortization Expense
April 1, 2022 to December 31, 2022	$	2,666
2023	2,545
2024	1,718
2025	1,358
2026	962
Thereafter	2,088
Total	$	11,337

Note 6 - Borrowings

The following tables present information regarding the ~~line item "Other service charges, commissions~~Company’s outstanding borrowings at March 31, 2022 and ~~fees"~~December 31, 2021 (dollars are in thousands):

Description

Due date

Call Feature

March 31, 2022

Interest Rate

FHLB Principal Reducing Credit

7/24/2023

None

1.00% fixed

FHLB Principal Reducing Credit

12/22/2023

None

942

1.25% fixed

FHLB Principal Reducing Credit

6/26/2028

None

222

0.25% fixed

FHLB Principal Reducing Credit

7/17/2028

None

0.00% fixed

FHLB Principal Reducing Credit

8/18/2028

None

164

1.00% fixed

FHLB Principal Reducing Credit

8/22/2028

None

164

1.00% fixed

FHLB Principal Reducing Credit

12/20/2028

None

339

0.50% fixed

Trust Preferred Securities

1/23/2034

Quarterly by Company
beginning 1/23/2009

20,620

3.00% at 03/31/22

adjustable rate

3 month LIBOR + 2.70%

Trust Preferred Securities

6/15/2036

Quarterly by Company
beginning 6/15/2011

25,774

2.22% at 03/31/22

adjustable rate

3 month LIBOR + 1.39%

Trust Preferred Securities

1/7/2035

Quarterly by Company
beginning 1/7/2010

10,310

2.24% at 03/31/22

adjustable rate

3 month LIBOR + 2.00%

Trust Preferred Securities

9/20/2034

Quarterly by Company
beginning 9/20/2009

12,372

3.08% at 03/31/22

adjustable rate

3 month LIBOR + 2.15%

Total borrowings / weighted average rate as of March 31, 2022

71,017

2.56%

Unamortized discount on acquired borrowings

(3,602)

Total borrowings

67,415

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Index

Description

Due date

Call Feature

December 31, 2021

Interest Rate

FHLB Principal Reducing Credit

7/24/2023

None

1.00% fixed

FHLB Principal Reducing Credit

12/22/2023

None

952

1.25% fixed

FHLB Principal Reducing Credit

6/26/2028

None

225

0.25% fixed

FHLB Principal Reducing Credit

7/17/2028

None

0.00% fixed

FHLB Principal Reducing Credit

8/18/2028

None

166

1.00% fixed

FHLB Principal Reducing Credit

8/22/2028

None

166

1.00% fixed

FHLB Principal Reducing Credit

12/20/2028

None

342

0.50% fixed

Trust Preferred Securities

1/23/2034

Quarterly by Company
beginning 1/23/2009

20,620

2.83% at 12/31/21

adjustable rate

3 month LIBOR + 2.70%

Trust Preferred Securities

6/15/2036

Quarterly by Company
beginning 6/15/2011

25,774

1.59% at 12/31/21

adjustable rate

3 month LIBOR + 1.39%

Trust Preferred Securities

1/7/2035

Quarterly by Company
beginning 1/7/2010

10,310

2.12% at 12/31/21

adjustable rate

3 month LIBOR + 2.00%

Trust Preferred Securities

9/20/2034

Quarterly by Company
beginning 9/20/2009

12,372

2.72% at 12/31/21

adjustable rate

3 month LIBOR + 2.15%

Total borrowings / weighted average rate as of December 31, 2021

71,050

2.24%

Unamortized discount on acquired borrowings

(3,664)

Total borrowings

67,386

Note 7 – Leases

The Company enters into leases in the normal course of business. As of March 31, 2022, the Company leased 17 branch offices for which the land and buildings are leased and 9 branch offices for which the land is leased but the building is owned. The Company also leases office space for several operational departments. All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from April 2022 through May 2076, some of which include options for multiple five- and ten-year extensions. The weighted average remaining life of the lease term for these leases was 19.4 years as of March 31, 2022. Certain of the Company's lease agreements include variable lease payments based on changes in inflation, with the impact of that factor being insignificant to the Company's total lease expense. As permitted by applicable accounting standards, the Company has elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's Consolidated ~~Statements~~Balance Sheets. The short-term lease cost for each period presented was insignificant.

Leases are classified as either operating or finance leases at the lease commencement date, and as previously noted, all of ~~Income.~~the Company's leases have been determined to be operating leases. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

($ in thousands) Estimated Amortization
Expense
April 1, 2021 to December 31, 2021 $ 2,375
2022 2,367
2023 1,386
2024 741
2025 562
Thereafter 1,250
Total $ 8,681
The Company uses its incremental borrowing rate, on a collateralized basis, at lease commencement to calculate the present value of lease payments when the rate implicit in the lease is not known. The weighted average discount rate for leases was 2.88% as of March 31, 2022.

Total operating lease expense was $0.9 million and $0.7 million for the three months ended March 31, 2022 and 2021, respectively. The right-of-use assets and lease liabilities were $20.4 million and $20.9 million as of March 31, 2022, respectively, and were $20.7 million and $21.2 million as of December 31, 2021, respectively.

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Index

Future undiscounted lease payments for operating leases with initial terms of one year or more as of March 31, 2022 are as follows.


($ in thousands)
April 1, 2022 to December 31, 2022	$	1,747
2023	2,360
2024	2,163
2025	1,706
2026	1,685
Thereafter	19,988
Total undiscounted lease payments	29,649
Less effect of discounting	(8,746)
Present value of estimated lease payments (lease liability)	$	20,903

Note 8 – Pension Plans

The Company has historically sponsored 2 defined benefit pension plans – a qualified retirement plan (the “Pension Plan”) which was generally available to all employees, and a Supplemental Executive Retirement Plan (the “SERP”), which was for the benefit of certain senior management executives of the Company. Effective December 31, 2012, the Company froze both plans for all participants. Although no previously accrued benefits were lost, employees no longer accrue benefits under these plans for service subsequent to 2012.

The Company recorded periodic pension cost totaling ~~$191,000~~$51,000 and ~~$216,000~~$191,000 for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The following table contains the components of the pension cost.


		For the Three Months Ended March 31,								For the Three Months Ended March 31,
($ in thousands)	($ in thousands)	2021 Pension Plan		2020 Pension Plan	2021 SERP	2020 SERP	2021 Total Both Plans	2020 Total Both Plans	($ in thousands)	2022 Pension Plan		2021 Pension Plan	2022 SERP	2021 SERP	2022 Total Both Plans	2021 Total Both Plans
Service cost	Service cost	$	0	0	0	0	0	0	Service cost	$	—	—	—	—	—	—
Interest cost	Interest cost	306		308	39	55	345	363	Interest cost	267		306	28	39	295	345
Expected return on plan assets	Expected return on plan assets	(325)		(325)	0	0	(325)	(325)	Expected return on plan assets	(288)		(325)	—	—	(288)	(325)
Amortization of net (gain)/loss	Amortization of net (gain)/loss	210		219	(39)	(41)	171	178	Amortization of net (gain)/loss	180		210	(136)	(39)	44	171
Net periodic pension cost	Net periodic pension cost	$	191	202	0	14	191	216	Net periodic pension cost	$	159	191	(108)	—	51	191

The service cost component of net periodic pension cost is included in salaries and benefits expense and all other components of net periodic pension cost are included in other noninterest expense.

The Company’s contributions to the Pension Plan are based on computations by independent actuarial consultants and are intended to be deductible for income tax purposes. The Company did 0tnot contribute to the Pension Plan in the first three months of ~~2021~~2022 and does 0tnot expect to contribute to the Pension Plan in the remainder of ~~2021.~~2022.

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

~~Page 30~~

~~Index~~

Note 9 ~~– Accumulated Other Comprehensive Income (Loss)~~

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

($ in thousands) March 31, 2021 December 31, 2020
Unrealized gain (loss) on securities available for sale $ (3,787) 20,448
Deferred tax asset (liability) 870 (4,699)
Net unrealized gain (loss) on securities available for sale (2,917) 15,749
Postretirement plans asset (liability) (1,646) (1,817)
Deferred tax asset (liability) 378 418
Net postretirement plans asset (liability) (1,268) (1,399)
Total accumulated other comprehensive income (loss) $ (4,185) 14,350

~~The following table discloses the changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2021 (all amounts are net of tax).~~

($ in thousands) Unrealized Gain
(Loss) on
Securities
Available for Sale Postretirement Plans Asset
(Liability) Total
Beginning balance at January 1, 2021 $ 15,749 (1,399) 14,350
Other comprehensive income (loss) before reclassifications (18,666) 0 (18,666)
Amounts reclassified from accumulated other comprehensive income 0 131 131
Net current-period other comprehensive income (loss) (18,666) 131 (18,535)
Ending balance at March 31, 2021 $ (2,917) (1,268) (4,185)

~~The following table discloses the changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2020 (all amounts are net of tax).~~

($ in thousands) Unrealized Gain
(Loss) on
Securities
Available for Sale Postretirement Plans Asset
(Liability) Total
Beginning balance at January 1, 2020 $ 7,504 (2,381) 5,123
Other comprehensive income (loss) before reclassifications 15,993 0 15,993
Amounts reclassified from accumulated other comprehensive income 0 137 137
Net current-period other comprehensive income (loss) 15,993 137 16,130
Ending balance at March 31, 2020 $ 23,497 (2,244) 21,253

Amounts reclassified from accumulated other comprehensive income for Unrealized Gain (Loss) on Securities Available for Sale represent realized securities gains or losses, net of tax effects. Amounts reclassified from accumulated other comprehensive income for Postretirement Plans Asset (Liability) represent amortization of amounts included in Accumulated Other Comprehensive Income, net of taxes, and are recorded in the "Other operating expenses" line item of the Consolidated Statements of Income.

~~Note 10~~ – Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal and most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

~~Page 31~~

~~Index~~

Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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Index

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at March 31, ~~2021.~~2022.


($ in thousands)
Description of Financial Instruments		Fair Value at March 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
($ in thousands) Description of Financial Instruments							($ in thousands) Description of Financial Instruments	Fair Value at March 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Recurring	Recurring						Recurring
Securities available for sale:	Securities available for sale:						Securities available for sale:
US Treasury							US Treasury	$	149,391	—	149,391	—
Government-sponsored enterprise securities	Government-sponsored enterprise securities	$	67,022	0	67,022	0	Government-sponsored enterprise securities	64,168		—	64,168	—
Mortgage-backed securities	Mortgage-backed securities	1,709,811		0	1,709,811	0	Mortgage-backed securities	2,425,911		—	2,425,911	—
Corporate bonds	Corporate bonds	44,864		0	44,864	0	Corporate bonds	45,578		—	45,578	—
Total available for sale securities	Total available for sale securities	$	1,821,697	0	1,821,697	0	Total available for sale securities	$	2,685,048	—	2,685,048	—

Presold mortgages in process of settlement	Presold mortgages in process of settlement	$	31,869	31,869	0	0	Presold mortgages in process of settlement	$	5,672	5,672	—	—

Nonrecurring	Nonrecurring						Nonrecurring
Collateral dependent loans		$	28,082	0	0	28,082
Foreclosed real estate		1,484		0	0	1,484
Individually evaluated loans							Individually evaluated loans	$	12,590	—	—	12,590

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, ~~2020.~~2021.


($ in thousands)
Description of Financial Instruments		Fair Value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
($ in thousands) Description of Financial Instruments							($ in thousands) Description of Financial Instruments	Fair Value at December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Recurring	Recurring						Recurring
Securities available for sale:	Securities available for sale:						Securities available for sale:
Government-sponsored enterprise securities	Government-sponsored enterprise securities	$	70,206	0	70,206	0	Government-sponsored enterprise securities	$	69,179	—	69,179	—
Mortgage-backed securities	Mortgage-backed securities	1,337,706		0	1,337,706	0	Mortgage-backed securities	2,514,805		—	2,514,805	—
Corporate bonds	Corporate bonds	45,220		0	45,220	0	Corporate bonds	46,430		—	46,430	—
Total available for sale securities	Total available for sale securities	$	1,453,132	0	1,453,132	0	Total available for sale securities	$	2,630,414	—	2,630,414	—

Presold mortgages in process of settlement	Presold mortgages in process of settlement	$	42,271	42,271	0	0	Presold mortgages in process of settlement	$	19,257	19,257	—	—

Nonrecurring	Nonrecurring						Nonrecurring
Impaired loans		$	22,142	0	0	22,142
Individually evaluated loans							Individually evaluated loans	$	11,583	—	—	11,583
Foreclosed real estate	Foreclosed real estate	1,484		0	0	1,484	Foreclosed real estate	364		—	—	364

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

~~Page 32~~

~~Index~~

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

Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by our third-party bond accounting provider using matrix pricing. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other

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Index

benchmark quoted securities. For the Company, Level 2 securities include U.S. Treasury bonds, mortgage-backed securities, commercial mortgage-backed obligations, government-sponsored enterprise securities, and corporate bonds. In cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

The Company reviews the pricing methodologies utilized by the bond accounting provider to ensure the fair value determination is consistent with the applicable accounting guidance and that the investments are properly classified in the fair value hierarchy.

Collateral-dependent loans — Fair values for collateral-dependent loans are measured on a non-recurring basis and are based on (1) the underlying collateral values securing the loans, adjusted for estimated selling costs, or (2) the net present value of the cash flows expected to be received for such loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is generally determined by third-party appraisers using an income or market valuation approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3). The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower’s financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the loans first became impaired, and thus the appraisals are not necessarily as of the period ends presented. Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income.

Foreclosed real estate – Foreclosed real estate, consisting of properties obtained through foreclosure or in satisfaction of loans, is reported at the lower of cost or fair value. Fair value is measured on a non-recurring basis and is based upon independent market prices or current appraisals that are generally prepared using an income or market valuation approach and conducted by an independent, licensed third party appraiser, adjusted for estimated selling costs (Level 3). Appraisals used in this analysis are generally obtained at least annually based on when the assets were acquired, and thus the appraisals are not necessarily as of the period ends presented. At the time of foreclosure, any excess of the loan balance over the fair value of the real estate held as collateral is treated as a charge against the allowance for ~~loan~~credit losses. For any real estate valuations subsequent to foreclosure, any excess of the real estate recorded value over the fair value of the real estate is treated as a foreclosed real estate write-down on the Consolidated Statements of Income.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of March 31, ~~2021,~~2022, the significant unobservable inputs used in the fair value measurements were as follows:

~~Page 33~~

~~Index~~

($ in thousands)
Description Fair Value at March 31, 2021 Valuation
Technique Significant Unobservable
Inputs Range (Weighted Average)
Nonaccrual loans - valued at collateral value $ 22,176 Appraised value Discounts applied for estimated costs to sell 10%
Nonaccrual loans - valued at PV of expected cash flows 5,906 PV of expected cash flows Discount rates used in the calculation of the present value ("PV") of expected cash flows 4-11% (6.18%)
Foreclosed real estate 1,484 Appraised value Discounts for estimated costs to sell 10%

($ in thousands)

Fair Value at March 31, 2022

Valuation
Technique

Significant Unobservable
Inputs

Range (Weighted Average)

Individually evaluated loans - collateral-dependent

6,909

Appraised value

Discounts applied for estimated costs to sell

10%

Individually evaluated loans - cash-flow dependent

5,681

PV of expected cash flows

Discount rates used in the calculation of the present value ("PV") of expected cash flows

4%-11% (6.50%)

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, ~~2020,~~2021, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands)
Description Fair Value at December 31, 2020 Valuation
Technique Significant Unobservable
Inputs Range (Weighted Average)
Impaired loans - valued at collateral value $ 16,000 Appraised value Discounts applied for estimated costs to sell 10%
Impaired loans - valued at PV of expected cash flows 6,142 PV of expected cash flows Discount rates used in the calculation of PV of expected cash flows 4-11% (6.21%)
Foreclosed real estate 1,484 Appraised value Discounts for estimated costs to sell 10%

($ in thousands)

Fair Value at December 31, 2021

Valuation
Technique

Significant Unobservable
Inputs

Range (Weighted Average)

Individually evaluated loans - collateral-dependent

7,326

Appraised value

Discounts applied for estimated costs to sell

10%

Individually evaluated loans - cash-flow dependent

4,257

PV of expected cash flows

Discount rates used in the calculation of PV of expected cash flows

4%-11% (6.22%)

Foreclosed real estate

364

Appraised value

Discounts applied for estimated costs to sell

10%

The carrying amounts and estimated fair values of financial instruments not carried at fair value at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 are as follows:

March 31, 2021 December 31, 2020
($ in thousands) Level in Fair
Value
Hierarchy Carrying
Amount Estimated
Fair Value Carrying
Amount Estimated
Fair Value
Cash and due from banks, noninterest-bearing Level 1 $ 71,206 71,206 93,724 93,724
Due from banks, interest-bearing Level 1 458,860 458,860 273,566 273,566
Securities held to maturity Level 2 198,843 195,424 167,551 170,734
SBA loans held for sale Level 2 7,002 7,905 6,077 7,465
Total loans, net of allowance Level 3 4,558,205 4,537,472 4,678,927 4,661,197
Accrued interest receivable Level 1 18,652 18,652 20,272 20,272
Bank-owned life insurance Level 1 107,594 107,594 106,974 106,974
SBA Servicing Asset Level 3 5,925 6,481 5,788 6,569
Deposits Level 2 6,733,487 6,734,623 6,273,596 6,275,329
Borrowings Level 2 61,342 53,005 61,829 53,321
Accrued interest payable Level 2 741 741 904 904
Commitments to extend credit Level 3 0 8,086 0 461

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		March 31, 2022			December 31, 2021
($ in thousands)	Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value	Carrying Amount	Estimated Fair Value
Cash and due from banks, noninterest-bearing	Level 1	$	124,785	124,785	128,228	128,228
Due from banks, interest-bearing	Level 1	440,974		440,974	332,934	332,934
Securities held to maturity	Level 2	546,090		492,307	513,825	511,699
SBA and other loans held for sale	Level 2	3,630		4,010	61,003	62,044
Total loans, net of allowance	Level 3	5,982,629		5,957,829	6,002,926	5,990,235
Accrued interest receivable	Level 1	24,728		24,728	25,896	25,896
Bank-owned life insurance	Level 1	164,273		164,273	165,786	165,786
SBA Servicing Asset	Level 3	5,591		5,667	5,472	5,546

Deposits	Level 2	9,385,147		9,382,240	9,124,629	9,124,701
Borrowings	Level 2	67,415		59,593	67,386	61,295
Accrued interest payable	Level 2	576		576	607	607

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no highly liquid market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

~~Page 34~~

~~Index~~

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as deferred income taxes, prepaid expense accounts, income taxes currently payable and other various accrued expenses. In addition, the income tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Note 10 – Stock-Based Compensation

The Company recorded total stock-based compensation expense of $547,000 and $397,000 for the three months ended March 31, 2022 and 2021, respectively. In addition, the Company recognized $126,000 and $91,000 of income tax benefits related to stock-based compensation expense for the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022, the sole equity-based compensation plan for the Company is the First Bancorp 2014 Equity Plan (the "Equity Plan"), which was approved by shareholders on May 8, 2014. As of March 31, 2022, the Equity Plan had 431,852 shares remaining available for grant.

Recent equity awards to employees have been made in the form of shares of restricted stock awards with service vesting conditions only. Compensation expense for these awards is recorded over the requisite service periods. Upon forfeiture, any previously recognized compensation cost is reversed. Upon a change in control (as defined in the Equity Plan), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested.

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In addition to employee equity awards, the Company's practice is to grant common shares, valued at approximately $32,000, to each non-employee director (currently 13 in total) in June of each year. Compensation expense associated with these director awards is recognized on the date of award since there are no vesting conditions.

The following table presents information regarding the activity for the first three months of 2022 related to the Company’s outstanding restricted stock awards:


	Long-Term Restricted Stock Awards
	Number of Units	Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2022	206,331	$	35.25
Granted during the period	20,494	45.88
Vested during the period	(6,997)	36.05
Forfeited or expired during the period	(7,115)	31.50
Nonvested at March 31, 2022	212,713	$	36.33

Total unrecognized compensation expense as of March 31, 2022 amounted to $4.2 million with a weighted-average remaining term of 2.3 years. For the nonvested awards that are outstanding at March 31, 2022, the Company expects to record $2.1 million in compensation expense in the next twelve months, $1.6 million of which is expected to be recorded in the remaining quarters of 2022.

Note 11 - Shareholders' Equity

Stock Repurchases

During the first three months of 2022, the Company did not repurchase any shares of the Company's common stock.

During the first three months of 2021, the Company repurchased approximately 106,744 shares of the Company's common stock at an average stock price of $37.81 per share, which totaled $4 million, under a $20 million repurchase authorization publicly in January 2021.

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Note 1112 – Earnings Per Share

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


	For the Three Months Ended March 31,
	2022					2021
($ in thousands except per share amounts)	Income (Numerator)		Shares (Denominator)	Per Share Amount		Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic EPS:
Net income	$	33,969				$	28,194
Less: income allocated to participating securities	(198)					(178)
Basic EPS per common share	$	33,771	35,433,739	$	0.95	$	28,016	28,357,809	$	0.99

Diluted EPS:
Net income	$	33,969	35,433,739			$	28,194	28,357,809
Effect of Dilutive Securities	—		207,239			—		180,044
Diluted EPS per common share	$	33,969	35,640,978	$	0.95	$	28,194	28,537,853	$	0.99

Note 13 – Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive loss for the Company are as follows:


($ in thousands)	March 31, 2022		December 31, 2021
Unrealized loss on securities available for sale	$	(213,862)	(32,067)
Deferred tax asset	49,145		7,369
Net unrealized loss on securities available for sale	(164,717)		(24,698)

Postretirement plans liability	(309)		(353)
Deferred tax asset	71		81
Net postretirement plans liability	(238)		(272)

Total accumulated other comprehensive loss	$	(164,955)	(24,970)

The following table discloses the changes in accumulated other comprehensive loss for the three months ended March 31, 2022 (all amounts are net of tax).


($ in thousands)	Unrealized Loss on Securities Available for Sale		Postretirement Plans Asset (Liability)	Total
Beginning balance at January 1, 2022	$	(24,698)	(272)	(24,970)
Other comprehensive loss before reclassifications	(140,019)		—	(140,019)
Amounts reclassified from accumulated other comprehensive income	—		34	34
Net current-period other comprehensive (loss) income	(140,019)		34	(139,985)

Ending balance at March 31, 2022	$	(164,717)	(238)	(164,955)

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The following table discloses the changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2021 (all amounts are net of tax).


($ in thousands)	Unrealized Gain (Loss) on Securities Available for Sale		Postretirement Plans Asset (Liability)	Total
Beginning balance at January 1, 2021	$	15,749	(1,399)	14,350
Other comprehensive loss before reclassifications	(18,666)		—	(18,666)
Amounts reclassified from accumulated other comprehensive income	—		131	131
Net current-period other comprehensive (loss) income	(18,666)		131	(18,535)

Ending balance at March 31, 2021	$	(2,917)	(1,268)	(4,185)

Note 14 – Revenue from Contracts with Customers

All of the Company’s revenues that are in the scope of the “Revenue from Contracts with Customers” accounting standard (“ASC 606”) are recognized within noninterest income. The following table presents the Company’s sources of noninterest income for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021. Items outside the scope of ASC 606 are noted as such.


		For the Three Months Ended			For the Three Months Ended
$ in thousands		March 31, 2021		March 31, 2020
Noninterest Income
In-scope of ASC 606:
($ in thousands)						($ in thousands)	March 31, 2022		March 31, 2021
Noninterest Income: In-scope of ASC 606:						Noninterest Income: In-scope of ASC 606:
Service charges on deposit accounts:	Service charges on deposit accounts:	$	2,733	3,337		Service charges on deposit accounts:	$	3,541	2,733
Other service charges, commissions, and fees:	Other service charges, commissions, and fees:					Other service charges, commissions, and fees:
Interchange income	Interchange income	3,524		2,887		Interchange income	4,711		3,524
Other service charges and fees	Other service charges and fees	1,998		1,182		Other service charges and fees	2,263		1,998
Commissions from sales of insurance and financial products:	Commissions from sales of insurance and financial products:					Commissions from sales of insurance and financial products:
Insurance income	Insurance income	1,326		1,198		Insurance income	—		1,326
Wealth management income	Wealth management income	864		870		Wealth management income	945		864
SBA consulting fees	SBA consulting fees	2,764		1,027		SBA consulting fees	780		2,764
Noninterest income (in-scope of ASC 606)	Noninterest income (in-scope of ASC 606)	13,209		10,501		Noninterest income (in-scope of ASC 606)	12,240		13,209
Noninterest income (out-of-scope of ASC 606)	Noninterest income (out-of-scope of ASC 606)	7,460		3,204		Noninterest income (out-of-scope of ASC 606)	7,011		7,460
Total noninterest income	Total noninterest income	$	20,669	13,705		Total noninterest income	$	19,251	20,669

A description of the Company’s revenue streams accounted for under ASC 606 is detailed below.

Service charges on deposit accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Overdraft fees are recognized at the point in time that the overdraft occurs. Maintenance and activity fees include account maintenance fees and transaction-based fees. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of the month, representing the period over which the Company satisfies the performance obligation. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Service charges on deposits are withdrawn from the customer’s account balance.

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Other service charges, commissions, and fees: The Company earns interchange income on its customers’ debit and credit card usage and earns fees from other services utilized by its customers. Interchange income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as MasterCard. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Interchange fees are offset with interchange expenses and are presented on a net basis. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, ATM surcharge fees, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Commissions from the sale of insurance and financial products: The Company earns commissions from the sale of ~~insurance policies and~~ wealth management ~~products.~~

~~Insurance income generally consists of~~products and also earned commissions from the sale of insurance policies ~~and performance-based commissions from insurance companies. The Company recognizes commission income from~~until the sale of insurance policies when it acts as an agent between the insurance company and the policyholder. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. Performance-based commissions from insurance companies are recognized at a point in time as policies are sold.First Bank Insurance Services on June 30, 2021.

Wealth ~~Management Income~~management income primarily consists of commissions received on financial product sales, such as annuities. The Company’s performance obligation is generally satisfied upon the issuance of the financial product.

~~Page 36~~

~~Index~~

Shortly after the policy is issued, the carrier remits the commission payment to the Company, and the Company recognizes the revenue. The Company also earns some fees from asset management, which is billed quarterly for services rendered in the most recent period, for which the performance obligation has been satisfied.

Insurance income, which was earned by the Company until June 30, 2021, generally consisted of commissions from the sale of insurance policies and performance-based commissions from insurance companies. The Company recognized commission income from the sale of insurance policies when it acted as an agent between the insurance company and the policyholder. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Shortly after the policy is issued, the carrier remits the commission payment to the Company, and the Company recognized the revenue. Performance-based commissions from insurance companies were recognized at a point in time as policies are sold.

SBA consulting fees: The Company earns fees for its consulting services related to the origination of SBA loans. Fees are based on a percentage of the dollar amount of the originated loans and are recorded when the performance obligation has been satisfied. During 2020, the Company's SBA subsidiary assisted its third-party clients in the origination of PPP loans and charged and received fees for doing so. For several clients, the forgiveness piece of the PPP process, which will occur at a future time, was included in the fees charged. Accordingly, the Company recorded deferred revenue, which amounted to $1.4 million at December 31, 2020. During the first three months of 2021, the Company realized approximately $0.8 million of this deferred revenue related to fulfilling a portion of the forgiveness services. At March 31, 2021, the remaining amount of deferred revenue was $0.6 million. These fees will be recorded as income in the period in which the services associated with the forgiveness process are rendered.

The Company has made no significant judgments in applying the revenue guidance prescribed in ASC 606 that affect the determination of the amount and timing of revenue from the above-described contracts with customers.

~~Note 12 – Leases~~

The Company enters into leases in the normal course of business. As of March 31, 2021, the Company leased 7 branch offices for which the land and buildings are leased and 8 branch offices for which the land is leased but the building is owned. The Company also leases office space for several operational departments. All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from May 2021 through May 2076, some of which include options for multiple ~~five~~- and ten-year extensions. The weighted average remaining life of the lease term for these leases was 18.2 years as of March 31, 2021. The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. As permitted by applicable accounting standards, the Company has elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's Consolidated Balance Sheets.

Leases are classified as either operating or finance leases at the lease commencement date, and as previously noted, all of the Company's leases have been determined to be operating leases. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

The Company uses its incremental borrowing rate, on a collateralized basis, at lease commencement to calculate the present value of lease payments when the rate implicit in the lease is not known. The weighted average discount rate for leases was 3.01% as of March 31, 2021.

Total operating lease expense was $0.7 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively. The right-of-use assets and lease liabilities were $16.9 million and $17.4 million as of March 31, 2021, respectively, and were $17.5 million and $17.9 million as of December 31, 2020, respectively.

~~Future undiscounted lease payments for operating leases with initial terms of one year or more as of March 31, 2021 are as follows.~~

Page 37

~~Index~~

($ in thousands)
April 1, 2021 to December 31, 2021 $ 1,492
2022 1,742
2023 1,640
2024 1,503
2025 1,318
Thereafter 18,380
Total undiscounted lease payments 26,075
Less effect of discounting (8,721)
Present value of estimated lease payments (lease liability) $ 17,354

~~Note 13 - Shareholders' Equity~~

~~Stock Repurchases~~

During the first three months months of 2021, the Company repurchased approximately 106,744 shares of the Company's common stock at an average stock price of $37.81 per share, which totaled $4 million, under a $20 million repurchase authorization publicly announced in January 2021.

During the first three months months of 2020, the Company repurchased approximately 576,406 shares of the Company's common stock at an average stock price of $34.70 per share, which totaled $20 million.

~~Note 14 - Borrowings~~

~~The following tables present information regarding the Company’s outstanding borrowings at March 31, 2021 and December 31, 2020 - dollars are in thousands:~~

Description Due date Call Feature March 31, 2021 Interest Rate
FHLB Principal Reducing Credit 7/24/2023 None $ 113 1.00% fixed
FHLB Principal Reducing Credit 12/22/2023 None 982 1.25% fixed
FHLB Principal Reducing Credit 1/15/2026 None 5,000 1.98% fixed
FHLB Principal Reducing Credit 6/26/2028 None 232 0.25% fixed
FHLB Principal Reducing Credit 7/17/2028 None 48 0.00% fixed
FHLB Principal Reducing Credit 8/18/2028 None 172 1.00% fixed
FHLB Principal Reducing Credit 8/22/2028 None 172 1.00% fixed
FHLB Principal Reducing Credit 12/20/2028 None 352 0.50% fixed
Other Borrowing 4/7/2022 None 103 1.00% fixed
Trust Preferred Securities 1/23/2034 Quarterly by Company
beginning 1/23/2009 20,620 2.91% at 3/31/21
adjustable rate
3 month LIBOR + 2.70%
Trust Preferred Securities 6/15/2036 Quarterly by Company
beginning 6/15/2011 25,774 1.57% at 3/31/21
adjustable rate
3 month LIBOR + 1.39%
Trust Preferred Securities 1/7/2035 Quarterly by Company
beginning 1/7/2010 10,310 2.24% at 3/31/21
adjustable rate
3 month LIBOR + 2.00%
Total borrowings/ weighted average rate as of March 31, 2021 $ 63,878 2.21%
Unamortized discount on acquired borrowings (2,536)
Total borrowings $ 61,342

~~Page 38~~

~~Index~~

Description Due date Call Feature December 31, 2020 Interest Rate
FHLB Term Note 7/24/2023 None 124 1.00% fixed
FHLB Principal Reducing Credit 12/22/2023 None 991 1.25% fixed
FHLB Principal Reducing Credit 1/15/2026 None 5,500 1.98% fixed
FHLB Principal Reducing Credit 6/26/2028 None 235 0.25% fixed
FHLB Principal Reducing Credit 7/17/2028 None 49 0.00% fixed
FHLB Principal Reducing Credit 8/18/2028 None 174 1.00% fixed
FHLB Principal Reducing Credit 8/22/2028 None 174 1.00% fixed
FHLB Principal Reducing Credit 12/20/2028 None 355 0.50% fixed
FHLB Principal Reducing Credit 4/7/2022 None 103 1.00% fixed
Trust Preferred Securities 1/23/2034 Quarterly by Company
beginning 1/23/2009 20,620 2.91% at 12/31/2020
adjustable rate
3 month LIBOR + 2.70%
Trust Preferred Securities 6/15/2036 Quarterly by Company
beginning 6/15/2011 25,774 1.61% at 12/31/2020
adjustable rate
3 month LIBOR + 1.39%
Trust Preferred Securities 1/7/2035 Quarterly by Company
beginning 1/7/2010 10,310 2.24% at 12/31/2020
adjustable rate
3 month LIBOR + 2.00%
Total borrowings / weighted average rate as of December 31, 2020 $ 64,409 2.22%
Unamortized discount on acquired borrowings (2,580)
Total borrowings $ 61,829

~~Page 39~~32

Index

Item 2 - Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition

Overview and Highlights at and for Three Months Ended March 31, 2022

The Company earned net income of $34.0 million, or $0.95 diluted EPS, during the three months ended March 31, 2022 compared to net income of $28.2 million, or $0.99 diluted EPS, for the three months ended March 31, 2021. The main drivers to the increase in net income are presented below. Refer also to additional discussion in the Results of Operations section following.

•On October 15, 2021 we acquired Select Bancorp, Inc. ("Select") which was headquartered in Dunn, North Carolina and which contributed total assets of $1.8 billion, total loans of $1.3 billion, and total deposits of $1.6 billion as of the acquisition date. As such, comparisons for the financial periods presented are impacted by our acquisition of Select.

•Net interest income for the first quarter of 2022 was $76.9 million, a 39.2% increase from the $55.2 million recorded in the first quarter of 2021. The increase in net interest income from the prior year period was driven by higher earning assets related to both the Select acquisition and organic growth, offset somewhat by a reduction in net interest margin ("NIM").

•For the three months ended March 31, 2022, the Company recorded a provision for credit losses of $3.5 million based on changes in the loan portfolio and economic forecasts, and a reversal of the provision for unfunded commitments of $1.5 million related to fluctuations in the levels and mix of outstanding loans commitments. No provision for credit losses or unfunded commitments was required in the comparable period of 2021, which was the first quarter we adopted CECL.

•Noninterest income declined $1.4 million, or 6.9%, from the prior year period primarily due to a $3.4 million decrease in mortgage banking income related to lower levels of activity, a $2.0 million decrease in SBA consulting fees due to lower PPP-related revenues, and a $1.2 million decrease in commissions on sales of financial and insurance products due to the sale of substantially all of the assets of our property and casualty insurance agency subsidiary in June 2021. Reductions in noninterest income were substantially offset by higher levels of transactions and number of accounts generating service charge income and bankcard revenue.

•Noninterest expense increased $11.4 million, or 28.5% for the quarter ended March 31, 2022 as compared to the prior year. Included in the March 31, 2022 quarter was $3.5 million in merger and acquisition expenses primarily related to computer system conversion costs. The balance of the increase in noninterest expenses was driven by higher operating expenses resulting from the Select acquisition.

•Income tax expense increased $1.0 million relative to the higher pre-tax income. The effective tax rates were 20.4% and 21.3% for the first quarter of 2022 and 2021, respectively. The lower effective tax rate in the first quarter of 2022 was related to higher tax exempt income in that quarter relative to taxable income.

Total assets at March 31, 2022 amounted to $10.7 billion, a 1.4% increase from December 31, 2021. The primary balance sheet changes are presented below. Refer also to additional discussion in the Financial Condition section following.

•Total loans amounted to $6.1 billion at March 31, 2022, a decrease of $17.0 million, or 0.28% from year end due primarily to reductions in PPP loans through forgiveness which more than offset organic growth during the first quarter of 2022.

•Total investment securities increased $86.9 million from December 31, 2021 to a total of $3.2 billion at March 31, 2022, as the Company deployed excess liquidity during the period.

•Total deposits amounted to $9.4 billion at March 31, 2022, an increase of $260.5 million, or 2.9%, from December 31, 2021. The high core deposit growth is believed to be due to a combination of stimulus funds and changes in customer behaviors during the pandemic, as well as our ongoing growth and retention initiatives.

•We remain well-capitalized by all regulatory standards with a total common equity Tier 1 ratio of 12.85% and total risk-based capital ratio of 14.99%.

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•Accumulated other comprehensive loss increased $140.0 million related to higher unrealized losses on available for sale securities due to increased market rates experienced in the first quarter of 2022.

Impact of COVID-19

Our market areas and local economies continue to show signs of recovery from the impact of the COVID-19 pandemic, However, the current pandemic is ongoing and dynamic in nature, and there are many related uncertainties, including, among other things, its severity and new variants that may arise; its ultimate duration and infection spikes that may occur; the impact on our customers, employees and vendors; the impact on the financial services and banking industry; and the ongoing impact on the economy as a whole.

Our financial position and results of operations are particularly susceptible to the ability of our loan customers to meet loan obligations, the availability of our workforce, the availability of our vendors and supply chain issues, and the decline in the value of assets held by us. The impact of the COVID-19 pandemic lessened in 2021, and we experienced increased commercial activity throughout our market areas. We have not realized significant negative impact on our loan portfolio or asset quality. Further, all COVID-19 deferral status loans have returned to regular payment schedules. While the economic pressures and uncertainties arising from the COVID-19 pandemic have resulted in, and may continue to result in, specific changes in consumer and business spending and borrowing habits, we have seen improvements in many industries in which we have loan exposure including retail/strip centers, hotels/lodging, restaurants, entertainment, and commercial real estate.

The ongoing impact on the Company of the continuing pandemic is uncertain. The extent to which the COVID-19 pandemic has 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 the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.

Critical Accounting Policies and Estimates

The accounting principles we follow and our methods of applying these principles conform with ~~accounting principles generally accepted in the United States of America~~GAAP and with general practices followed by the banking industry. Certain of these principles involve a significant amount of judgment and may involve the use of estimates based on our best assumptions at the time of the estimation. ~~The allowance for credit losses on loans and unfunded commitments and intangible assets are~~We have identified the accounting policies ~~we have identified~~discussed below as being more sensitive in terms of judgments and estimates taking into account their overall potential impact to our consolidated financial statements.

Allowance for Credit Losses on Loans and Unfunded Commitments

The ACL represents management’s current estimate of credit losses for the remaining estimated life of financial instruments. We perform periodic and systematic detailed reviews of the loan portfolio to identify trends and to assess the overall collectability of the portfolio. We believe the accounting estimate related to the ACL is a “critical accounting estimate” as: (1) changes in it can materially affect the provision for credit losses and net income; (2) it requires management to predict borrowers’ likelihood or capacity to repay, including evaluation of inherently uncertain future economic conditions; (3) the value of underlying collateral must be estimated on collateral-dependent loans; (4) prepayment activity must be projected to estimate the life of loans that often are shorter than contractual terms; and (5) it requires estimation of a reasonable and supportable forecast period for credit losses. 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 credit losses. The ACL is estimated based on loan level characteristics using historical loss rates, a reasonable and supportable economic forecast, and assumptions of probability of default and loss given default. Loan balances considered uncollectible are charged-off against the ACL. There are many factors affecting the ACL, some of which are quantitative, while others require qualitative judgment. Although management believes its process for determining the ACL adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods.

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Purchased credit deteriorated ("PCD") loans represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination as of the acquisition date. At acquisition, the allowance for credit losses on ~~loans, which~~PCD assets is ~~presented as a reduction of loans outstanding, and~~booked directly to the ~~allowance for unfunded commitments, which~~ACL. Any subsequent changes in the ACL on PCD assets is recorded ~~within Other Liabilities require high degrees~~through the provision for credit losses.

We believe that the ACL is adequate to absorb the expected life of ~~judgement. Each of these allowances reflects management’s estimate of losses that will result from the inability of our borrowers to make required~~ loan ~~payments. Management uses a systematic methodology to determine its allowance for~~ credit losses on the portfolio of loans as of the balance sheet date. Actual losses incurred may differ materially from our estimates.

We estimate expected credit losses on commitments to extend credit over the contractual period in which we are exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancellable. The allowance for off-balance sheet credit exposures, which is included in "Other liabilities" on the Consolidated Balance Sheets, is adjusted for as an increase or decrease to the provision for unfunded commitments. The estimate includes consideration of the likelihood that funding will occur and ~~off-balance-sheet~~an estimate of expected credit ~~exposures. Management considers~~losses on commitments expected to be funded over its estimated life. The methodology is based on a loss rate approach that starts with the ~~effects~~probability of ~~past events,~~funding based on historical experience. Similar to methodology discussed above related to the loans receivable portfolio, adjustments are made to the historical losses for current conditions and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of these items involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s allowances for credit losses on loansforecast.

Goodwill and unfunded commitments reflect management’s best estimates within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust either of these items for management’s current estimate of expected credit losses. See Note 2 - Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL. See also Note 6 — Loans, Allowance for Credit Losses and Asset Quality Information - in this Quarterly Report on Form 10-Q, and “Allowance for Credit Losses and Provision for Credit Losses” below.

Other Intangible Assets

~~Due to the estimation process and the potential materiality of the amounts involved, we have also identified~~We believe that the accounting for goodwill and other intangible assets ~~as an~~also involves a higher degree of judgment than most other significant accounting ~~policy critical~~policies. Accounting Standards Codification 350-10 establishes standards for the amortization of acquired intangible assets, generally over the estimated useful life of the related assets, and impairment assessment of goodwill. At March 31, 2022, we had core deposit and other intangibles of $16.9 million subject to ~~our consolidated financial statements.~~amortization and $364.3 million of goodwill, which is not subject to amortization.

~~When we complete an acquisition transaction,~~Goodwill arising from business combinations represents the excess of the purchase price over the ~~amount by which the fair market value of assets acquired exceeds the fair market value of liabilities assumed represents an intangible asset. We must then determine the identifiable portions~~sum of the ~~intangible asset, with any remaining amount classified as goodwill. Identifiable intangible assets associated with these acquisitions are generally amortized over the~~ estimated ~~life~~fair values of the related asset, whereas goodwill is tested annually for impairment, but not systematically amortized. Assuming no goodwill impairment, it is beneficial to our future earnings to have a lower amount assigned totangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. Goodwill has an indefinite useful life and ~~higher~~is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. At each reporting date between annual goodwill impairment tests, we consider potential indicators of ~~goodwill as opposed to having a higher amount considered to be identifiable intangible assets~~impairment. During 2022 there were no triggers warranting interim impairment assessments and ~~a lower amount classified as goodwill.~~for the 2021 annual assessment, we concluded that it was more likely than not that the fair value exceeded its carrying value.

The primary identifiable intangible asset we typically record in connection with a whole bank or bank branch acquisition is the value of the core deposit ~~intangible, whereas when we acquire an insurance agency or a consulting firm, as we did in 2016 and 2017,~~intangibles which represent the ~~primary identifiable intangible asset is the~~estimated value of the long-term deposit relationships acquired ~~customer list.~~in the transaction. Determining the amount of identifiable intangible assets and their average lives involves multiple assumptions and estimates and is typically determined by performing a discounted cash flow analysis, which involves a combination of any or all of the following assumptions: customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. ~~We typically engage a third party consultant to assist in each analysis. For the whole bank and bank branch transactions recorded to date, the~~The core deposit intangibles are amortized over the estimated useful lives of the deposit accounts based on a method that we believe reasonably approximates the anticipated benefit stream from this intangible. The estimated useful lives are periodically reviewed for reasonableness and have generally been estimated to have a life ranging from seven to ten years, with an accelerated rate of amortization. For insurance agency acquisitions, the identifiable intangible assets related to the customer lists were determined to have a life of ten to fifteen years, with amortization occurring on a straight-line basis. For SBA Complete, the consulting firm we acquired in 2016, the identifiable intangible asset related to the customer list was determined to have a life of approximately seven years, with amortization occurring on a straight-line basis.

At March 31, 2021, we had three reporting units – 1) First Bank with $227.6 million in goodwill, 2) First Bank Insurance with $7.4 million in goodwill, and 3) SBA activities, including SBA Complete and our SBA Lending Division, with $4.3 million in goodwill. If the carrying value of a reporting unit were ever to exceed its fair value, we

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would determine whether the implied fair value of the goodwill, using a discounted cash flow analysis, exceeded the carrying value of the goodwill. If the carrying value of the goodwill exceeded the implied fair value of the goodwill, an impairment loss would be recorded in an amount equal to that excess. Performing such a discounted cash flow analysis would involve the significant use of estimates and assumptions.

Subsequent to the initial recording of the identifiable intangible assets and goodwill, we amortize the identifiable intangible assets over their estimated average lives, as discussed above. In addition, we test goodwill for impairment annually on October 31 or on an interim basis if an event triggering impairment may have occurred, by comparing the fair value of our reporting units to their related carrying value, including goodwill. The conclusion of our last review was that none of our goodwill was impaired.

We review identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our policy is that an impairment loss is recognized, equal to the difference between the asset’s carrying amount and its fair value, if the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Estimating future cash flows involves the use of multiple estimates and assumptions, such as those listed above.

Current Accounting Matters

See Note 2 to the Consolidated Financial Statements ~~above~~ for information about recently announced or adopted accounting ~~standards that we have recently adopted.~~standards.

~~Recent Developments: COVID-19~~

~~See Note 1 to the Consolidated Financial Statements.~~

~~FINANCIAL OVERVIEW~~

Net income amounted to $28.2 million, or $0.99 per diluted common share, for the three months ended March 31, 2021, an increase of 59.7% on a per share basis, compared to $18.2 million, or $0.62 per diluted common share, recorded in the first quarter of 2020. The increase in earnings was driven by lower credit costs and higher noninterest income.

~~Net Interest Income and Net Interest Margin~~

Net interest income for the first quarter of 2021 was $55.2 million, a 0.9% increase from the $54.8 million recorded in the first quarter of 2020. The increase in net interest income was due to higher levels of interest-earning assets and the recognition of PPP loan fees, the effects of which were mostly offset by a lower net interest margin.

Our net interest margin (a non-GAAP measure calculated by dividing tax-equivalent net interest income by average earning assets) for the first quarter of 2021 was 3.27%, which was 69 basis points lower than the 3.96% realized in the first quarter of 2020. The decline was primarily due to the impact of lower interest rates and the lower incremental reinvestment rates realized from funds provided by the high deposit growth.

Driven by high deposit growth, average interest-earning assets increased by 23.3% in the first quarter of 2021 compared to the first quarter of 2020. The funds provided by the in-flow of deposits were used primarily to either purchase investment securities or were held in our account at the Federal Reserve Bank, each of which increased net interest income but negatively impacted our net interest margin. Additionally, in March 2020, the Federal Reserve Bank decreased interest rates by 150 basis points, which negatively impacted our net interest margin beginning in the second quarter of 2020.

In the first quarter of 2021, we processed $111 million in PPP loan forgiveness payments related to 2020 originations and also originated approximately $111 million in new PPP loans, which resulted in an unchanged balance of total PPP loans of $241 million from December 31, 2020. Including accelerated amortization of deferred PPP loan fees, we recorded a total of $3.0 million in PPP fee-related interest income during the first quarter of 2021, which, when combined with the note rate of 1.00%, resulted in a total yield on PPP loans of 6.16% for the quarter. We have $9.0 million in remaining deferred PPP loan fees, of which $3.1 million relates to 2020 originations and $5.9 million relates to 2021 originations.

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~~Allowance~~RESULTS OF OPERATIONS

Net Interest Income

Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally 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 assets and interest-bearing liabilities. Net interest income is also influenced by external factors such as local economic conditions, competition for ~~Credit Losses, Provision~~loans and deposits, and market interest rates.

Net interest income for ~~Credit Losses~~the three months ended March 31, 2022 amounted to $76.9 million, an increase of $21.6 million, or 39.2%, from the $55.2 million recorded in the first quarter of 2021. Net interest income on a tax-equivalent basis for the three month period ended March 31, 2022 amounted to $77.6 million, an increase of $21.9 million, or 39.3%, from the $55.7 million recorded in the first quarter of 2021. For internal purposes, we evaluate our NIM on a tax-equivalent basis by adding the tax benefit realized from tax-exempt loans and ~~Asset Quality~~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 table presents an analysis of net interest income.

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Average Balances and Net Interest Income Analysis
	For the Three Months Ended March 31,
	2022						2021
($ in thousands)	Average Volume		Average Rate		Interest Earned or Paid		Average Volume		Average Rate		Interest Earned or Paid
Assets
Loans (1) (2)	$	6,051,487	4.30	%	$	64,202	$	4,684,143	4.42	%	$	51,073
Taxable securities	2,995,377		1.79	%	13,210		1,652,834		1.45	%	5,913
Non-taxable securities	288,468		1.47	%	1,048		67,196		1.95	%	323
Short-term investments, primarily interest-bearing cash	478,861		0.55	%	649		494,233		0.57	%	700
Total interest-earning assets	9,814,193		3.27	%	79,109		6,898,406		3.41	%	58,009

Cash and due from banks	115,748						80,898
Premises and equipment	135,990						121,798
Other assets	498,488						376,724
Total assets	$	10,564,419					$	7,477,826

Liabilities
Interest-bearing checking	$	1,576,323	0.06	%	$	224	$	1,203,942	0.09	%	$	266
Money market deposits	2,606,133		0.13	%	853		1,650,387		0.23	%	918
Savings deposits	721,911		0.06	%	108		538,781		0.10	%	130
Time deposits >$100,000	581,979		0.30	%	430		555,180		0.63	%	858
Other time deposits	298,570		0.21	%	156		224,045		0.39	%	216
Total interest-bearing deposits	5,784,916		0.12	%	1,771		4,172,335		0.68	%	2,388
Borrowings	67,381		2.77	%	460		61,405		2.53	%	383
Total interest-bearing liabilities	5,852,297		0.15	%	2,231		4,233,740		0.27	%	2,771

Noninterest-bearing checking	3,435,437						2,301,780
Other liabilities	66,563						57,116
Shareholders’ equity	1,210,122						885,190
Total liabilities and shareholders’ equity	$	10,564,419					$	7,477,826

Net yield on interest-earning assets and net interest income			3.18	%	$	76,878			3.25	%	$	55,238
Net yield on interest-earning assets and net interest income – tax-equivalent (3)			3.21	%	$	77,575			3.27	%	$	55,681

Interest rate spread			3.17	%					3.14	%

Average prime rate			3.29	%					3.25	%

(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 (including deferred PPP fees), in the amounts of $1.4 million, and $3.4 million for three months ended March 31, 2022 and 2021, respectively.

(2) Includes accretion of discount on acquired and SBA loans of $2.3 million and $1.3 million for three months ended March 31, 2022 and 2021, respectively.

(3) Includes tax-equivalent adjustments of $697,000 and $443,000 for three months ended March 31, 2022 and 2021, respectively, to reflect the 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. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.

~~On January 1, 2021, we adopted~~

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Overall, as demonstrated in the ~~Current Expected Credit Loss (CECL) methodology~~table above, net interest income grew $21.6 million for ~~estimating credit losses,~~the three months ended March 31, 2022 from the comparable period of the prior year. Higher earning asset volumes, from both organic growth and the Select acquisition, and lower rates on interest-bearing liabilities, which were partially offset by lower yields on interest-earning assets, drove the increase.

•Average loan volumes for the three months ended March 31, 2022 were $1.4 billion higher than the same period in 2021. Higher volumes were partially offset by lower interest rates on loans related to the general low market rate environment, resulting in an increase in loan interest income of $13.1 million.

•Higher average volume of $1.6 billion on total securities resulted in an increase of ~~$14.6~~$8.0 million in ~~our allowance~~interest income for ~~loan losses and an~~the three months ended March 31, 2022 when compared to the same period in 2021. Also contributing to the increase ~~of $7.5 million~~ in ~~our allowance for unfunded commitments. The tax-effected impact of those two items amounted to $17.1 million and~~interest income was ~~recorded~~the higher yields on the portfolio as ~~an adjustment to our retained earnings as of January 1, 2021.~~reinvestment rates increased between the periods.

•Lower interest rates paid on deposits drove a $0.6 million decrease in deposit interest expense for the three months ended March 31, 2022 compared to the same period in 2021. Reductions in rates on deposits more than offset the $1.6 billion increase in average volume for total interest-bearing deposits.

~~We recorded no provision~~•The reduction in NIM was in large part a result of general low market rate environment through most of 2021 and the shift of earning asset mix to lower yielding investment securities from loans as excess liquidity was deployed to securities.

Our NIM for ~~credit losses~~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.


	Three Months Ended March 31,
($ in thousands)	2022		2021
Interest income – increased by accretion of loan discount on acquired loans	$	1,671	752
Interest income - increased by accretion of loan discount on retained SBA loans	667		589
Total interest income impact	2,338		1,341
Interest expense – reduced by premium amortization of deposits	234		15
Interest expense – increased by discount accretion of borrowings	(73)		(44)
Total net interest expense impact	161		(29)
Total impact on net interest income	$	2,499	1,312

The increase in loan discount accretion on purchased loans for the first quarter of ~~2021~~2022 as compared to ~~$5.6~~the prior year was driven by the loans acquired from Select in the fourth quarter of 2021. Generally the level of loan discount accretion will decline each year due to the natural paydowns in acquired loan portfolios. At March 31, 2022 and 2021, unaccreted loan discount on purchased loans amounted to $15.6 million and $12.7 million, respectively.

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 vary relative to fluctuations in the SBA loan portfolio. At March 31, 2022 and 2021, unaccreted loan discount on SBA loans amounted to $5.9 million and $7.1 million, respectively.

Amortization of net deferred loan fees also impacts interest income. During the first quarter of ~~2020. The higher provision in 2020 was primarily related~~2022, we amortized net deferred PPP fees of $1.3 million as interest income compared to estimated incurred loan losses associated with the pandemic that was emerging at the time. Under the CECL methodology for recording expected credit losses adopted at January 1, 2021, which resulted in the increases to the allowance for credit losses noted above, we determined that no further adjustments were necessary$3.0 million for the first quarter of 2021. ~~See additional discussion below~~At March 31, 2022, we had $1.3 million in remaining deferred PPP origination fees that will be recognized over the lives of the loans, with accelerated amortization expected to result from the loan forgiveness process. We expect substantially all of these fees will be recognized in the ~~section "Allowance~~second quarter of 2022 as a result of the loan forgiveness process.

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Provision for Credit Losses and Provision for ~~Credit Losses."~~Unfunded Commitments

The provisions for credit losses represents our current estimate of life of loan credit losses in the loan portfolio and unfunded loan commitments. 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 resulting provision for credit losses. The provision for unfunded commitments represents expected losses on unfunded loan commitments that are expected to result in outstanding loan balances. The allowance for unfunded commitments is included in "Other liabilities" in the Consolidated Balance Sheets.

~~Total net loan charge-offs~~The provision for credit losses of $3.5 million for the ~~first quarters of 2021 and 2020 amounted to $1.1 million and $2.5 million, respectively, or 0.10% and 0.22% of average loans on an annualized basis, respectively.~~

~~Total nonperforming assets amounted to $50 million at~~three months ended March 31, ~~2021, or 0.65% of total assets,~~2022 was based on changes in the loan portfolio and updated economic forecasts, and is compared to ~~$37.0 million at December 31, 2020, or 0.64% of total assets. At~~no provision for the three months ended March 31, ~~2021, loans on deferral status associated with~~2021. The amount of provision recorded in each period was the ~~pandemic amounted~~amount required such that the total ACL reflected the appropriate balance as determined under CECL. We recorded a reversal of provision for unfunded commitments for the three months ended March 31, 2022 totaling $1.5 million related primarily to ~~$5.9 million.~~the fluctuations in the levels and mix of outstanding loan commitments. There was no provision for unfunded commitments for the three months ended March 31, 2021.

Additional discussion of 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.

Noninterest Income

~~Total~~Our noninterest income ~~for the first quarter of 2021 was~~amounted to $19.3 million and $20.7 million a 50.8% increase from the $13.7 million recorded for the first quarter of 2020. The increases in noninterest income in 2021 are primarily due to fees earned as a result of high mortgage loan activity, SBA consulting fees related to client assistance with PPP originations, and increased SBA loan sale gains. See additional discussion below.

~~Noninterest Expenses~~

~~Noninterest expenses amounted to $40.1 million in each of the first quarters of 2021 and 2020 with no significant variances in individual line items. See additional discussion below.~~

~~Income Taxes~~

~~Our effective tax rate was 21.3% and 20.3%~~ for the three months ended March 31, 2022 and 2021, respectively. Included in noninterest income was nonrecurring amounts totaling $1.6 million in other gains and ~~2020, respectively, with~~$34,000 in other losses for the three months ended March 31, 2022 and 2021, ~~increase being due to a higher proportion~~respectively. The following table presents the primary components of ~~fully-taxable~~noninterest income.


	For the Three Months Ended March 31,
($ in thousands)	2022		2021
Service charges on deposit accounts	$	3,541	2,733
Other service charges, commissions and fees - net bankcard interchange	4,711		3,523
Other service charges, commissions, and fees - other	2,294		1,999
Fees from presold mortgage loans	1,121		4,544
Commissions from sales of insurance and financial products	945		2,190
SBA consulting fees	780		2,764
SBA loan sale gains	3,261		2,330
Bank-owned life insurance ("BOLI") income	976		620
Other gains (losses), net	1,622		(34)
Noninterest income	$	19,251	20,669

~~Balance Sheet and Capital~~

~~We continued to experience high balance sheet growth during the first quarter of 2021, with total assets increasing by $447~~Service charges on deposit accounts increased $0.8 million, or ~~24.8% annualized. Total assets at~~30%, for the three months ended March 31, ~~2021 amounted to $7.7 billion~~2022 as compared to ~~$7.3~~the three months ended March 31, 2021. The increase was driven by the higher number of new customers and transaction accounts generating fees from both organic growth and the Select acquisition.

Other service charges, commissions and fees - net bankcard interchange represents interchange income from debit and credit card transactions, net of associated interchange expense, and totaled $4.7 million for the three months ended March 31, 2022, a 34% increase from the $3.5 million for the three months ended March 31, 2021. The growth in card usage by our customers is related to the higher volume of outstanding cards giving rise to increased transaction volume as well as customer payment preferences. Because the Company exceeded $10 billion in total assets at December 31, ~~2020.~~

2021, it is expected that bankcard revenue will be adversely impacted by the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 limit on debit card interchange fees beginning July 1, 2022.

~~This growth was driven by a $460 million, or 29.7% annualized,~~Other service charges, commissions and fees - other includes items such as SBA guarantee servicing fees, ATM charges, wire transfer fees, safety deposit box rentals, fees from sales of personalized checks, and check cashing fees. The increase in ~~deposits from December 31, 2020. The high deposit growth is believed to be due to a combination of stimulus funds and changes in customer behaviors during~~this line item for the ~~pandemic, as well as ongoing growth initiatives by the Company.~~

~~Total loans amounted to $4.6 billion at~~three months ended March 31, ~~2021~~2022 compared to ~~$4.7 billion at December 31, 2020. Our level of outstanding loans has been negatively impacted by high mortgage loan refinancing activity, commercial loan payoffs, and soft demand arising from~~ the ~~pandemic.~~

~~We remain well-capitalized by all regulatory standards, with an estimated Total Risk-Based Capital Ratio at March 31, 2021 of 15.49%, an increase from the 15.37% reported at December 31, 2020.~~

~~Components of Earnings~~

Net interest income is the largest component of earnings, representing the difference between interest and fees generated from earning assets and the interest costs of deposits and other funds needed to support those assets.three months ended

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We believe that analysis of net interest income on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest income amounts 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.

~~Net interest income for the three month period ended~~ March 31, 2021 of $0.3 million, or 15%, was primarily due to growth in the number of accounts and related transaction activity, as well as the Bank's deposit base increases.

Fees from presold mortgages amounted to ~~$55.2~~$1.1 million an increase of $0.5 million, or 0.9%, from the $54.8 million recorded in the first quarter of 2020. Net interest income on a tax-equivalent basis for the three month period ended March 31, 2021 amounted to $55.7 million, an increase of $0.6 million, or 1.1%, from the $55.1 million recorded in the first quarter of 2020.

($ in thousands) Three Months Ended March 31,
2021 2020
Net interest income, as reported $ 55,238 54,759
Tax-equivalent adjustment 443 334
Net interest income, tax-equivalent $ 55,681 55,093

There are two primary factors that cause changes in the amount of net interest income we record - 1) changes in our loans and deposits balances, and 2) our net interest margin (tax-equivalent net interest income divided by average interest-earning assets).

For the three months ended March 31, 2021, the higher net interest income compared to the same period of 2020 was primarily due to higher levels of interest-earning assets and the recognition of PPP fees, which were mostly offset by a lower net interest margin.

~~The following table presents an analysis of net interest income.~~

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For the Three Months Ended March 31,
2021 2020
($ in thousands) Average
Volume Average
Rate Interest
Earned
or Paid Average
Volume Average
Rate Interest
Earned
or Paid
Assets
Loans (1) (2) $ 4,684,143 4.42 % $ 51,073 $ 4,512,893 4.93 % $ 55,297
Taxable securities 1,652,834 1.45 % 5,913 834,528 2.64 % 5,474
Non-taxable securities 67,196 1.95 % 323 21,719 3.04 % 164
Short-term investments, primarily interest-bearing cash 494,233 0.57 % 700 226,797 1.95 % 1,098
Total interest-earning assets 6,898,406 3.41 % 58,009 5,595,937 4.46 % 62,033
Cash and due from banks 80,898 63,218
Premises and equipment 121,798 114,323
Other assets 376,724 409,620
Total assets $ 7,477,826 $ 6,183,098
Liabilities
Interest bearing checking $ 1,203,942 0.09 % $ 266 $ 899,004 0.18 % $ 408
Money market deposits 1,650,387 0.23 % 918 1,203,129 0.56 % 1,683
Savings deposits 538,781 0.10 % 130 426,225 0.25 % 269
Time deposits >$100,000 555,180 0.63 % 858 644,113 1.83 % 2,924
Other time deposits 224,045 0.39 % 216 250,860 0.78 % 489
Total interest-bearing deposits 4,172,335 0.23 % 2,388 3,423,331 0.68 % 5,773
Borrowings 61,405 2.53 % 383 316,136 1.91 % 1,501
Total interest-bearing liabilities 4,233,740 0.27 % 2,771 3,739,467 0.78 % 7,274
Noninterest bearing checking 2,301,780 1,526,868
Other liabilities 57,116 58,171
Shareholders’ equity 885,190 858,592
Total liabilities and
shareholders’ equity $ 7,477,826 $ 6,183,098
Net yield on interest-earning assets and net interest income 3.25 % $ 55,238 3.94 % $ 54,759
Net yield on interest-earning assets and net interest income – tax-equivalent (3) 3.27 % $ 55,681 3.96 % $ 55,093
Interest rate spread 3.14 % 3.68 %
Average prime rate 3.25 % 4.42 %

(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 (including deferred PPP fees), in the amounts of $3,395, and $345 for the three months ended March 31, ~~2021 and 2020, respectively.~~

~~(2) Includes accretion~~2022, a decline of ~~discount on acquired and SBA loans of $1,341 and $1,841 for the three months ended March 31, 2021 and 2020, respectively.~~

(3) Includes tax-equivalent adjustments of $443 and $334 in 2021 and 2020, respectively, to reflect the 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. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.

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~~Average loans outstanding for the first quarter of 2021 were $4.684 billion, which was $171~~$3.4 million, or ~~3.8%~~75%, ~~higher than~~from the ~~average loans outstanding for the first quarter of 2020 ($4.513 billion).~~same time period in 2021. The ~~higher amount of average loans outstanding in 2021~~decrease was ~~primarily~~ due to the ~~origination of PPP loans since March 31, 2020. We had $241 million~~general decline in ~~outstanding PPP loans~~home mortgage refinancings and new originations during 2022 as of March 31, 2021, with an average balance of $237 million. Excluding PPP loan balances, average loans outstanding were approximately 1.5% lower for the three months ended March 31, 2021, respectively, compared to the ~~first quarter of 2020.~~

As derived from the tables above, our average balance of total securities grew by $864 million, or 100.9%, when comparing the first quarter of 2021 to the first quarter of 2020. This increase was due to higher levels of investment purchases arising from the cash provided by the high deposit growth experienced in recent periods.

For the first quarter of 2021, average short-term investments, primarily interest-bearing cash, amounted to $494 million, which was $267 million, or 117.9%, higher than for the first quarter of 2020 ($227million). The higher level of short-term investments in 2021 was also due to the high deposit growth experienced, as discussed in the following paragraph.

Average total deposits outstanding for the first quarter of 2021 were $6.474 billion, which was $1.524 billion, or 30.8%, higher than the average deposits outstanding for the first quarter of 2020 ($4.950 billion). The majority of the growth has occurred in our transaction deposit accounts (noninterest bearing checking, interest bearing checking, money market and savings accounts). We believe the high deposit growth was due to a combination of factors including: 1) the deposit of PPP funds into customer checking accounts, 2) the government’s stimulus payments, 3) consumer savings habits, and 4) positive results from our deposit account growth initiatives.

We also utilized funds provided by our high deposit growth to pay down a substantial portion of our borrowings since March 31, 2020. Average borrowings decreased $255 million, or 80.6%, when comparing the first quarter of 2021 to the first quarter of 2020.

The net result of the balance sheet growth discussed above was that our average interest-earning assets for the three months ended March 31, 2021 were 23.3% higher than for the comparable period in 2020, which, as it relates to the net interest income we recorded, slightly more than offset the impact of the decline in our net interest margin, which is discussed below.

~~See additional information regarding changes in our loans and deposits in the section below entitled “Financial Condition.”~~

Our net interest margin (a non-GAAP measure calculated by dividing tax-equivalent net interest income by average earning assets) for the first quarter of 2021 was 3.27%, which was 69 basis points lower than the 3.96% realized in the first quarter of 2020. The lower margin was primarily due to the impact of lower interest rates, as discussed in the following paragraph, and the lower incremental reinvestment rates from realized from funds provided by the high deposit growth,

From August 2019 to March 2020, the Federal Reserve cut interest rates by 225 basis points, which played a significant role in our asset yields declining by more than our cost of funds since those interest rate cuts. In comparing the first quarter of 2021 to the first quarter of 2020, our yield on interest-earning assets declined by 105 basis points compared to a 51 basis point decline in the cost of our interest-bearing liabilities. See additional discussion in Item 3 - Quantitative and Qualitative Disclosures About Market Risk.

Another factor negatively impacting our net interest margin has been our high deposit growth, which, due to lower loan growth, has resulted in a higher percentage of our earning assets being comprised of short-term investments and securities, each of which generally yield less than loans. Short-term investments and securities comprised 32% of average interest-earning assets for the first quarter of 2021 compared to 19% in the first quarter of 2020.

Our PPP loans outstanding totaled $241 million at both March 31, 2021 and December 31, 2020, while no PPP loans were outstanding at March 31, 2020. Including accelerated amortization of deferred PPP loan fees, we recorded a total of $3.0 million in PPP fee-related interest income during the first quarter of 2021, which, when combined with the note rate of 1.00%, resulted in a total yield on PPP loans of 6.16% for the quarter. We have $9.0 million in remaining deferred PPP loan fees, of which $3.1 million relates to 2020 originations and $5.9 million relates to 2021 originations

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We recorded loan discount accretion of $1.3 million in the first quarter of 2021, compared to $1.8 million in the first quarter of 2020. The lower loan discount accretion was primarily attributable to lower accretion on acquired loans due to the natural paydowns in our acquired loan portfolios.

~~See additional information regarding net interest income in the section entitled “Interest Rate Risk.”~~

We recorded no provision for credit losses in the first quarter of 2021 compared to $5.6 million in the first quarter of 2020. The higher provision in 2020 was primarily related to estimated incurred loan losses associated with the pandemic that was emerging at the time. Under the CECL methodology for recording expected credit losses adopted at January 1, 2021, for the first quarter of 2021, we determined that no provisions for credit losses were necessary as it relates to loans, unfunded commitments or held to maturity securities. See additional discussion below in the section "Allowance for Credit Losses and Provision for Credit Losses."

Total noninterest income for the first quarter of 2021 was $20.7 million, a 50.8% increase from the $13.7 million recorded for the first quarter of 2020. The increases in noninterest income in 2021 are primarily due to fees earned as a result of high mortgage loan activity, SBA consulting fees related to client assistance with PPP originations, and increased SBA loan sale gains, as discussed below.

Service charges on deposit accounts amounted to $2.7 million for the first quarter of 2021, an 18.1% decrease compared to $3.3 million in the first quarter of 2020. The decline was primarily due to fewer instances of customer overdrafts.

Other service charges, commissions and fees amounted to $5.5 million for the first quarter of 2021, an increase of 35.7% from the $4.1 million for the first quarter of 2020. The increase was primarily due to a $0.9 million increase in bankcard revenue. Additionally, the first quarter of 2020 included a $0.5 million charge related to impairment of our SBA servicing asset.

Fees from presold mortgages amounted to $4.5 million for the first quarter of 2021, an increase of 146.8%, compared to $1.8 million in the first quarter of 2020. The increase in 2021 was primarily due to higher mortgage loan origination volume arising from low mortgage loan interest rates.prior year.

Commissions from sales of insurance and financial products ~~did not vary significantly for the period presented, amounting~~amounted to ~~approximately $2.2 million and $2.1~~$0.9 million for the ~~first quarters~~three months ended March 31, 2022, down $1.2 million from the same period in 2021. The decrease is due to the sale of the majority of the assets of our property and casualty insurance subsidiary in June 2021.

The reduction in SBA consulting services for the three months ended March 31, 2022, compared to the same period in 2021 of $2.0 million, or 72%, is directly related to the wind-down of the PPP loan program and ~~2020,~~lower related revenues earned in the current period. SBA loan sale gains were up $0.9 million, or 40%, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 relating to the timing of sales and the volume of originated loans available to be sold in each period.

The increase in BOLI income for the three months ended March 31, 2022, compared to the same period in 2021, of $0.4 million was related to the acquisition of Select which contributed $31.0 million in BOLI as of the date of acquisition.

Other gains (losses), net amounted to a net gain of $1.6 million for the three months ended March 31, 2022 due primarily to death benefits realized on BOLI policies.

Noninterest Expenses

Total noninterest expenses totaled $51.5 million and $40.1 million for the three months ended March 31, 2022 and 2021, respectively. Included in noninterest expense was nonrecurring merger and acquisition costs totaling $3.5 million for the three months ended March 31, 2022. There were no merger costs for the comparable period of 2021. The following table presents the primary components of noninterest expense.


	For the Three Months Ended March 31,
($ in thousands)	2022		2021
Salaries	$	23,454	$	20,131
Employee benefits	5,578		4,574
Total personnel expense	29,032		24,705
Occupancy expense	3,384		2,904
Equipment related expenses	1,304		1,045
Merger and acquisition expenses	3,484		—
Amortization of intangible assets	1,017		897
Credit card rewards and other expenses	1,243		1,076
Telephone and data lines	935		751
Software costs	1,574		1,207
Data processing expense	2,101		1,343
Advertising and marketing expense	911		610
Foreclosed property (gains) losses, net	(80)		157
Non-credit losses	602		185
Other operating expenses	5,958		5,185
Total	$	51,465	$	40,065

~~SBA consulting fees~~In general, the increase in noninterest expenses was driven by higher operating expenses from personnel, locations, number of accounts, and higher level of activity resulting from the Select acquisition completed in the fourth quarter of 2021. Merger and acquisition expenses amounted to ~~$2.8~~$3.5 million for the ~~first quarter,~~three months ended March 31, 2022 primarily related to computer system conversion costs.

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Total personnel expense increased from $24.7 million for the three months ended March 31, 2021 to $29.0 million for the three months ended March 31, 2022, an increase of ~~169.1%, compared~~$4.3 million, or 18%. Within personnel expense, total compensation increased $3.3 million, or 16.5% primarily related to the incremental number of associates from the Select acquisition, combined with regular annual salary increases. Employee benefits expense increased $1.0 million, ~~for~~or 22% relative to the higher salaries and other compensation expense combined with higher insurance claims in the first quarter of ~~2020. The increase was due~~2022 compared to ~~fees earned by~~ the ~~Company's SBA subsidiary, SBA Complete, primarily related to assisting its third-party client banks with~~prior year.

Income Taxes

We recorded income tax expense of $8.7 million for the ~~PPP loan program. SBA Complete recorded approximately $1.6~~three months ended March 31, 2022 and $7.6 million ~~in PPP-related fees~~ for the three months ended March 31, 2021. ~~At March 31, 2021, SBA Complete had $0.6 million in remaining deferred PPP revenue that will be recorded as income upon completing the forgiveness process~~Our effective tax rates declined to 20.4% from 21.3% for ~~its client banks.~~

SBA loan sale gains amounted to $2.3 million for the first quarter of 2021 compared to $0.6 million in the first quarter of 2020. The first quarter of 2020 was significantly impacted by temporary pandemic-related market conditions. The first quarter of 2021 was favorably impacted by the SBA increasing the guarantee percentage on most loans from 75% to 90% as part of the economic relief package.

~~Noninterest expenses amounted to $40.1 million in each of the first quarters of 2021 and 2020.~~

~~Personnel~~ e~~xpense, which includes salaries expense and employee benefit expense, was unchanged at $24.7 million for each of the first quarters of 2021 and 2020.~~

The combined amount of occupancy and equipment expense did not vary significantly among the periods presented, amounting to $3.9 million and $4.1 million for three month periods ending March 31, 2021 and 2020, respectively.

Intangibles amortization expense decreased from $1.1 million in the first quarter of 2020 to $0.9 million in the first quarter of 2021. The declines were primarily a result of the amortization of intangible assets associated with acquisitions that typically have amortization schedules that decline over time.

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~~Index~~

~~Foreclosed property losses were $0.2 million for each of the three months ending March 31, 2021 and 2020.~~

Other operating expenses amounted to $10.4 million for the first quarter of 2021 compared to $10.1 million in the first quarter of 2020, an increase of 2.5%. The increase in 2021 was primarily a result of higher FDIC insurance expense in 2021 and increased technology costs.

~~For~~ the three months ended March 31, 2022 and 2021, ~~and 2020, the provision for income taxes was $7.6 million, an~~respectively. The lower effective tax rate ~~of 21.3%, and $4.6 million, an effective tax rate of 20.3%, respectively. The increase in the effective tax rate in 2021 was primarily due to a higher proportion of fully-taxable income.~~

The consolidated statements of comprehensive income reflect other comprehensive loss of $18.5 million during the first quarter of 2021 compared to other comprehensive income of $16.1 million during the first quarter of 2020. The primary component of other comprehensive income for the periods presented was changes in unrealized holding gains (losses) of our available for sale securities. Our available for sale securities portfolio is predominantly comprised of fixed rate bonds that generally increase in value when market yields for fixed rate bonds decrease and decline in value when market yields for fixed rate bonds increase. Longer term interest rates increased late in the first quarter of ~~2021, which decreased the value of our fixed rate securities, while~~2022 was related to higher tax-exempt income in ~~the first~~that quarter of 2020, longer term interest rates decreased, which increased the value of our fixed rate securities. Management has evaluated any unrealized losses on individual securities at each period end and determined that there is no other-than-temporary impairment.relative to taxable income.

FINANCIAL CONDITION

Total assets at March 31, ~~2021~~2022 amounted to ~~$7.7~~$10.7 billion, a ~~6.1%~~1.4% increase from December 31, ~~2020.~~2021. Total loans at March 31, ~~2021~~2022 amounted to ~~$4.6~~$6.1 billion, a ~~2.3%~~0.3% decrease from December 31, ~~2020,~~2021, and total deposits amounted to ~~$6.7~~$9.4 billion, a ~~7.3%~~2.9% increase from December 31, ~~2020.~~2021.

~~The following table presents information regarding the nature of changes in our levels of loans and deposits for~~For the first three months of ~~2021.~~

$ in thousands
January 1, 2021 to March 31, 2021 Balance at
beginning
of period Internal
Growth,
net Growth from Acquisitions Balance at
end of
period Total
percentage
growth
Total loans $ 4,731,315 (107,261) — 4,624,054 (2.3) %
Deposits – Noninterest bearing checking 2,210,012 220,186 — 2,430,198 10.0 %
Deposits – Interest bearing checking 1,172,022 86,478 — 1,258,500 7.4 %
Deposits – Money market 1,581,364 139,866 — 1,721,230 8.8 %
Deposits – Savings 519,266 48,449 — 567,715 9.3 %
Deposits – Brokered 20,222 (10,761) — 9,461 (53.2) %
Deposits – Internet time 249 — — 249 — %
Deposits – Time>$100,000 543,894 (18,085) — 525,809 (3.3) %
Deposits – Time<$100,000 226,567 (6,242) — 220,325 (2.8) %
Total deposits $ 6,273,596 459,891 — 6,733,487 7.3 %

~~As derived from the table above, for~~2022, loans declined $17.0 million, or 0.3%, related primarily to forgiveness of PPP loans offsetting core growth, which is historically slower in the first ~~three months~~quarter of ~~2021, loans declined $107.3 million, or 2.3%. Our level of outstanding loans has been negatively impacted by high~~the year. We did experience growth in our commercial real estate and 1-4 family first mortgage ~~loan refinancing activity, commercial loan payoffs,~~categories and soft demand arising from the pandemic. PPP loans amounted to $241 million at both March 31, 2021 and December 31, 2020, with $111 million in new PPP loans, which was offset by $111 million in PPP forgiveness payments. We generally believe that our market area is beginning to emerge from the pandemic, and thus, we expect economic activity to increase. Accordingly, excluding the impact of PPP loan forgiveness, we expect to experience continued organic ~~loan~~ growth during the remainder of ~~2021.~~

2022. The mix of our loan portfolio ~~remains~~remained substantially the same at March 31, ~~2021~~2022 compared to December 31, ~~2020. Also, the~~2021. The majority of our real estate loans ~~are~~were personal and commercial loans where real estate provides additional

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~~Index~~

security for the loan. Note 64 to the consolidated financial statements presents additional detailed information regarding our mix of loans.

For the three month period ended March 31, ~~2021,~~2022, we ~~experienced strong~~continued to experience growth in our deposit base, with total deposits increasing by ~~$460~~$260.5 million, or ~~7.3%~~2.9% from December 31, ~~2020.~~2021. Deposit growth was primarily in ~~our~~ transaction accounts (checking, money market and savings), ~~was especially strong, ranging from 7-10% growth for the three month period. We~~which we believe ~~this high~~to be related to our ongoing deposit growth ~~is due to a combination of~~initiatives, as well as stimulus funds and changes in customer behaviors ~~during~~remaining from the ~~pandemic, as well as our ongoing deposit growth initiatives.~~pandemic. We routinely engage in activities designed to grow and retain deposits, such as (1) emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with us, (2) pricing deposits at rate levels that will attract and/or retain deposits, and (3) continually working to identify and introduce new products that will attract customers or enhance our appeal as a primary provider of financial services.

Our liquidity levels have increased over the period. Our liquid assets (cash and securities) as a percentage of our total deposits and borrowings increased from 31.4% at December 31, 2020 to 37.5% at March 31, 2021.

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Nonperforming Assets

Nonperforming assets include nonaccrual loans, TDRs, loans past due 90 or more days and still accruing interest, and foreclosed real estate. Nonperforming assets are summarized as follows:


ASSET QUALITY DATA ($ in thousands)		As of/for the quarter ended March 31, 2021			As of/for the quarter ended December 31, 2020
$ in thousands							$ in thousands	As of/for the quarter ended March 31, 2022			As of/for the quarter ended December 31, 2021
Nonperforming assets	Nonperforming assets						Nonperforming assets
Nonaccrual loans	Nonaccrual loans	$	39,566		35,076		Nonaccrual loans	$	33,460		34,696
TDRs – accruing	TDRs – accruing	8,601			9,497		TDRs – accruing	12,727			13,866
Accruing loans >90 days past due	Accruing loans >90 days past due	—			—		Accruing loans >90 days past due	—			1,004
Total nonperforming loans	Total nonperforming loans	48,167			44,573		Total nonperforming loans	46,187			49,566
Foreclosed real estate	Foreclosed real estate	1,811			2,424		Foreclosed real estate	2,750			3,071
Total nonperforming assets	Total nonperforming assets	$	49,978		46,997		Total nonperforming assets	$	48,937		52,637

Asset Quality Ratios – All Assets
Net charge-offs to average loans - annualized		0.10		%	0.07	%
Asset Quality Ratios							Asset Quality Ratios
Nonaccrual loans to total loans							Nonaccrual loans to total loans	0.55		%	0.57	%
Nonperforming loans to total loans	Nonperforming loans to total loans	1.04		%	0.94	%	Nonperforming loans to total loans	0.76		%	0.82	%
Nonperforming assets to total loans and foreclosed properties							Nonperforming assets to total loans and foreclosed properties	0.81		%	0.87	%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.65		%	0.64	%	Nonperforming assets to total assets	0.46		%	0.50	%
Allowance for loan losses to total loans		1.42		%	1.11	%
Allowance for loan losses to nonperforming loans		136.71		%	117.53	%
Allowance for credit losses to nonaccrual loans							Allowance for credit losses to nonaccrual loans	245.27		%	227.08	%

As shown in the table above, nonperforming assets ~~increased~~decreased from December 31, ~~2020~~2021 to March 31, ~~2021,~~2022, which was primarily driven ~~by one borrower relationship amounting to $5.5 million being placed on nonaccrual status~~by the decrease in ~~the first quarter of 2021 and~~TDRs, decrease in accruing loans past due 90 days or more which ~~was not~~were directly related to the ~~impact of~~Select acquisition, and the ~~pandemic. Due primarily to government stimulus and relief programs, the nonperforming asset level at March 31, 2021 may not reflect the full impact of COVID-19.~~reduction in foreclosed properties.

We have reviewed the collateral for our nonperforming assets, including nonaccrual loans, and have included this review among the factors considered in the evaluation of the allowance for ~~loan~~credit losses discussed below.

At March 31, ~~2021,~~2022, total nonaccrual loans amounted to ~~$39.6~~$33.5 million, compared to ~~$35.1~~$34.7 million at December 31, 2021. ~~As noted above, the increase was primarily driven by one borrower relationship.~~

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~~Index~~

~~The following~~"Real estate-mortgage-commercial and other" is the ~~composition, by loan type,~~largest category of ~~all~~nonaccruals loans, at $15.2 million, or 45% of ~~our~~total nonaccrual loans, followed by "Commercial, financial, and agricultural" at ~~each period end.~~

($ in thousands) At March 31, 2021 At December 31, 2020
Commercial, financial, and agricultural $ 10,330 9,681
Real estate – construction, land development, and other land loans 540 643
Real estate – mortgage – residential (1-4 family) first mortgages 6,207 6,048
Real estate – mortgage – home equity loans/lines of credit 1,676 1,333
Real estate – mortgage – commercial and other 20,654 17,191
Consumer loans 159 180
Total nonaccrual loans $ 39,566 35,076
$12.6 million, or 38% of total nonaccrual loans. Included in those categories are nonaccrual SBA loans totaling $18.0 million at March 31, 2022, or 54% of total nonaccrual loans, that have $7.4 million in guarantees from the SBA.

TDRs are accruing loans for which we have granted concessions to the borrower as a result of the borrower’s financial difficulties. At March 31, ~~2021,~~2022, total accruing TDRs amounted to ~~$8.6~~$12.7 million, compared to ~~$9.5~~$13.9 million at December 31, ~~2020,~~2021, with the decrease being attributed to ~~several TDRs~~one large commercial TDR paying off during the period. ~~COVID-19 related deferrals, which amounted to $5.9 million at March 31, 2021, are excluded from TDR consideration at March 31, 2021.~~

~~The following table presents geographic information regarding our nonperforming loans (nonaccrual loans and TDRs) at March 31, 2021.~~

As of March 31, 2021
($ in thousands) Total
Nonperforming
Loans Total Loans Nonperforming
Loans to Total
Loans Total
Foreclosed
Real Estate
Region (1)
Eastern Region (NC) $ 5,167 1,044,774 0.49 % $ 382
Triangle Region (NC) 10,663 985,508 1.08 % 252
Triad Region (NC) 6,418 750,682 0.85 % 91
Charlotte Region (NC) 1,261 358,445 0.35 % —
Southern Piedmont Region (NC) 2,872 269,544 1.07 % 65
Western Region (NC) 3,383 581,433 0.58 % 21
South Carolina Region 763 202,007 0.38 % 40
Former Virginia Region 81 336 24.11 % 209
Other 17,559 431,325 4.07 % 751
Total $ 48,167 4,624,054 1.04 % $ 1,811

~~(1)The counties comprising each region are as follows:~~

~~Eastern North Carolina Region - New Hanover, Brunswick, Duplin, Dare, Beaufort, Pitt, Onslow, Carteret~~

~~Triangle North Carolina Region - Moore, Lee, Harnett, Chatham, Wake~~

~~Triad North Carolina Region - Montgomery, Randolph, Davidson, Rockingham, Guilford, Stanly, Forsyth, Alamance~~

~~Charlotte North Carolina Region - Iredell, Cabarrus, Rowan, Mecklenburg~~

~~Southern Piedmont North Carolina Region - Richmond, Scotland, Robeson, Bladen, Columbus, Cumberland~~

~~Western North Carolina Region – Buncombe, Henderson, McDowell, Madison, Transylvania~~

~~South Carolina Region - Chesterfield, Dillon, Florence~~

~~Former Virginia Region - Wythe, Washington, Montgomery, Roanoke~~

~~Other includes loans originated on a national basis through the Company’s SBA Lending Division and through the Company's Credit Card Division~~

As reflected in Note 64 to the financial statements, total classified loans were ~~$63.1~~relatively flat at $55.8 million at March 31, ~~2021~~2022 compared to ~~$60.5~~$56.0 million at December 31, ~~2020.~~2021. Special mention loans decreased from ~~$61.3~~$43.1 million at December 31, ~~2020~~2021 to ~~$52.3~~$38.2 million at March 31, ~~2021.~~2022.

~~Foreclosed real estate includes primarily foreclosed properties.~~ Total foreclosed real estate amounted to ~~$1.8~~$2.8 million at March 31, ~~2021~~2022 and ~~$2.4~~$3.1 million at December 31, ~~2020.~~2021. Our foreclosed property balances have generally been decreasing as a result of sales activity during the periods and favorable overall asset quality.

~~Page 49~~

~~Index~~ During the first quarter of 2022, we recorded sales of three foreclosed properties partially offset by the addition of one foreclosed property.

We believe that the fair values ~~of the items~~ of foreclosed real estate, less estimated costs to sell, equal or exceed their respective carrying values at the dates presented.

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The following table presents the detail of all of our foreclosed real estate at each period end:


($ in thousands)	($ in thousands)	At March 31, 2021		At December 31, 2020	($ in thousands)	At March 31, 2022		At December 31, 2021
Vacant land and farmland	Vacant land and farmland	$	610	753	Vacant land and farmland	$	103	104
1-4 family residential properties	1-4 family residential properties	214		517	1-4 family residential properties	911		1,231
Commercial real estate	Commercial real estate	987		1,154	Commercial real estate	1,736		1,736
Total foreclosed real estate	Total foreclosed real estate	$	1,811	2,424	Total foreclosed real estate	$	2,750	3,071

Allowance for Credit Losses and ~~Provision for Credit Losses~~Loan Loss Experience

On January 1, 2021, we adopted CECL for estimating credit losses, which resulted in an increase of $14.6 million in our allowance for loan losses and an increase of $7.5 million in our allowance for unfunded commitments, which is recorded within Other Liabilities. The tax-effected impact of those two items amounted to $17.1 million and was recorded as an adjustment to our retained earnings as of January 1, 2021.

The allowance for loan loss accounting in effect at December 31, 2020 and all prior periods was based on our estimate of probable incurred loan losses as of the reporting date ("Incurred Loss" methodology). Under the CECL methodology, our allowance for credit losses on loansOur ACL is based on the total amount of loan losses that are expected over the remaining life of the loan portfolio. Our estimate of credit losses on loans ~~under CECL~~ is determined using a complex model, based primarily on the utilization of discounted cash flows, that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the allowance for ~~loan~~credit losses and resulting provision for credit losses.

We recorded no$3.5 million provision for credit losses on loans in the first quarter of ~~2021~~2022 compared to ~~$5.6 million~~no provision in the first quarter of ~~2020.~~2021, which was the first quarter of our adoption of CECL. The higher provision in ~~2020~~2022 was primarily related to our estimate of probable incurred losses associated with the pandemic that was emerging at the time. Under the CECL methodology for recording expected credit losses on loans adopted as of January 1, 2021, which resultedchanges in the ~~increase to the allowance for credit losses on loans noted above, we determined that no further adjustment was necessary for the first quarter of 2021,~~loan portfolio and thus no provisions for credit losses recorded. The primary factors that resulted in this determination were an immaterial change in loan balances outstanding, the immaterial change in the level of the Company's past due and classified loans, and the relatively consistentupdated economic projections in the forecasts utilized. See Note 2 to the consolidated financial statements for additional information, which includes discussion noting that a more negative forecast scenario was utilized at March 31, 2021 compared to the scenario used on the January 1, 2021 CECL adoption date.forecasts.

We have no foreign loans, few agricultural loans and do not engage in significant lease financing or highly leveraged transactions. Commercial loans are diversified among a variety of industries. The majority of our real estate loans are primarily personal and commercial loans where real estate provides additional security for the loan. Collateral for virtually all of these loans is located within our principal market area.

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For the periods indicated, the following table summarizes our balances of loans outstanding, average loans outstanding, ~~changes in the~~ allowance for ~~loan~~credit losses, ~~arising from~~ charge-offs and recoveries, and ~~additions to the allowance for loan losses that have been charged to expense.~~

($ in thousands) Three Months
Ended
March 31, 2021 Twelve Months
Ended December 31,
2020 Three Months
Ended
March 31, 2020
Loans outstanding at end of period $ 4,624,054 4,731,315 4,552,708
Average amount of loans outstanding $ 4,684,143 4,702,743 4,512,893
Allowance for loan losses, at beginning of year $ 52,388 21,398 21,398
Adoption of CECL 14,575 — —
Provision (reversal) for loan losses — 35,039 5,590
66,963 56,437 26,988
Loans charged off:
Commercial, financial, and agricultural (1,438) (5,608) (2,460)
Real estate – construction, land development & other land loans (66) (51) (40)
Real estate – mortgage – residential (1-4 family) first mortgages (38) (478) (195)
Real estate – mortgage – home equity loans / lines of credit (131) (524) (68)
Real estate – mortgage – commercial and other (510) (968) (263)
Consumer loans (134) (873) (287)
Total charge-offs (2,317) (8,502) (3,313)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural 514 745 217
Real estate – construction, land development & other land loans 294 1,552 290
Real estate – mortgage – residential (1-4 family) first mortgages 87 754 91
Real estate – mortgage – home equity loans / lines of credit 11 487 83
Real estate – mortgage – commercial and other 262 621 47
Consumer loans 35 294 95
Total recoveries 1,203 4,453 823
Net (charge-offs) recoveries (1,114) (4,049) (2,490)
Allowance for credit losses on loans, at end of period $ 65,849 52,388 24,498
Ratios:
Net charge-offs (recoveries) as a percent of average loans (annualized) 0.10 % 0.09 % 0.22 %
Allowance for loan losses as a percent of loans at end of period 1.42 % 1.11 % 0.54 %

key ratios
.

As previously discussed, as of March 31, 2021, we have granted approximately $5.9 million in loan deferrals under the CARES act provisions, which is reduction from the highest level of $774 million in loan deferrals at June 30, 2020.

~~The ratio of our allowance to total loans was 1.42% and 1.11% at March 31, 2021 and December 31, 2020, respectively. The increase in this ratio was a result of the adoption of CECL on January 1, 2021.~~


Loan Ratios, Loss and Recovery Experience
($ in thousands)	Three Months Ended March 31, 2022			Twelve Months Ended December 31, 2021			Three Months Ended March 31, 2021
Loans outstanding at end of period	$	6,064,698		6,081,715			4,624,054
Average amount of loans outstanding	6,051,487			5,018,391			4,684,143
Allowance for credit losses, at period end	82,069			78,789			65,849

Total charge-offs	(1,043)			(7,602)			(2,317)
Total recoveries	823			4,922			1,203
Net charge-offs	$	(220)		$	(2,680)		$	(1,114)

Ratios:
Net charge-offs as a percent of average loans (annualized)	0.01		%	0.05		%	0.10		%
Allowance for credit losses as a percent of loans at end of period	1.35		%	1.30		%	1.42		%
Recoveries of loans previously charged-off as a percent of loans charged-off	78.91		%	64.75		%	51.92		%

In addition to the allowance for credit losses on loans, we maintain an allowance for lending-related commitments such as unfunded loan ~~commitments and letters of credit. Under CECL, we~~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 by the Company.~~cancellable. The allowance for lending-related commitments on off-balance sheet credit exposures is adjusted as a provision for ~~credit loss~~unfunded commitments 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. ~~Methodology~~The allowance for unfunded commitments of $12.0 million and $13.5 million at March 31, 2022 and December 31, 2021, respectively, is ~~based~~classified on ~~a loss rate approach that starts with~~ the ~~probability of funding based on historical experience. Similar to methodology~~balance sheet within "Other liabilities".

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discussed above related to the loans receivable portfolio, adjustments are made to the historical losses for current conditions and reasonable and supportable forecast. The allowance for lending-related commitments of $8.1 million and $0.6 million at March 31, 2021 and December 31, 2020, respectively, is separately classified on the balance sheet within Other Liabilities. We recorded noa reversal provision for credit losses on unfunded commitments of $1.5 million during the first quarter of ~~2021 for~~2022 primarily relating to the ~~same reasons noted above related to loans.~~fluctuations in the levels and mix of outstanding loan commitments.

We believe ~~our allowance levels are~~the ACL is adequate at each period end ~~based on the respective methodologies utilized, as described above.~~presented. It must be emphasized, however, that the determination of the allowances using our procedures and methods rests upon various judgments and assumptions about economic conditions and other factors affecting loans. 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 allowance for ~~loan~~credit losses or future charges to earnings. See “Critical Accounting Policies – Allowance for Credit Losses on Loans and Unfunded Commitments” ~~above.~~in Note 1 to the 2021 Annual Report on Form 10-K filed with the SEC for more information.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for ~~loan~~credit losses and value of other real estate. Such agencies may require us to recognize adjustments to the allowance or the carrying value of other real estate based on their judgments about information available at the time of their examinations.

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 is comprised almost entirely of readily marketable securities, which could also be sold to provide cash. ~~Thus far in~~Since the beginning of the COVID-19 pandemic in early 2020, we have seen our liquidity levels increase, with increases in deposits account balances leading to higher cash and investment securities levels.

In addition to internally generated liquidity sources, we have the ability to obtain borrowings from the following three ~~sources -~~sources: 1) an approximately ~~$969~~$876 million line of credit with the FHLB (of which $7$1.9 million and $8$2.0 million were outstanding at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively),; 2) a $100 million federal funds line with a correspondent bank (of which none was outstanding at March 31, ~~2021~~2022 or December 31, ~~2020),~~2021); and 3) an approximately ~~$135~~$138 million line of credit through the Federal Reserve Bank of Richmond’s discount window (of which none was outstanding at March 31, ~~2021~~2022 or December 31, ~~2020)~~2021). Unused and available lines of credit amounted to ~~$1.2~~$1.1 billion at March 31, ~~2021.~~2022.

Our overall liquidity ~~has increased since~~is essentially the same as at December 31, ~~2020 due primarily to the strong deposit growth which has exceeded loan growth. Our~~2021 with our liquid assets (cash and securities) as a percentage of our total deposits and borrowings ~~increased from 31.4%~~ at ~~December 31, 2020 to 37.5%~~33.9% at March 31, ~~2021.~~

2022. We 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. ~~We will continue to monitor our liquidity position carefully and will explore and implement strategies to increase liquidity if deemed appropriate.~~

The amount and timing of our contractual obligations and commercial commitments has not changed materially since December 31, ~~2020,~~2021, detail of ~~which~~which is presented in ~~Table 18 on page 74~~ the Contractual Obligations and Other Commercial Commitments table of our ~~2020~~2021 Annual Report on Form 10-K.

We In addition, we are not involved in any ~~other~~ 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.

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Derivative financial instruments include futures, forwards, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in significant derivative activities through March 31, ~~2021,~~2022, and have no current plans to do so.

Capital Resources

The Company is regulated by the ~~Board of Governors of the Federal Reserve Board (“FRB”)~~FRB and is subject to the securities registration and public reporting regulations of the ~~Securities and Exchange Commission.~~SEC. Our banking subsidiary, First Bank, is also regulated by the FRB and the North Carolina Office of the Commissioner of Banks. We must comply with regulatory capital requirements established by the FRB. Failure to

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meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial statements. We are not aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations.

Under Basel III standards and capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The capital standards require us to maintain minimum ratios of “Common Equity Tier 1” capital to total risk-weighted assets, “Tier 1” capital to total risk-weighted assets, and total capital to risk-weighted assets of 4.50%, 6.00% and 8.00%, respectively. Common Equity Tier 1 capital is comprised of common stock and related surplus, plus retained earnings, and is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities. Tier 1 capital is comprised of Common Equity Tier 1 capital plus Additional Tier 1 Capital, which ~~for the Company~~ includes non-cumulative perpetual preferred stock and trust preferred securities. Total capital is comprised of Tier 1 capital plus certain adjustments, the largest of which is ~~our~~our allowance for ~~loan~~credit losses. Risk-weighted assets refer to our on- and off-balance sheet exposures, adjusted for their related risk levels using formulas set forth in FRB ~~and FDIC~~ regulations.

~~The capital conservation buffer requirement began to be phased in on January 1, 2016, at 0.625% of risk weighted assets, and increased each year until fully implemented at 2.5% on January 1, 2019.~~

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 FRB has not advised us of any requirement specifically ~~applicable~~applicable to ~~us.~~us.

At March 31, ~~2021,~~2022, our capital ratios exceeded the regulatory minimum ratios discussed above. The following table presents ~~our~~the capital ratios for the Company and the regulatory minimums discussed above for the periods indicated.


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Risk-based capital ratios:	Risk-based capital ratios:					Risk-based capital ratios:
Common equity Tier 1 to Tier 1 risk weighted assets	Common equity Tier 1 to Tier 1 risk weighted assets	13.16	%	13.19	%	Common equity Tier 1 to Tier 1 risk weighted assets	12.85	%	12.53	%
Minimum required Common Equity Tier 1 capital	Minimum required Common Equity Tier 1 capital	7.00	%	7.00	%	Minimum required Common Equity Tier 1 capital	7.00	%	7.00	%

Tier I capital to Tier 1 risk weighted assets	Tier I capital to Tier 1 risk weighted assets	14.24	%	14.28	%	Tier I capital to Tier 1 risk weighted assets	13.74	%	13.42	%
Minimum required Tier 1 capital	Minimum required Tier 1 capital	8.50	%	8.50	%	Minimum required Tier 1 capital	8.50	%	8.50	%

Total risk-based capital to Tier II risk weighted assets	Total risk-based capital to Tier II risk weighted assets	15.49	%	15.37	%	Total risk-based capital to Tier II risk weighted assets	14.99	%	14.67	%
Minimum required total risk-based capital	Minimum required total risk-based capital	10.50	%	10.50	%	Minimum required total risk-based capital	10.50	%	10.50	%

Leverage capital ratios:
Leverage capital ratio:						Leverage capital ratio:
Tier 1 capital to quarterly average total assets	Tier 1 capital to quarterly average total assets	9.60	%	9.88	%	Tier 1 capital to quarterly average total assets	9.60	%	9.39	%
Minimum required Tier 1 leverage capital	Minimum required Tier 1 leverage capital	4.00	%	4.00	%	Minimum required Tier 1 leverage capital	4.00	%	4.00	%

First Bank is also subject to capital requirements that do not vary materially from the Company’s capital ratios presented above. At March 31, ~~2021,~~2022, First Bank ~~significantly~~ exceeded the minimum ratios established by the

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regulatory authorities. The reduction in our leverage ratio reflected in the table above was due to the significant balance sheet growth experienced in the first three months of 2021, resulting primarily from a strong increase in deposits.

~~BUSINESS DEVELOPMENT AND OTHER SHAREHOLDER MATTERS~~

~~The following is a list of business development and other miscellaneous matters affecting the Company and First Bank, our bank subsidiary.~~

•On March 15, 2021, the Company announced a quarterly cash dividend of $0.20 per share payable on April 25, 2021 to shareholders of record on March 31, 2021. This dividend rate represents an 11% increase over the dividend rate declared in the first quarter of 2020.

~~SHARE REPURCHASES~~

For the three months ended March 31, 2021, we repurchased 106,744 shares of our common stock at an average price of $37.81 per share, which totaled $4.0 million. At March 31, 2021, we had authority from our Board of Directors to repurchase up to an additional $16.0 million in shares of the Company’s common stock. We may repurchase shares of our stock in open market and privately negotiated transactions, as market conditions and our liquidity warrants, subject to compliance with applicable regulations. See also Part II, Item 2 “Unregistered Sales of Equity Securities and Use of Proceeds.”

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

INTEREST RATE RISK (INCLUDING QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK)

Net interest income is our most significant component of ~~earnings. Notwithstanding~~earnings and we consider interest rate risk to be our most significant market risk. In addition to changes in volumes of loans and deposits, our level of net interest income is continually at risk due to the effect that changes in general market interest rate trends have on interest yields earned and paid with respect to our various categories of earning assets and interest-bearing liabilities. It is our policy to maintain portfolios of earning assets and interest-bearing liabilities with maturities and repricing opportunities that will afford protection, to the extent practical, against wide interest rate fluctuations.

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Our exposure to interest rate risk is analyzed on a regular basis by management using standard ~~GAP~~"gap" reports (which measure the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period), maturity reports, and an asset/liability software model that simulates future levels of interest income and expense based on current interest rates, expected future interest rates, and various intervals of “shock” interest rates. Over the years, we have been able to maintain a fairly consistent yield on average earning assets ~~(net interest margin)~~(NIM), even during periods of changing interest rates. Over the past five calendar years, our ~~net interest margin~~NIM has ranged from a low of ~~3.56%~~3.16% (realized in ~~2020)~~2021) to a high of 4.09% (realized in 2018). The ~~consistency~~93 basis point fluctuation in NIM between the high and low point during this period was a direct result of the FRB monetary policy enacted at the beginning of the COVID-19 pandemic resulting in a reduction in short-term market interest rates totaling 150 basis points in March 2020. During the first quarter of 2022, the FRB implemented monetary policy to combat inflationary conditions and increased short-term rates 25 basis points, with the anticipation of additional rate increases to occur throughout 2022.

There has be no significant change in the Company-estimated net interest ~~margin is aided by the relatively low level of long-term interest rate exposure that we maintain. At March~~income sensitivity from December 31, 2021 a majority of our interest-earning assets are subject to repricing within five years (because they are either adjustable rate assets or they are fixed rate assets that mature) and substantially all of our interest-bearing liabilities reprice within five years.

2021. Using stated maturities for all fixed rate instruments except mortgage-backed securities (which are allocated in the periods of their expected payback) and securities and borrowings with call features that are expected to be called (which are shown in the period of their expected call), at March 31, ~~2021,~~2022, we had ~~over $2~~approximately $3.2 billion more in interest-bearing liabilities that are subject to interest rate changes within one year than earning assets. This generally would indicate that net interest income would experience downward pressure in a rising interest rate environment and would benefit from a declining interest rate environment. However, this method of analyzing interest sensitivity only measures the magnitude of the timing differences and does not address earnings, market value, or management actions. Also, interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. In addition to the effects of “when” various rate-sensitive products reprice, market rate changes may not result in uniform changes in rates among all products. For example, included in interest-bearing liabilities subject to interest rate changes within one year atas of March 31, ~~2021~~2022 were deposits totaling $4~~.3 billion~~$4.9 billion comprised of checking, savings, and certain types of money market deposits with interest rates set by management. These types of deposits historically have not repriced with, or in the same proportion, as general market indicators.

Overall, we believe that in the near term (twelve months), net interest income will not likely experience significant downward pressure from rising interest rates. Similarly, we would not expect a significant increase in near term net

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~~interest income from falling interest rates.~~ Generally, when rates change, our interest-sensitive assets that are subject to adjustment reprice immediately at the full amount of the change, while our interest-sensitive liabilities that are subject to adjustment reprice at a lag to the rate change and typically not to the full extent of the rate change. In the short-term (less than twelve months), this generally results in us being asset-sensitive, meaning that our net interest income benefits from an increase in interest rates and is negatively impacted by a decrease in interest rates, which is what we experienced following the March 2020 interest rate cuts. However, in the twelve-month and longer horizon, the impact of having a higher level of interest-sensitive liabilities generally lessens the short-term effects of changes in interest rates. Overall we believe that in the near-term (twelve months), net interest income will not likely experience significant pressure from fluctuations in interest rates, and specifically from the anticipated rise in interest rates.

Because of the static nature and limitations as discussed above of the gap report, we also employ an earnings simulation model to analyze the sensitivity of net interest income to movements in interest rates. The model is based on actual cash flows and repricing characteristics for on- and off-balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. Earnings-simulation analysis captures not only the potential of these interest sensitive assets and liabilities to mature or reprice, but also the probability that they will do so. Moreover, earnings-simulation analysis considers the relative sensitivities of these balance sheet items and projects their behavior over an extended period of time.

The general discussion in the foregoing paragraph applies most directly in a “normal” interest rate environment in which longer-term maturity instruments carry higher interest rates than short-term maturity instruments, and is less applicable in periods in which there is a “flat” interest rate curve. A “flat yield curve” means that short-term interest rates are substantially the same as long-term interest rates. ~~Due to actions~~Actions taken by the ~~Federal Reserve related to short-term interest rates and~~FRB at the ~~impact~~beginning of the ~~global economy on longer-term interest rates, we are currently~~pandemic resulted in a very low and flat interest rate curve environment. Recent actions to raise short-term interest rates have resulted in a some steepening of the yield curve on the short end (within 3 years). However, the longer end of the curve continues to be flat. A flat interest rate curve is an unfavorable interest rate environment for many banks, including the Bank, as short-term interest rates generally drive our deposit pricing and longer-term interest rates generally drive loan pricing. When these rates converge, the profit spread we realize between loan yields and deposit rates narrows, which pressures our net interest margin. While there have been periods in the last few years that the yield curve has steepened slightly, it currently remains very flat. This flat yield curve and the intense competition for high-quality loans in our market areas have resulted in lower interest rates on loans.

In an effort to address concerns about the national and global economy the Federal Reserve cut interest rates by 75 basis points in the second half of 2019. And in March 2020, the Federal Reserve cut interest rates by an additional 150 basis points in response to the COVID-19 pandemic. Our interest-bearing cash balances and most of our variable rate loans, generally reset to lower rates soon after these interest rate cuts. We reduced our offering rates on most deposit products and our borrowing costs were also reduced by lower rates and repaying a significant portion of our outstanding borrowings. Overall however, the impact of the interest rate cuts negatively impacted our net interest margin in 2020 and 2021.

Assuming no significant changes in interest rates in the next twelve months, we expect continued pressure on our net interest margin (excluding the impact of PPP - see below) as a result of the flat yield curve and the expectation of lower interest rates on the redeployment of cash received on maturing loans and investments that will likely not be fully offset by lower funding costs.

Since the announcement of the SBA's PPP program, we have originated at total of approximately $356 million in PPP loans, of which $241 million were outstanding at both December 31, 2020 and March 31, 2021. These loans all have an interest rate of 1.00%. In addition to the interest rate, the SBA compensated us with an origination fee for each loan of between 1% to 5% of the loan amount, depending on the size of each loan. We received a total of approximately $16.9 million in these fees, which were netted against the direct cost to originate each loan that totaled approximately $0.7 million, with the net amount deferral amount initially being amortized as interest income over their contractual lives of either two years or five years using the effective interest method of recognition. Early repayments, including the loan forgiveness provisions contained in the PPP, result in accelerated amortization. In 2020, we amortized $4.1 million of the PPP loan fees as interest income. For the first three months of 2021, we amortized $3.0 million of the PPP loan fees as interest income. The Company has $9.0 million in remaining deferred PPP loan fees, of which $3.1 million relates to 2020 originations and $5.9 million relates to 2021 originations. We expected the fees associated with the 2020 originations to be substantially realized during 2021, while we expect the fees associated with the 2021 originations to be recognized at a rate of approximately $150 thousand per quarter for the remainder of 2021, and accelerated amortization occurring in 2022 upon the forgiveness process.

As previously discussed in the section “Net Interest Income,” our net interest income has been impacted by certain purchase accounting adjustments related to the acquired banks. The purchase accounting adjustments related to the premium amortization on loans, deposits and borrowings are based on amortization schedules and are thus systematic and predictable. The accretion of the loan discount on acquired loans amounted to $1.3 million and $1.8 million for the first three months of 2021 and 2020, respectively, is less predictable and could be materially different among periods. This is because of the magnitude of the discounts that are initially recorded and the fact that the accretion being recorded is dependent on both the credit quality of the acquired loans and the impact of any accelerated loan repayments, including payoffs. If the credit quality of the loans declines, some, or all, of the

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~~remaining discount will cease~~Assuming that short term rates continue to ~~be accreted into income. If~~rise over the underlying loans experience accelerated paydowns or improved performance expectations, the remaining discount will be accreted into income on an accelerated basis. In the event of total payoff, the remaining discount will be entirely accreted into income in the period of the payoff. Each of these factors is difficultnext 12 months, we may see some benefit to ~~predict and susceptible to volatility. The remaining loan discount on acquired loans amounted to $8.2 million at March 31, 2021 compared to $8.9 million at December 31, 2020.~~

~~We have no market risk sensitive instruments held for trading purposes, nor do we maintain any foreign currency positions.~~

~~See additional discussion regarding net interest income, as well as discussion of the changes in the annual~~our net interest margin from raising rates if we are able to maintain stable funding costs. Our experience historically has been that our demand deposit accounts have lagged the timing and amount of general market increases. However, we expect continued pressure on net interest margin from market competition for quality loans and the investment of liquidity in lower earning assets until loan demand increases sufficiently to deploy excess liquidity from short-term investments and securities.

Inflation

Because the assets and liabilities of a bank are primarily monetary in nature (payable in fixed, determinable amounts), the performance of a bank is affected more by changes in interest rates than by inflation as discussed above under Interest Rate Risk. Interest rates generally increase as the rate of inflation increases, but the magnitude of the change in rates may not be the same. The effect of inflation on banks is normally not as significant as its influence on those businesses that have large investments in plant and inventories. During periods of high inflation, there are normally corresponding increases in the ~~section entitled “Net Interest Income” above.~~money supply, and banks will normally experience above average growth in assets, loans, and deposits. Also, general increases in the price of goods and services will result in increased operating expenses.

Item 4 – Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, which are our controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports with the SEC is recorded, processed, summarized and reported within the required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is communicated to our management to allow timely decisions regarding required disclosure. Based on the evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective in allowing timely decisions regarding disclosure to be made about material information required to be included in our periodic reports with the SEC. In addition, no change in our internal control over financial reporting has occurred during, or subsequent to, the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1 – Legal Proceedings

Various legal proceedings may arise in the ordinary course of business and may be pending or threatened against the Company and its subsidiaries. Neither the Company nor any of its subsidiaries is involved in any pending legal proceedings that management believes are material to the Company or its consolidated financial position. If an exposure were to be identified, it is the Company’s policy to establish and accrue appropriate reserves during the accounting period in which a loss is deemed to be probable and the amount is determinable.

Item 1A – Risk Factors

Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, as well as cautionary statements contained in this Form 10-Q, including those under the caption “Forward-Looking Statements” set forth in the forepart of this Form 10-Q, risks and matters described elsewhere in this Form 10-Q and in our other filings with the SEC. There are no material changes from the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Period Total Number of
Shares
Purchased Average Price
Paid per Share Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs (1) Maximum Number of
Shares (or Approximate Dollar Value) that May Yet Be
Purchased Under the
Plans or Programs (1)
January 1, 2021 to January 31, 2021 — $ — — $ 20,000,000
February 1, 2021 to February 28, 2021 106,744 37.81 106,744 $ 15,964,472
March 1, 2021 to March 31, 2021 — — — $ 15,964,472
Total 106,744 23.32 106,744 $ 15,964,472

~~Footnotes to the Above Table~~

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Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs (1)
January 1, 2021 to January 31, 2021	—	$	—	—	$	—
February 1, 2021 to February 28, 2021	—	—		—	$	40,000,000
March 1, 2021 to March 31, 2021	—	—		—	$	40,000,000
Total	—	—		—	$	40,000,000

(1)All shares available for repurchase are pursuant to publicly announced share repurchase authorizations. On ~~January 27, 2021,~~February 7, 2022, the Company reported the authorization of a ~~new $20~~$40 million repurchase program with an expiration date of December 31, ~~2021.~~2022. As of March 31, ~~2021,~~2022, the Company had the remaining authorization to repurchase up to ~~$16.0~~$40 million of the Company's stock.

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Index

Item 6 - Exhibits

The following exhibits are filed with this report or, as noted, are incorporated by reference. Except as noted below the exhibits identified have Securities and Exchange Commission File No. 000-15572. Management contracts, compensatory plans and arrangements are marked with an asterisk (*).


2.a			Purchase and Assumption Agreement dated as of March 3, 2016 between First Bank (as Seller) and First Community Bank (as Purchaser) was filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on March 7, 2016, and is incorporated herein by reference.

2.b			Purchase and Assumption Agreement dated as of March 3, 2016 between First Community Bank (as Seller) and First Bank (as Purchaser) was filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on March 7, 2016, and is incorporated herein by reference.

2.c			Merger Agreement between First Bancorp and Carolina Bank Holdings, Inc. dated June 21, 2016 was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 22, 2016, and is incorporated herein by reference.

2.d			Merger Agreement between First Bancorp and ASB Bancorp, Inc. dated May 1, 2017 was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 1, 2017, and is incorporated herein by reference.

2.e			Merger Agreement between First Bancorp and Select Bancorp, Inc. dated June 1, 2021 was filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on June 1, 2021, and is incorporated herein by reference.

3.a			Articles of Incorporation of the Company and amendments thereto were filed as Exhibits 3.a.i through 3.a.v to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2002, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibits 3.1 and 3.2 to the Company’s Current Report on Form 8-K filed on January 13, 2009, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1.b to the Company’s Registration Statement on Form S-3D filed on June 29, 2010 (Commission File No. 333-167856), and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 6, 2011, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 26, 2012, and are incorporated herein by reference.

3.b			Amended and Restated Bylaws of the Company were filed as Exhibit 3.1 to the Company's Current Report on Form 8-K filed on February 9, 2018, and are incorporated herein by reference.

4.a			Form of Common Stock Certificate was filed as Exhibit 4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, and is incorporated herein by reference.

10.a			Amended and Restated Employment Agreement by and among the Company and the Bank and Michael G. Mayer effective February 1, 2022 was filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed on January 28, 2022 and is incorporated by reference.

21			List of Subsidiaries of Registrant

31.1			Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

31.2			Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

32.1			Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101			The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2021,~~2022, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

Copies of exhibits are available upon written request to: First Bancorp, Elizabeth B. Bostian, ~~Secretary,~~Chief Financial Officer, 300 SW Broad Street, Southern Pines, North Carolina, 28387

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Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			FIRST BANCORP

May 10, ~~2021~~2022			BY:/s/ Richard H. Moore
			Richard H. Moore Chief Executive Officer (Principal Executive Officer), and Director


May 10, ~~2021~~2022			BY:/s/ ~~Eric P. Credle~~Elizabeth B. Bostian
			~~Eric P. Credle~~Elizabeth B. Bostian Executive Vice President and Chief Financial Officer


May 10, 2022			BY:/s/ Blaise B. Buczkowski
			Blaise B, Buczkowski Executive Vice President and Chief Accounting Officer

Page 5950


	Long-Term Restricted Stock
	Number of Units	Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2021	172,105	$	33.80
Granted during the period	26,350	35.19
Vested during the period	(6,057)	36.35
Forfeited or expired during the period	(6,819)	37.32
Nonvested at March 31, 2021	185,579	$	33.79


	CECL						Incurred Loss
($ in thousands)	March 31, 2021						December 31, 2020
	Nonaccrual Loans with No Allowance		Nonaccrual Loans with an Allowance		Total Nonaccrual Loans		Nonaccrual Loans
Commercial, financial, and agricultural	$	0	$	10,330	$	10,330	9,681
Real estate – construction, land development & other land loans	227		313		540		643
Real estate – mortgage – residential (1-4 family) first mortgages	2,444		3,763		6,207		6,048
Real estate – mortgage – home equity loans / lines of credit	378		1,298		1,676		1,333
Real estate – mortgage – commercial and other	7,521		13,133		20,654		17,191
Consumer loans	0		159		159		180
Total	$	10,570	$	28,996	$	39,566	35,076


($ in thousands)	Recorded Investment		Unpaid Principal Balance	Related Allowance	Average Recorded Investment
Impaired loans with no related allowance recorded:
Commercial, financial, and agricultural	$	3,688	4,325	—	750
Real estate – mortgage – construction, land development & other land loans	554		694	—	308
Real estate – mortgage – residential (1-4 family) first mortgages	4,115		4,456	—	4,447
Real estate – mortgage –home equity loans / lines of credit	15		27	—	264
Real estate – mortgage –commercial and other	11,763		13,107	—	9,026
Consumer loans	4		4	—	1
Total impaired loans with no allowance	$	20,139	22,613	—	14,796

Impaired loans with an allowance recorded:
Commercial, financial, and agricultural	$	4,012	4,398	3,546	5,139
Real estate – mortgage – construction, land development & other land loans	123		131	30	502
Real estate – mortgage – residential (1-4 family) first mortgages	5,188		5,361	800	5,186
Real estate – mortgage –home equity loans / lines of credit	0		0	0	21
Real estate – mortgage –commercial and other	6,819		7,552	2,175	5,786
Consumer loans	0		0	0	0
Total impaired loans with allowance	$	16,142	17,442	6,551	16,634


($ in thousands)	Pass		Special Mention Loans	Classified Accruing Loans	Classified Nonaccrual Loans	Total
Commercial, financial, and agricultural	$	762,091	9,553	1,087	9,681	782,412
Real estate – construction, land development & other land loans	560,845		7,877	1,157	643	570,522
Real estate – mortgage – residential (1-4 family) first mortgages	943,455		7,609	11,039	6,048	968,151
Real estate – mortgage – home equity loans / lines of credit	297,795		1,468	5,560	1,333	306,156
Real estate – mortgage – commercial and other	1,988,684		34,588	4,801	17,191	2,045,264
Consumer loans	53,488		80	169	180	53,917
Purchased credit impaired	6,901		85	1,605	0	8,591
Total	$	4,613,259	61,260	25,418	35,076	4,735,013
Unamortized net deferred loan fees						(3,698)
Total loans						4,731,315


($ in thousands)	Estimated Amortization Expense
April 1, 2021 to December 31, 2021	$	2,375
2022	2,367
2023	1,386
2024	741
2025	562
Thereafter	1,250
Total	$	8,681


$ in thousands
January 1, 2021 to March 31, 2021	Balance at beginning of period		Internal Growth, net	Growth from Acquisitions	Balance at end of period	Total percentage growth
Total loans	$	4,731,315	(107,261)	—	4,624,054	(2.3)	%

Deposits – Noninterest bearing checking	2,210,012		220,186	—	2,430,198	10.0	%
Deposits – Interest bearing checking	1,172,022		86,478	—	1,258,500	7.4	%
Deposits – Money market	1,581,364		139,866	—	1,721,230	8.8	%
Deposits – Savings	519,266		48,449	—	567,715	9.3	%
Deposits – Brokered	20,222		(10,761)	—	9,461	(53.2)	%
Deposits – Internet time	249		—	—	249	—	%
Deposits – Time>$100,000	543,894		(18,085)	—	525,809	(3.3)	%
Deposits – Time<$100,000	226,567		(6,242)	—	220,325	(2.8)	%
Total deposits	$	6,273,596	459,891	—	6,733,487	7.3	%


	As of March 31, 2021
($ in thousands)	Total Nonperforming Loans		Total Loans	Nonperforming Loans to Total Loans		Total Foreclosed Real Estate
Region (1)
Eastern Region (NC)	$	5,167	1,044,774	0.49	%	$	382
Triangle Region (NC)	10,663		985,508	1.08	%	252
Triad Region (NC)	6,418		750,682	0.85	%	91
Charlotte Region (NC)	1,261		358,445	0.35	%	—
Southern Piedmont Region (NC)	2,872		269,544	1.07	%	65
Western Region (NC)	3,383		581,433	0.58	%	21
South Carolina Region	763		202,007	0.38	%	40
Former Virginia Region	81		336	24.11	%	209
Other	17,559		431,325	4.07	%	751
Total	$	48,167	4,624,054	1.04	%	$	1,811


($ in thousands)	Three Months Ended March 31, 2021			Twelve Months Ended December 31, 2020		Three Months Ended March 31, 2020
Loans outstanding at end of period	$	4,624,054		4,731,315		4,552,708
Average amount of loans outstanding	$	4,684,143		4,702,743		4,512,893

Allowance for loan losses, at beginning of year	$	52,388		21,398		21,398
Adoption of CECL	14,575			—		—
Provision (reversal) for loan losses	—			35,039		5,590
	66,963			56,437		26,988

Loans charged off:
Commercial, financial, and agricultural	(1,438)			(5,608)		(2,460)
Real estate – construction, land development & other land loans	(66)			(51)		(40)
Real estate – mortgage – residential (1-4 family) first mortgages	(38)			(478)		(195)
Real estate – mortgage – home equity loans / lines of credit	(131)			(524)		(68)
Real estate – mortgage – commercial and other	(510)			(968)		(263)
Consumer loans	(134)			(873)		(287)
Total charge-offs	(2,317)			(8,502)		(3,313)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural	514			745		217
Real estate – construction, land development & other land loans	294			1,552		290
Real estate – mortgage – residential (1-4 family) first mortgages	87			754		91
Real estate – mortgage – home equity loans / lines of credit	11			487		83
Real estate – mortgage – commercial and other	262			621		47
Consumer loans	35			294		95
Total recoveries	1,203			4,453		823
Net (charge-offs) recoveries	(1,114)			(4,049)		(2,490)
Allowance for credit losses on loans, at end of period	$	65,849		52,388		24,498

Ratios:
Net charge-offs (recoveries) as a percent of average loans (annualized)	0.10		%	0.09	%	0.22	%
Allowance for loan losses as a percent of loans at end of period	1.42		%	1.11	%	0.54	%