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.xYESoNO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).xYESoNO

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

xLarge Accelerated FileroAccelerated FileroNon-Accelerated FileroSmaller Reporting Company

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).oEmerging ~~growth company~~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.o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).oYESxNO

The number of shares of the registrant's Common Stock outstanding on ~~April 30,~~October 31, 2018 was ~~29,660,967.~~29,729,285.

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. For additional information about factors that could affect the matters discussed in this paragraph, see the “Risk ~~Factors��~~Factors” section of our 2017 Annual Report on Form 10-K.

($ in thousands-unaudited)	March 31, 2018			December 31, 2017 (audited)			March 31, 2017			September 30, 2018			December 31, 2017 (audited)			September 30, 2017
ASSETS
Cash and due from banks, noninterest-bearing	$	78,217			114,301			81,514		$	50,209			114,301			82,758
Due from banks, interest-bearing		448,515			375,189			323,646			460,520			375,189			326,089
Total cash and cash equivalents		526,732			489,490			405,160			510,729			489,490			408,847

Securities available for sale		341,001			343,270			214,743			353,068			343,270			198,924
Securities held to maturity (fair values of $111,201, $118,998, and $134,185)		112,058			118,503			133,254
Securities held to maturity (fair values of $103,360, $118,998, and $124,878)											104,819			118,503			123,156

Presold mortgages in process of settlement		6,029			12,459			11,661			6,111			12,459			17,426

Loans		4,113,785			4,042,369			3,289,355			4,190,628			4,042,369			3,429,755
Allowance for loan losses		(23,298	)		(23,298	)		(23,546	)		(20,546	)		(23,298	)		(24,593	)
Net loans		4,090,487			4,019,071			3,265,809			4,170,082			4,019,071			3,405,162

Premises and equipment		115,542			116,233			97,142			116,618			116,233			95,762
Accrued interest receivable		13,270			14,094			10,524			14,982			14,094			11,445
Goodwill		231,681			233,070			142,872			232,458			233,070			144,667
Other intangible assets		24,079			24,437			12,811			22,279			24,437			15,634
Foreclosed real estate		11,307			12,571			12,789			6,140			12,571			9,356
Bank-owned life insurance		99,786			99,162			86,923			101,055			99,162			88,081
Other assets		69,555			64,677			48,158			73,289			64,677			72,687
Total assets	$	5,641,527			5,547,037			4,441,846		$	5,711,630			5,547,037			4,591,147

LIABILITIES
Deposits: Noninterest bearing checking accounts	$	1,227,608			1,196,161			958,175		$	1,280,408			1,196,161			1,016,947
Interest bearing checking accounts		896,189			884,254			694,898			870,487			884,254			683,113
Money market accounts		1,035,261			984,945			814,079			1,007,177			984,945			795,572
Savings accounts		445,405			454,860			415,600			432,335			454,860			396,192
Time deposits of $100,000 or more		606,313			593,123			486,556			669,081			593,123			517,770
Other time deposits		284,932			293,612			259,862			268,885			293,612			241,647
Total deposits		4,495,708			4,406,955			3,629,170			4,528,373			4,406,955			3,651,241
Borrowings		407,059			407,543			290,403			406,593			407,543			397,525
Accrued interest payable		1,306			1,235			691			1,916			1,235			1,143
Other liabilities		31,804			38,325			32,121			31,672			38,325			28,737
Total liabilities		4,935,877			4,854,058			3,952,385			4,968,554			4,854,058			4,078,646

Commitments and contingencies

SHAREHOLDERS’ EQUITY
Preferred stock, no par value per share. Authorized: 5,000,000 shares
Series C, convertible, issued & outstanding: none, none, and none		̶			̶			̶			̶			̶			—
Common stock, no par value per share. Authorized: 40,000,000 shares
Issued & outstanding: 29,660,967, 29,639,374, and 24,663,241 shares		433,305			432,794			262,180
Issued & outstanding: 29,729,285, 29,639,374, and 24,723,929 shares											434,227			432,794			263,493
Retained earnings		282,038			264,331			231,503			320,822			264,331			251,790
Stock in rabbi trust assumed in acquisition		(3,588	)		(3,581	)		(7,688	)		(3,224	)		(3,581	)		(3,571	)
Rabbi trust obligation		3,588			3,581			7,688			3,224			3,581			3,571
Accumulated other comprehensive income (loss)		(9,693	)		(4,146	)		(4,222	)		(11,973	)		(4,146	)		(2,782	)
Total shareholders’ equity		705,650			692,979			489,461			743,076			692,979			512,501
Total liabilities and shareholders’ equity	$	5,641,527			5,547,037			4,441,846		$	5,711,630			5,547,037			4,591,147

($ in thousands, except share data-unaudited)	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017
INTEREST INCOME
Interest and fees on loans	$	50,170			33,703		$	52,407			41,549			154,028			114,908
Interest on investment securities:
Taxable interest income		3,032			1,824			2,501			1,649			7,552			4,914
Tax-exempt interest income		380			443			367			399			1,115			1,269
Other, principally overnight investments		1,479			498			2,944			1,414			7,320			3,215
Total interest income		55,061			36,468			58,219			45,011			170,015			124,306

INTEREST EXPENSE
Savings, checking and money market accounts		979			522			1,334			685			3,445			1,892
Time deposits of $100,000 or more		1,411			714			2,302			1,053			5,627			2,641
Other time deposits		283			166			270			172			740			511
Borrowings		1,881			770			2,468			1,462			6,619			3,411
Total interest expense		4,554			2,172			6,374			3,372			16,431			8,455

Net interest income		50,507			34,296			51,845			41,639			153,584			115,851
Provision (reversal) for loan losses		(3,659	)		723			87			—			(4,282	)		723
Net interest income after provision for loan losses		54,166			33,573			51,758			41,639			157,866			115,128

NONINTEREST INCOME
Service charges on deposit accounts		3,263			2,614			3,221			2,945			9,606			8,525
Other service charges, commissions and fees		4,597			3,173			5,146			3,468			14,656			10,195
Fees from presold mortgage loans		859			768			576			1,842			2,231			4,121
Commissions from sales of insurance and financial products		1,940			840			2,425			1,426			6,484			3,304
SBA consulting fees		1,141			1,260			1,287			864			3,554			3,174
SBA loan sale gains		3,802			622			2,373			1,692			8,773			3,241
Bank-owned life insurance income		623			508			641			579			1,892			1,667
Foreclosed property gains (losses), net		(288	)		25			(192	)		(216	)		(579	)		(439	)
Securities gains (losses), net		—			(235	)		—			—			—			(235	)
Other gains (losses), net		4			234			(101	)		(238	)		811			493
Total noninterest income		15,941			9,809			15,376			12,362			47,428			34,046

NONINTEREST EXPENSES
Salaries expense		19,398			13,950			18,771			16,550			56,615			46,799
Employee benefits expense		4,607			3,910			4,061			3,606			12,752			11,402
Total personnel expense		24,005			17,860			22,832			20,156			69,367			58,201
Occupancy expense		2,802			2,184			2,742			2,439			8,087			6,981
Equipment related expenses		1,252			1,058			1,438			1,070			3,931			3,277
Merger and acquisition expenses		2,761			2,373			167			1,329			3,568			4,824
Intangibles amortization expense		1,672			576			1,656			902			5,073			2,509
Other operating expenses		11,106			8,021			10,403			8,488			31,683			25,748
Total noninterest expenses		43,598			32,072			39,238			34,384			121,709			101,540

Income before income taxes		26,509			11,310			27,896			19,617			83,585			47,634
Income tax expense		5,836			3,755			5,905			6,531			18,191			15,839

Net income available to common shareholders	$	20,673			7,555		$	21,991			13,086			65,394			31,795

Earnings per common share:
Basic	$	0.70			0.34		$	0.74			0.53			2.21			1.34
Diluted		0.70			0.34			0.74			0.53			2.21			1.33

Dividends declared per common share	$	0.10			0.08		$	0.10			0.08			0.30			0.24

Weighted average common shares outstanding:
Basic		29,533,869			21,983,963			29,530,203			24,607,516			29,536,273			23,728,262
Diluted		29,624,150			22,064,923			29,621,130			24,695,295			29,639,126			23,827,011

(In thousands, except per share - unaudited)	Common Stock				Retained			Stock in Rabbi Trust Assumed in Acquisi-			Rabbi Trust		Accumulated Other Compre- hensive Income			Total Share- holders’			Common Stock						Retained			Stock in Rabbi Trust Assumed in Acquisi-			Rabbi Trust			Accumulated Other Compre- hensive Income			Total Share- holders’
	Shares		Amount		Earnings			tion			Obligation		(Loss)			Equity			Shares			Amount			Earnings			tion			Obligation			(Loss)			Equity

Balances, January 1, 2017		20,845	$	147,287		225,921			̶			̶		(5,107	)		368,101			20,845		$	147,287			225,921			—			—			(5,107	)		368,101

Net income						7,555											7,555									31,795												31,795
Cash dividends declared ($0.08 per common share)						(1,973	)										(1,973	)
Cash dividends declared ($0.24 per common share)																										(5,926	)											(5,926	)
Equity issued pursuant to acquisition		3,799		114,478					(7,688	)		7,688					114,478			3,813			114,893						(7,688	)		7,688						114,893
Payment of deferred fees																													4,117			(4,117	)					—
Stock option exercises		4		45													45			16			287															287
Stock-based compensation		15		370													370			50			1,026															1,026
Other comprehensive income (loss)														885			885																		2,325			2,325

Balances, March 31, 2017		24,663	$	262,180		231,503			(7,688	)		7,688		(4,222	)		489,461
Balances, September 30, 2017																				24,724		$	263,493			251,790			(3,571	)		3,571			(2,782	)		512,501


Balances, January 1, 2018		29,639	$	432,794		264,331			(3,581	)		3,581		(4,146	)		692,979			29,639		$	432,794			264,331			(3,581	)		3,581			(4,146	)		692,979

Net income						20,673											20,673									65,394												65,394
Cash dividends declared ($0.10 per common share)						(2,966	)										(2,966	)
Cash dividends declared ($0.30 per common share)																										(8,903	)											(8,903	)
Payment of deferred fees									(7	)		7					—												357			(357	)					—
Stock option exercises		8		108													108			25			324															324
Stock withheld for payment of taxes																				(7	)		(264	)														(264	)
Stock-based compensation		14		403													403			72			1,373															1,373
Other comprehensive income (loss)														(5,547	)		(5,547	)																	(7,827	)		(7,827	)

Balances, March 31, 2018		29,661	$	433,305		282,038			(3,588	)		3,588		(9,693	)		705,650
Balances, September 30, 2018																				29,729		$	434,227			320,822			(3,224	)		3,224			(11,973	)		743,076

	Three Months Ended March 31,						Nine Months Ended September 30,
($ in thousands-unaudited)	2018			2017			2018			2017
Cash Flows From Operating Activities
Net income	$	20,673			7,555		$	65,394			31,795
Reconciliation of net income to net cash provided by operating activities:
Reconciliation of net income to net cash (used) provided by operating activities:
Provision (reversal) for loan losses		(3,659	)		723			(4,282	)		723
Net security premium amortization		685			232			2,184			2,165
Loan discount accretion		(2,111	)		(1,360	)		(5,982	)		(5,073	)
Purchase accounting accretion and amortization, net		(71	)		(48	)		(165	)		(142	)
Foreclosed property (gains) losses and write-downs, net		288			(25	)		579			439
Loss (gain) on securities available for sale		—			235			—			235
Other losses (gains)		(4	)		(234	)		(811	)		(493	)
Decrease (increase) in net deferred loan fees		(786	)		655			(1,475	)		388
Depreciation of premises and equipment		1,445			1,300			4,420			4,023
Stock-based compensation expense		231			178			1,201			860
Amortization of intangible assets		1,672			576			5,073			2,509
Fees/gains from sale of presold mortgages and SBA loans		(4,661	)		(1,390	)		(11,004	)		(7,362	)
Origination of presold mortgages in process of settlement		(33,834	)		(39,061	)		(97,081	)		(169,021	)
Proceeds from sales of presold mortgages in process of settlement		40,945			37,493			105,506			165,341
Origination of SBA loans for sale		(63,040	)		(9,779	)		(162,782	)		(54,714	)
Proceeds from sales of SBA loans		50,996			7,961			130,460			44,259
Decrease in accrued interest receivable		824			279
Decrease in other assets		2,030			3,741
Increase (decrease) in accrued interest payable		71			(112	)
Increase in accrued interest receivable								(888	)		(642	)
Increase in other assets								(893	)		(13,112	)
Increase in accrued interest payable								681			340
Decrease in other liabilities		(6,279	)		(8,257	)		(6,448	)		(12,377	)
Net cash provided by operating activities		5,415			662
Net cash provided (used) by operating activities								23,687			(9,859	)

Cash Flows From Investing Activities
Purchases of securities available for sale		(13,182	)		(29,313	)		(48,975	)		(35,034	)
Purchases of securities held to maturity								—			(291	)
Proceeds from maturities/issuer calls of securities available for sale		7,764			6,632			27,609			29,156
Proceeds from maturities/issuer calls of securities held to maturity		6,159			7,357			12,841			18,021
Proceeds from sales of securities available for sale		—			46,618			—			45,601
Purchases of Federal Reserve and Federal Home Loan Bank stock, net		(6,099	)		(3,766	)		(6,129	)		(10,372	)
Net increase in loans		(49,662	)		(81,048	)		(103,091	)		(206,948	)
Proceeds from sales of foreclosed real estate		1,455			1,818			6,829			6,468
Purchases of premises and equipment		(1,224	)		(873	)		(6,656	)		(3,040	)
Proceeds from sales of premises and equipment		540			̶			2,739			114
Net cash received in acquisition		—			56,185			—			48,636
Net cash provided (used) by investing activities		(54,249	)		3,610
Net cash used by investing activities								(114,833	)		(107,689	)

Cash Flows From Financing Activities
Net increase in deposits		88,869			96,519			121,719			118,752
Net decrease in borrowings		(529	)		—
Net increase (decrease) in borrowings								(1,086	)		106,980
Cash dividends paid – common stock		(2,372	)		(1,669	)		(8,308	)		(5,617	)
Proceeds from stock option exercises		108			45			324			287
Stock withheld for payment of taxes								(264	)		—
Net cash provided by financing activities		86,076			94,895			112,385			220,402

Increase in cash and cash equivalents		37,242			99,167			21,239			102,854
Cash and cash equivalents, beginning of period		489,490			305,993			489,490			305,993

Cash and cash equivalents, end of period	$	526,732			405,160		$	510,729			408,847

Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the period for:
Cash paid during the period for:
Interest	$	4,483			2,020		$	15,750			8,115
Income taxes		(181	)		(1,495	)		17,333			15,275
Non-cash transactions:
Unrealized gain (loss) on securities available for sale, net of taxes		(5,587	)		854			(7,839	)		2,223
Foreclosed loans transferred to other real estate		648			1,968			2,159			3,897

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,~~September 30, 2018 and 2017 and the consolidated results of operations and consolidated cash flows for the periods ended ~~March 31,~~September 30, 2018 and 2017. All such adjustments were of a normal, recurring nature. Reference is made to the 2017 Annual Report on Form 10-K filed with the SEC for a discussion of accounting policies and other relevant information with respect to the financial statements. The results of operations for the periods ended ~~March 31,~~September 30, 2018 and 2017 are not necessarily indicative of the results to be expected for the full year. The Company has evaluated all subsequent events through the date the financial statements were issued.

Note 1 to the 2017 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.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The Company’s revenue is comprised of net interest income and noninterest income. The scope of the guidance explicitly excludes net interest income as well as many other revenues for financial assets and liabilities including loans, leases, securities, and derivatives. Accordingly, the majority of the Company’s revenues were not affected. The guidance was effective for the Company on January 1, 2018 and the Company adopted the guidance using the modified retrospective method. The adoption did not have a material effect on the Company’s financial statements.

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This update is intended to improve the recognition and measurement of financial instruments and it requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in other comprehensive income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of available for sale debt securities in combination with other deferred tax assets. The guidance also provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes and requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The amendments were effective for the Company on January 1, 2018 and the adoption of the guidance did not have a material effect on its financial statements.

In March 2016, the FASB amended the Liabilities topic of the Accounting Standards Codification to address the current and potential future diversity in practice related to the derecognition of a prepaid stored-value product liability. The amendments were effective for the Company on January 1, 2018 and did not have a material effect on its financial statements.

In March 2017, the FASB amended the requirements in the Compensation—Retirement Benefits topic of the Accounting Standards Codification related to the income statement presentation of the components of net periodic benefit cost for an entity’s sponsored defined benefit pension and other postretirement plans. The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net periodic benefit cost are required to be presented in the income statement separately from the service cost

component. The amendments were effective for the Company on January 1, 2018 and did not have a material effect on its financial statements.

In February 2018, the FASB issued guidance related to the Income Statement – Reporting Comprehensive Income topic of the Accounting Standards ~~Codifcation,~~Codification, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017, which was signed into law on December 22, 2017. The guidance will be effective for all annual and interim periods beginning January 1, 2019, with early adoption permitted. The Company chose to early adopt the new standard for the year ending December 31, 2017, as allowed under the new standard, and reclassified $0.7 million between Accumulated Other Comprehensive Income and Retained Earnings.

In February 2016, the FASB issued new guidance on accounting for leases, which generally requires all leases to be recognized in the statement of financial position by recording an asset representing its right to use the underlying asset and recording a liability, which represents the Company’s obligation to make lease payments. The provisions of this guidance are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2016, the FASB issued guidance to change the accounting for credit losses. The guidance requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in earlier recognition of credit losses. The guidance also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. The Company will apply the guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. While early adoption is permitted beginning in first quarter 2019, the Company does not expect to elect that option. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is ~~currently evaluating~~continuing its implementation efforts through a cross-functional team, comprised of individuals from various functional areas including credit, finance, and information technology, among others. The Company has also engaged a third-party vendor solution to assist in the ~~impact~~application of this ~~guidance on its consolidated financial statements; however,~~guidance. The Company’s preliminary evaluation indicates the ~~Company expects the adoption~~provisions of this new guidance ~~will result~~are expected to impact the Company’s Consolidated Financial Statements, in ~~a significant increase in its recorded~~particular the level of the allowance for loan losses. The Company is continuing to evaluate the extent of the potential impact.

In January 2017, the FASB amended the Goodwill and Other Intangibles topic of the Accounting Standards Codification to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. The amount of goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The effective date and transition requirements for the technical corrections will be effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect this amendment to have a material effect on its financial statements.

In March 2017, the FASB amended the requirements in the Receivables—Nonrefundable Fees and Other Costs topic of the Accounting Standards Codification related to the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In June 2018, the FASB amended the Compensation—Stock Compensation Topic of the Accounting Standards Codification. The amendments expand the scope of this Topic to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of the Revenue from Contracts with Customers Topic. The Company does not expect these amendments to have a material effect on its financial statements.

In August 2018, the FASB amended the Fair Value Measurement Topic of the Accounting Standards Codification. The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement,Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this guidance and delay adoption of the additional disclosures until their effective date. The Company does not expect these amendments to have a material effect on its financial statements.

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 removes disclosures that are no longer considered cost-beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In August 2018, the FASB amended the Intangibles - Goodwill and Other Topic of the Accounting Standards Codification to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments will be effective for the Company for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

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

Certain amounts reported in the period ended ~~March 31, 2018~~September 30, 2017 have been reclassified to conform to the presentation for ~~March 31, 2017.~~September 30, 2018. These reclassifications had no effect on net income or shareholders’ equity for the periods presented, nor did they materially impact trends in financial information.

Since January 1, 2017, the Company completed the acquisitions described below. The results of each acquired company are included in the Company’s results beginning on its respective acquisition date.

Carolina Bank Holdings, Inc. was the parent company of Carolina Bank, a North Carolina state-charted bank with eight bank branches located in the North Carolina cities of Greensboro, High Point, Burlington, Winston-Salem, and Asheboro, and mortgage offices in Burlington, Hillsborough, and Sanford. The acquisition complemented the Company’s expansion into several of these high-growth markets and increased its market share in others with facilities, operations and experienced staff already in place. The Company was willing to record goodwill primarily due to the reasons just noted, as well as the positive earnings of Carolina Bank. The total merger consideration consisted of $25.3 million in cash and 3,799,471 shares of the Company’s common stock, with each share of Carolina Bank common stock being exchanged for either $20.00 in cash or 1.002 shares of the Company’s stock, subject to the total consideration being 75% stock / 25% cash. The issuance of common stock was valued at $114.5 million and was based on the Company’s closing stock price on March 3, 2017 of $30.13 per share.

This acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Carolina Bank were recorded based on estimates of fair values as of March 3, 2017. The Company was able to change its valuations of acquired Carolina Bank assets and liabilities for up to one year after the acquisition date. The table below is a condensed balance sheet disclosing the amount assigned to each major asset and liability category of Carolina Bank on March 3, 2017, and the related fair value adjustments recorded by the Company to reflect the acquisition. The $65.1 million in goodwill that resulted from this transaction is non-deductible for tax purposes.

The following unaudited pro forma financial information presents the combined results of the Company and Carolina Bank as if the acquisition had occurred as of January 1, 2016, after giving effect to certain adjustments, including amortization of the core deposit intangible, and related income tax effects. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company and Carolina Bank constituted a single entity during such period.

($ in thousands, except share data)	Carolina Bank Only - March 3, 2017- March 31, 2017		Pro Forma Combined Three Months Ended March 31, 2017		Pro Forma Combined Nine Months Ended September 30, 2017
Net interest income	$	1,886		38,209	$	119,899
Noninterest income		503		10,999		35,236
Total revenue		2,389		49,208		155,135

Net income available to common shareholders		210		5,377		35,176

Earnings per common share
Basic			$	0.22	$	1.43
Diluted				0.22		1.43

The above pro forma results for the ~~three~~nine months ended ~~March 31,~~September 30, 2017 include merger-related expenses and charges recorded by Carolina Bank prior to the acquisition that are nonrecurring in nature and amounted to $4.6 million pretax, or $3.1 million after-tax ($0.12 per basic and diluted share).

Bear Insurance, an insurance agency based in Albemarle, North Carolina, with four locations in Stanly, Cabarrus, and Montgomery counties and annual commission income of approximately $4 million, represented an opportunity to complement the Company’s insurance agency operations in these markets and the surrounding areas. Also, this acquisition provided the Company with a larger platform for leveraging insurance services throughout the Company’s bank branch network. The transaction value was $9.8 million, ~~and the transaction was completed on September 1, 2017~~ with the Company paying $7.9 million in cash and issuing 13,374 shares of its common stock, which had a value of approximately $0.4 million. Per the terms of the agreement, the Company also recorded an earn-out liability valued at $1.2 million, which will be paid as a cash distribution after a four-year period if pre-determined goals are met for the periods.

This acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Bear Insurance were recorded based on estimates of fair values as of September 1, 2017. In connection with this acquisition, the Company recorded $5.3 million in goodwill, which is deductible for tax purposes, and $3.9 million in other amortizable intangible assets, which are also deductible for tax purposes.

ASB Bancorp, Inc. was the parent company of Asheville Savings Bank, a North Carolina state-chartered savings bank with eight bank branches located in Buncombe County, North Carolina and five bank branches located in the counties of Henderson, Madison, McDowell and Transylvania, all in North Carolina. The acquisition complemented the Company’s existing presence in the Asheville and surrounding markets, which are high-growth and highly desired markets. The Company was willing to record goodwill primarily due to the reasons just noted, as well as the positive earnings of Asheville Savings Bank. The total merger consideration consisted of $17.9 million in cash and 4,920,061 shares of the Company’s common stock, with each share of Asheville Savings Bank common stock being exchanged for either $41.90 in cash or 1.44 shares of the Company’s stock, subject to the total consideration being 90% stock / 10% cash. The issuance of common stock was valued at $169.3 million and was based on the Company’s closing stock price on September 30, 2017 of $34.41 per share.

This acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of Asheville Savings Bank were recorded based on estimates of fair values as of October 1, 2017. The Company may change its valuations of acquired Asheville Savings Bank assets and liabilities for up to one year after the acquisition date. The table below is a condensed balance sheet disclosing the amount assigned to each major asset and liability category of Asheville Savings Bank on October 1, 2017, and the related fair value adjustments recorded by the Company to reflect the acquisition. The ~~$87.5~~$88.2 million in goodwill that resulted from this acquisition is non-deductible for tax purposes.

($ in thousands)		As Recorded by Asheville Savings Bank			Initial Fair Value Adjustments				Measurement Period Adjustments				As Recorded by First Bancorp			As Recorded by Asheville Savings Bank			Initial Fair Value Adjustments			Measurement Period Adjustments			As Recorded by First Bancorp
Assets
Cash and cash equivalents		$	41,824			—				—				41,824		$	41,824			—			—			41,824
Securities			95,020			—				—				95,020			95,020			—			—			95,020
Loans, gross			617,159			(9,631	)	(a)		—				606,180			617,159			(9,631	) (a)		—			606,180
						(1,348	)	(b)		—										(1,348	) (b)		—
Allowance for loan losses			(6,685	)		6,685		(c)		—				̶			(6,685	)		6,685	(c)		—			—
Presold mortgages			3,785			—				—				3,785			3,785			—			—			3,785
Premises and equipment			10,697			9,857		(d)		—				20,554			10,697			9,857	(d)		—			20,554
Core deposit intangible			—			9,760		(e)		120		(i)		9,880			—			9,760	(e)		120	(i)		9,880
Other			35,944			(5,851	)	(f)		—				30,093			35,944			(5,851	) (f)		(777	) (j)		29,316
Total			797,744			9,472				120				807,336			797,744			9,472			(657	)		806,559

Liabilities
Deposits		$	678,707			430		(g)		—				679,137		$	678,707			430	(g)		—			679,137
Borrowings			20,000			—				—				20,000			20,000			—			—			20,000
Other			8,943			298		(h)		(822	)	(j)		8,419			8,943			298	(h)		(822	) (k)		8,419
Total			707,650			728				(822	)			707,556			707,650			728			(822	)		707,556

Net identifiable assets acquired														99,780												99,003

Total cost of acquisition
Value of stock issued					$	169,299													$	169,299
Cash paid in the acquisition						17,939														17,939
Total cost of acquisition														187,238												187,238

Goodwill recorded related to acquisition of Asheville Savings Bank	Goodwill recorded related to acquisition of Asheville Savings Bank												$	87,458	Goodwill recorded related to acquisition of Asheville Savings Bank										$	88,235

The Company recorded total stock-based compensation expense of ~~$231,000~~$374,000 and ~~$178,000~~$204,000 for the three months ended ~~March 31,~~September 30, 2018 and 2017, respectively, and $1,201,000 and $860,000 for the nine months ended September 30, 2018 and 2017, respectively. Of the $1,201,000 in expense that was recorded in 2018, approximately $352,000 related to the June 1, 2018 director equity grants, which are classified as “other operating expenses” in the Consolidated Statements of Income. The remaining $849,000 in expense relates to the employee equity grants discussed below and is recorded as “salaries expense.” Stock based compensation is reflected as an adjustment to cash flows from operating activities on the Company’s consolidated statement of cash flows. The Company recognized ~~$54,000~~$281,000 and ~~$66,000~~$318,000 of income tax benefits related to stock based compensation expense in its consolidated income statement for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 and 2017, respectively.

At ~~March 31,~~September 30, 2018, the Company had ~~the following~~two stock-based compensation ~~plans:~~plans – 1) the First Bancorp 2014 Equity Plan and 2) the First Bancorp 2007 Equity Plan. The Company’s shareholders approved ~~all equity-based compensation plans.~~each plan. The First Bancorp 2014 Equity Plan became effective upon the approval of shareholders on May 8, 2014. As of ~~March 31,~~September 30, 2018, the First Bancorp 2014 Equity Plan was the only plan that had shares available for future grants, and there were ~~796,182~~745,104 shares remaining available for grant.

The First Bancorp 2014 Equity Plan is intended to serve as a means to attract, retain and motivate key employees and directors and to associate the interests of the Plan’s participants with those of the Company and its shareholders. The First Bancorp 2014 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 grants ~~to employees~~ have ~~either~~ had ~~performance vesting conditions,~~ service vesting ~~conditions, or both.~~conditions. Compensation expense for these grants is recorded over the ~~various~~requisite service ~~periods based on the estimated number of equity grants that are probable to vest.~~periods. No compensation cost is recognized for grants that do not vest and any previously recognized compensation cost ~~will be reversed.~~is reversed at forfeiture. The Company issues new shares of common stock when options are exercised.

Certain of the Company’s ~~stock option~~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 options and awards that will ultimately vest.~~ Over the past five years, there have only been minimal amounts of forfeitures, and therefore the Company assumes that all awards granted ~~without performance~~with service conditions only will ~~become vested.~~vest.

As it relates to director equity grants, the Company grants common shares, valued at approximately $32,000, to each non-employee director (currently 11 in total) in June of each year. Compensation expense associated with these director grants is recognized on the date of grant since there are no vesting conditions. On June 1, 2018, the Company granted 8,393 shares of common stock to non-employee directors (763 shares per director), at a fair market value of $41.93 per share, which was the closing price of the Company’s common stock on that date and which resulted in $352,000 in expense. On June 1, 2017, the Company granted 11,190 shares of common stock to non-employee directors (1,119 shares per director), at a fair market value of $28.59 per share, which was the closing price of the Company’s common stock on that date and which resulted in $320,000 in expense.

The Company’s senior officers receive their annual bonuses earned under the Company’s annual incentive plan in a mix of 50% cash and 50% stock, with the stock being subject to a three year vesting term. In the last three years, a total of ~~54,861~~54,529 shares of restricted stock have been granted related to performance in the preceding fiscal ~~years.~~years (net of an immaterial amount of forfeitures). Total compensation expense associated with those grants was ~~$907,000~~$1.4 million and is being recognized over the respective vesting periods. For the three months ended September 30, 2018 and 2017, total compensation expense related to these grants was $73,000 and $66,000, respectively, and for the nine months ended September 30, 2018 and 2017, total compensation expense was $220,000 and $216,000, respectively. The Company ~~recorded $74,000 and $69,000~~expects to record $73,000 in compensation expense during the ~~three months ended March 31, 2018 and 2017, respectively, related to these grants and expects to record $74,000 in compensation expense during each~~ remaining quarter of 2018.

In the last three years, the Compensation Committee also granted ~~88,494~~135,189 shares of stock to various employees of the Company to promote ~~retention.~~retention (net of an immaterial amount of forfeitures). The total value associated with these grants amounted to ~~$2.0~~$3.9 million, which is being recorded as an expense over their three year vesting periods. For the three months ended ~~March 31,~~September 30, 2018 and 2017, total compensation expense related to these grants was ~~$155,600~~$301,000 and ~~$109,000,~~$138,000, respectively, and for the nine months ended September 30, 2018 and 2017, total compensation expense was $629,000 and $324,000, respectively. The Company expects to record ~~$154,000~~$305,000 in compensation expense during ~~each~~the remaining quarter of 2018. All grants were issued based on the closing price of the Company’s common stock on the date of the grant.

The following table presents information regarding the activity the first ~~three~~nine months of 2018 related to the Company’s outstanding restricted ~~stock:~~stock grants:

In years prior to 2009, stock options were the primary form of equity grant utilized by the Company. The stock options had a term of ten years. Upon a change in control (as defined in the plans), unless the awards remain outstanding or substitute equivalent awards are provided, the awards become immediately vested.

At ~~March 31,~~September 30, 2018, there were ~~29,181~~9,000 stock options outstanding related to the Company’s two equity-based plans, all with an exercise ~~prices ranging from $14.35 to $16.81.~~price of $14.35.

The following table presents information regarding the activity for the first ~~three~~nine months of 2018 ~~related to~~under the Company’s stock options outstanding:

	Options Outstanding									Options Outstanding
	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Contractual Term (years)		Aggregate Intrinsic Value		Number of Shares			Weighted- Average Exercise Price		Weighted- Average Contractual Term (years)		Aggregate Intrinsic Value

Balance at January 1, 2018		38,689		$	16.09						38,689		$	16.09

Granted		—			—						—			—
Exercised		(9,508	)		16.60			$	184,018		(29,689	)		16.61			$	659,743
Forfeited		—			—						—			—
Expired		—			—						—			—

Outstanding at March 31, 2018		29,181		$	15.92		0.5	$	575,671
Outstanding at September 30, 2018											9,000		$	14.35		0.7	$	235,440

Exercisable at March 31, 2018		29,181		$	15.92		0.5	$	575,671
Exercisable at September 30, 2018											9,000		$	14.35		0.7	$	235,440

During the three and nine months ended ~~March 31,~~September 30, 2018, ~~and 2017,~~ the Company received ~~$108,000~~$0 and ~~$45,000,~~$324,000, respectively, as a result of stock option exercises.

During the three and nine months ended September 30, 2017, the Company received $0 and $287,000, respectively, as a result of stock option exercises.

Basic Earnings Per Common Share is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period, excluding unvested shares of restricted stock. Diluted Earnings Per Common Share is computed by assuming the issuance of common shares for all potentially dilutive common shares outstanding during the reporting period. For the periods presented, the Company’s potentially dilutive common stock issuances related to unvested shares of restricted stock and stock option grants under the Company’s equity-based plans.

In computing Diluted Earnings Per Common Share, adjustments are made to the computation of Basic Earnings Per Common shares, as follows. As it relates to unvested shares of restricted stock, the number of shares added to the denominator is equal to the number of unvested shares less the assumed number of shares bought back by the Company in the open market at the average market price with the amount of proceeds being equal to the average deferred compensation for the reporting period. As it relates to stock options, it is assumed that all dilutive stock options are exercised during the reporting period at their respective exercise prices, with the proceeds from the exercises used by the Company to buy back stock in the open market at the average market price in effect during the reporting period. The difference between the number of shares assumed to be exercised and the number of shares bought back is included in the calculation of dilutive securities.

If any of the potentially dilutive common stock issuances have an anti-dilutive effect, the potentially dilutive common stock issuance is disregarded.

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,												For the Three Months Ended September 30,
	2018						2017						2018						2017
($ in thousands except per share amounts)	Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount		Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount		Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount		Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount

Basic EPS
Net income available to common shareholders	$	20,673		29,533,869	$	0.70	$	7,555		21,983,963	$	0.34	$	21,991		29,530,203	$	0.74	$	13,086		24,607,516	$	0.53

Effect of Dilutive Securities		—		90,281				—		80,960				—		90,927				—		87,779

Diluted EPS per common share	$	20,673		29,624,150	$	0.70	$	7,555		22,064,923	$	0.34	$	21,991		29,621,130	$	0.74	$	13,086		24,695,295	$	0.53

For both the three and nine months ended ~~March 31,~~September 30, 2018 and 2017, there were no options that were antidilutive.

The book values and approximate fair values of investment securities at ~~March 31,~~September 30, 2018 and December 31, 2017 are summarized as follows:

	March 31, 2018									December 31, 2017									September 30, 2018									December 31, 2017
	Amortized		Fair		Unrealized					Amortized		Fair		Unrealized					Amortized		Fair		Unrealized					Amortized		Fair		Unrealized
($ in thousands)	Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)			Cost		Value		Gains		(Losses)

Securities available for sale:
Government-sponsored enterprise securities	$	19,000		18,604		—		(396	)		14,000		13,867		—		(133	)	$	44,000		43,422		—		(578	)		14,000		13,867		—		(133	)
Mortgage-backed securities		297,720		288,924		62		(8,858	)		297,690		295,213		246		(2,722	)		287,746		276,474		42		(11,314	)		297,690		295,213		246		(2,722	)
Corporate bonds		33,782		33,473		132		(441	)		33,792		34,190		512		(114	)		33,761		33,172		1		(591	)		33,792		34,190		512		(114	)
Total available for sale	$	350,502		341,001		194		(9,695	)		345,482		343,270		758		(2,969	)	$	365,507		353,068		43		(12,483	)		345,482		343,270		758		(2,969	)

Securities held to maturity:
Mortgage-backed securities	$	60,784		59,017		—		(1,767	)		63,829		63,092		—		(737	)	$	54,512		52,560		—		(1,952	)		63,829		63,092		—		(737	)
State and local governments		51,274		52,184		975		(65	)		54,674		55,906		1,280		(48	)		50,307		50,800		584		(91	)		54,674		55,906		1,280		(48	)
Total held to maturity	$	112,058		111,201		975		(1,832	)		118,503		118,998		1,280		(785	)	$	104,819		103,360		584		(2,043	)		118,503		118,998		1,280		(785	)

All of the Company’s mortgage-backed securities, including commercial mortgage-backed obligations, were issued by government-sponsored corporations, except for ~~one~~two private mortgage-backed ~~security~~securities with a fair value of ~~$0.5~~$1.0 million as of ~~March 31, 2018 and December 31, 2017.~~September 30, 2018.

The following table presents information regarding securities with unrealized losses at ~~March 31,~~September 30, 2018:

($ 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				Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	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	$	15,673		326		2,930		70		18,603		396	$	9,687		313		8,735		265		18,422		578
Mortgage-backed securities		222,384		6,583		117,509		4,042		339,893		10,625		211,002		8,222		115,439		5,044		326,441		13,266
Corporate bonds		24,852		376		935		65		25,787		441		31,235		521		930		70		32,165		591
State and local governments		9,545		65		—		—		9,545		65		10,357		91		—		—		10,357		91
Total temporarily impaired securities	$	272,454		7,350		121,374		4,177		393,828		11,527	$	262,281		9,147		125,104		5,379		387,385		14,526

The following table presents information regarding securities with unrealized losses at December 31, 2017:

($ 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				Securities in an Unrealized Loss Position for Less than 12 Months				Securities in an Unrealized Loss Position for More than 12 Months				Total
	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	$	10,897		103		2,970		30		13,867		133	$	10,897		103		2,970		30		13,867		133
Mortgage-backed securities		192,702		1,582		125,060		1,877		317,762		3,459		192,702		1,582		125,060		1,877		317,762		3,459
Corporate bonds		2,500		49		935		65		3,435		114		2,500		49		935		65		3,435		114
State and local governments		7,928		48		—		—		7,928		48		7,928		48		—		—		7,928		48
Total temporarily impaired securities	$	214,027		1,782		128,965		1,972		342,992		3,754	$	214,027		1,782		128,965		1,972		342,992		3,754

In the above tables, all of the securities that were in an unrealized loss position at ~~March 31,~~September 30, 2018 and December 31, 2017 were bonds that the Company has determined were in a loss position due primarily to interest rate factors and not credit quality concerns. The Company evaluated the collectability of each of these bonds and concluded that there was no other-than-temporary 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.

The book values and approximate fair values of investment securities at ~~March 31,~~September 30, 2018, 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
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
($ in thousands)	Cost		Value		Cost		Value		Cost		Value		Cost		Value

Securities
Due within one year	$	—		—		3,007		3,041	$	—		—		3,240		3,254
Due after one year but within five years		40,235		39,547		22,812		23,222		70,218		69,160		28,532		28,838
Due after five years but within ten years		7,547		7,480		20,775		21,271		2,543		2,523		16,790		16,978
Due after ten years		5,000		5,050		4,680		4,650		5,000		4,911		1,745		1,730
Mortgage-backed securities		297,720		288,924		60,784		59,017		287,746		276,474		54,512		52,560
Total securities	$	350,502		341,001		112,058		111,201	$	365,507		353,068		104,819		103,360

At ~~March 31,~~September 30, 2018 and December 31, 2017, investment securities with carrying values of ~~$209,482,000~~$225,467,000 and $176,813,000, respectively, were pledged as collateral for public deposits.

In the first ~~quarter~~nine months of 2017, the Company received proceeds from sales of securities of ~~$46,618,000~~$45,601,000 and recorded losses of $235,000 from the sales. There were no securities sales in the first ~~quarter~~nine months of 2018.

Included in “other assets” in the consolidated balance sheets are cost method investments in Federal Home Loan Bank (“FHLB”) stock and Federal Reserve Bank of Richmond (“FRB”) stock totaling ~~$37,437,000~~$37,468,000 and $31,338,000 at ~~March 31,~~September 30, 2018 and December 31, 2017, respectively. The FHLB stock had a cost and fair value of $20,036,000 and $19,647,000 at ~~March 31,~~September 30, 2018 and December 31, 2017, 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 ~~$17,401,000~~$17,432,000 and $11,691,000 at ~~March 31,~~September 30, 2018 and December 31, 2017, 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.

On March 3, 2017, the Company acquired Carolina Bank (see Note 4 for more information). As a result of this acquisition, the Company recorded loans with a fair value of $497.5 million. Of those loans, $19.3 million were considered to be purchased credit impaired (“PCI”) loans, which are loans for which it is probable at acquisition date that all contractually required payments will not be collected. The remaining loans are considered to be purchased non-impaired loans and their related fair value discount or premium is being recognized as an adjustment to yield over the remaining life of each loan.

The following table relates to Carolina Bank PCI loans and summarizes the contractually required payments, which includes principal and interest, expected cash flows to be collected, and the fair value of acquired PCI loans at the acquisition date.

The following table relates to acquired Carolina Bank purchased non-impaired loans and provides the contractually required payments, fair value, and estimate of contractual cash flows not expected to be collected at the acquisition date.

On October 1, 2017, the Company acquired Asheville Savings Bank (see Note 4 for more information). As a result of this acquisition, the Company recorded loans with a fair value of $606.2 million. Of those loans, $9.9 million were considered to be PCI loans. The remaining loans were considered to be purchased non-impaired loans and their related fair value discount or premium is being recognized as an adjustment to yield over the remaining life of each loan.

The following table relates to acquired Asheville Savings Bank PCI loans and summarizes the contractually required payments, which includes principal and interest, expected cash flows to be collected, and the fair value of acquired PCI loans at the acquisition date.

The following table relates to acquired Asheville Savings Bank purchased non-impaired loans and provides the contractually required payments, fair value, and estimate of contractual cash flows not expected to be collected at the acquisition date.

($ in thousands)	March 31, 2018					December 31, 2017					March 31, 2017					September 30, 2018				December 31, 2017					September 30, 2017
	Amount			Percentage		Amount			Percentage		Amount			Percentage		Amount		Percentage		Amount			Percentage		Amount			Percentage
All loans:

Commercial, financial, and agricultural	$	411,662			10%	$	381,130			10%	$	363,219			11%	$	435,730		10%	$	381,130			10%	$	376,940			11%
Real estate – construction, land development & other land loans		542,960			13%		539,020			13%		424,539			13%		559,450		13%		539,020			13%		450,746			13%
Real estate – mortgage – residential (1-4 family) first mortgages		995,662			24%		972,772			24%		792,791			24%		1,038,436		25%		972,772			24%		796,222			23%
Real estate – mortgage – home equity loans / lines of credit		373,797			9%		379,978			9%		317,336			10%		362,829		9%		379,978			9%		315,322			10%
Real estate – mortgage – commercial and other		1,718,698			42%		1,696,107			42%		1,335,924			40%		1,723,598		41%		1,696,107			42%		1,431,934			41%
Installment loans to individuals		71,257			2%		74,348			2%		56,250			2%		70,096		2%		74,348			2%		59,028			2%
Subtotal		4,114,036			100%		4,043,355			100%		3,290,059			100%		4,190,139		100%		4,043,355			100%		3,430,192			100%
Unamortized net deferred loan fees		(251	)				(986	)				(704	)
Unamortized net deferred loan costs (fees)																	489				(986	)				(437	)
Total loans	$	4,113,785				$	4,042,369				$	3,289,355				$	4,190,628			$	4,042,369				$	3,429,755

($ in thousands) Purchased Credit Impaired Loans	For the Quarter Ended March 31, 2018			For the Year Ended December 31, 2017			For the Nine Months Ended September 30, 2018			For the Year Ended December 31, 2017
Balance at beginning of period	$	23,165			514		$	23,165			514
Additions due to acquisition of Carolina Bank		—			19,254			—			19,254
Additions due to acquisition of Asheville Savings Bank		—			9,886			—			9,886
Change due to payments received and accretion		(1,023	)		(6,016	)		(2,994	)		(6,016	)
Change due to loan charge-offs		—			(12	)		(10	)		(12	)
Transfers to foreclosed real estate		—			(69	)		—			(69	)
Other		5			(392	)		28			(392	)
Balance at end of period	$	22,147			23,165		$	20,189			23,165

($ in thousands) Accretable Yield for PCI loans	For the Quarter Ended March 31, 2018			For the Year Ended December 31, 2017			For the Nine Months Ended September 30, 2018			For the Year Ended December 31, 2017
Balance at beginning of period	$	4,688			—		$	4,688			—
Additions due to acquisition of Carolina Bank		—			3,617			—			3,617
Additions due to acquisition of Asheville Savings Bank		—			1,804			—			1,804
Accretion		(374	)		(1,846	)		(1,169	)		(1,846	)
Reclassification from (to) nonaccretable difference		155			423			712			423
Other, net		(73	)		690			831			690
Balance at end of period	$	4,396			4,688		$	5,062			4,688

During the first ~~three~~nine months of 2018, the Company received ~~$68,000~~$225,000 in payments that exceeded the carrying amount of the related PCI loans, ~~all~~ of which $184,000 was recognized as loan discount accretion income and $41,000 was recorded as additional loan interest income. During the first ~~three~~nine months of 2017, ~~there were no~~the Company received $848,000 in payments ~~received~~ that exceeded the carrying ~~amounts~~amount of the related PCI ~~loans.~~

loans, of which $775,000 was recognized as loan discount accretion income and $73,000 was recorded as additional loan interest income.

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

($ in thousands)	March 31, 2018		December 31, 2017		March 31, 2017		September 30, 2018		December 31, 2017		September 30, 2017

Nonperforming assets
Nonaccrual loans	$	21,849		20,968		25,684	$	18,267		20,968		23,350
Restructured loans - accruing		18,495		19,834		21,559		16,657		19,834		20,330
Accruing loans > 90 days past due		—		—		—		—		—		—
Total nonperforming loans		40,344		40,802		47,243		34,924		40,802		43,680
Foreclosed real estate		11,307		12,571		12,789		6,140		12,571		9,356
Total nonperforming assets	$	51,651		53,373		60,032	$	41,064		53,373		53,036

Purchased credit impaired loans not included above (1)	$	22,147		23,165		19,167	$	20,189		23,165		15,034

(1) In the March 3, 2017 acquisition of Carolina Bank, and the October 1, 2017 acquisition of Asheville Savings Bank, the Company acquired $19.3 million and $9.9 million, respectively, in PCI loans in accordance with ASC 310-30 accounting guidance. These loans are excluded from nonperforming loans, including ~~$0.5~~$0.6 million, $0.6 million, and ~~$1.7~~$0.4 million in PCI loans at ~~March 31,~~September 30, 2018, December 31, 2017, and ~~March 31,~~September 30, 2017, respectively, that were contractually past due 90 days or more.

At ~~March 31,~~September 30, 2018 and December 31, 2017, the Company had ~~$0.7~~$1.4 million and $0.8 million in residential mortgage loans in process of foreclosure, respectively.

The following is a summary of the Company’s nonaccrual loans by major categories.

($ in thousands)	March 31, 2018		December 31, 2017		September 30, 2018		December 31, 2017
Commercial, financial, and agricultural	$	801		1,001	$	2,092		1,001
Real estate – construction, land development & other land loans		1,766		1,822		651		1,822
Real estate – mortgage – residential (1-4 family) first mortgages		12,073		12,201		8,807		12,201
Real estate – mortgage – home equity loans / lines of credit		1,980		2,524		1,419		2,524
Real estate – mortgage – commercial and other		5,119		3,345		5,178		3,345
Installment loans to individuals		110		75		120		75
Total	$	21,849		20,968	$	18,267		20,968

The following table presents an analysis of the payment status of the Company’s loans as of ~~March 31,~~September 30, 2018.

($ 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			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	$	59		165		—		801		410,223		411,248		$	2,302		278		—		2,092		430,794		435,466
Real estate – construction, land development & other land loans		997		95		—		1,766		539,702		542,560			1,948		738		—		651		555,588		558,925
Real estate – mortgage – residential (1-4 family) first mortgages		6,852		415		—		12,073		967,993		987,333			6,160		398		—		8,807		1,016,896		1,032,261
Real estate – mortgage – home equity loans / lines of credit		578		10		—		1,980		370,956		373,524			1,056		270		—		1,419		359,739		362,484
Real estate – mortgage – commercial and other		2,771		986		—		5,119		1,697,506		1,706,382			3,196		573		—		5,178		1,702,063		1,711,010
Installment loans to individuals		503		61		—		110		70,168		70,842			360		139		—		120		69,185		69,804
Purchased credit impaired		583		9		484		—		21,071		22,147			132		304		627		—		19,126		20,189
Total	$	12,343		1,741		484		21,849		4,077,619		4,114,036		$	15,154		2,700		627		18,267		4,153,391		4,190,139
Unamortized net deferred loan fees												(251	)
Unamortized net deferred loan costs																									489
Total loans											$	4,113,785												$	4,190,628

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2017.

The following table presents the activity in the allowance for loan losses for all loans for the three and nine months ended ~~March 31,~~September 30, 2018.

($ 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			Installment Loans to Individuals			Unallo- cated		Total				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			Installment Loans to Individuals			Unallo -cated			Total

As of and for the three months ended March 31, 2018
As of and for the three months ended September 30, 2018																								As of and for the three months ended September 30, 2018
Beginning balance	$	3,111			2,816			6,147			1,827			6,475			950			1,972		23,298			$	2,268			2,692			7,059			2,250			7,295			897			837			23,298
Charge-offs		(239	)		(2	)		(243	)		(176	)		(41	)		(118	)		—		(819	)			(933	)		(126	)		(1,183	)		(192	)		(1,086	)		(232	)		—			(3,752	)
Recoveries		499			3,046			145			153			582			53			—		4,478				159			181			155			51			209			158			—			913
Provisions		(835	)		(3,543	)		(157	)		462			(1,025	)		(41	)		1,480		(3,659	)			1,221			(366	)		(664	)		(330	)		753			79			(606	)		87
Ending balance	$	2,536			2,317			5,892			2,266			5,991			844			3,452		23,298			$	2,715			2,381			5,367			1,779			7,171			902			231			20,546

Ending balances as of March 31, 2018: Allowance for loan losses
As of and for the nine months ended September 30, 2018																								As of and for the nine months ended September 30, 2018

Beginning balance																									$	3,111			2,816			6,147			1,827			6,475			950			1,972			23,298
Charge-offs																										(1,542	)		(158	)		(1,598	)		(378	)		(1,398	)		(494	)		—			(5,568	)
Recoveries																										971			3,568			671			294			1,333			261			—			7,098
Provisions																										175			(3,845	)		147			36			761			185			(1,741	)		(4,282	)
Ending balance																									$	2,715			2,381			5,367			1,779			7,171			902			231			20,546

Ending balances as of September 30, 2018: Allowance for loan losses																								Ending balances as of September 30, 2018: Allowance for loan losses
Individually evaluated for impairment	$	143			22			1,120			—			398			—			—		1,683			$	126			—			1,004			—			502			—			—			1,632
Collectively evaluated for impairment	$	2,391			2,295			4,598			2,225			5,581			844			3,452		21,386			$	2,585			2,335			4,306			1,765			6,662			887			231			18,771
Purchased credit impaired	$	2			—			174			41			12			—			—		229			$	4			46			57			14			7			15			—			143

Loans receivable as of March 31, 2018:
Loans receivable as of September 30, 2018:																								Loans receivable as of September 30, 2018:
Ending balance – total	$	411,662			542,960			995,662			373,797			1,718,698			71,257			—		4,114,036			$	435,730			559,450			1,038,436			362,829			1,723,598			70,096			—			4,190,139
Unamortized net deferred loan fees																						(251	)
Unamortized net deferred loan costs																																															489
Total loans																					$	4,113,785																								$	4,190,628

Ending balances as of March 31, 2018: Loans
Ending balances as of September 30, 2018: Loans																								Ending balances as of September 30, 2018: Loans
Individually evaluated for impairment	$	433			3,242			13,783			23			9,063			—			—		26,544			$	1,981			2,642			12,617			22			10,490			—			—			27,752
Collectively evaluated for impairment	$	410,816			539,317			973,550			373,501			1,697,319			70,842			—		4,065,345			$	433,485			556,283			1,019,645			362,462			1,700,519			69,804			—			4,142,198
Purchased credit impaired	$	413			401			8,329			273			12,316			415			—		22,147			$	264			525			6,174			345			12,589			292			—			20,189

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2017.

The following table presents the activity in the allowance for loan losses for all loans for the three and nine months ended ~~March 31,~~September 30, 2017.

($ 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			Installment Loans to Individuals			Unallo -cated			Total				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			Installment Loans to Individuals			Unallo -cated		Total

As of and for the three months ended March 31, 2017
As of and for the three months ended September 30, 2017																									As of and for the three months ended September 30, 2017
Beginning balance	$	3,829			2,691			7,704			2,420			5,098			1,145			894			23,781			$	3,430			2,676			7,085			2,057			6,153			1,074			1,550		24,025
Charge-offs		(390	)		(177	)		(894	)		(231	)		(326	)		(187	)		—			(2,205	)			(131	)		(43	)		(499	)		(213	)		(159	)		(162	)		—		(1,207	)
Recoveries		298			490			196			65			143			55			—			1,247				330			809			170			120			275			71			—		1,775
Provisions		55			(240	)		370			(116	)		1,064			54			(464	)		723				(314	)		(973	)		(281	)		(49	)		(271	)		45			1,843		—
Ending balance	$	3,792			2,764			7,376			2,138			5,979			1,067			430			23,546			$	3,315			2,469			6,475			1,915			5,998			1,028			3,393		24,593

Ending balances as of March 31, 2017: Allowance for loan losses
As of and for the nine months ended September 30, 2017																									As of and for the nine months ended September 30, 2017

Beginning balance																										$	3,829			2,691			7,704			2,420			5,098			1,145			894		23,781
Charge-offs																											(1,335	)		(312	)		(1,746	)		(791	)		(573	)		(521	)		—		(5,278	)
Recoveries																											848			2,280			806			250			973			210			—		5,367
Provisions																											(27	)		(2,190	)		(289	)		36			500			194			2,499		723
Ending balance																										$	3,315			2,469			6,475			1,915			5,998			1,028			3,393		24,593

Ending balances as of September 30, 2017: Allowance for loan losses																									Ending balances as of September 30, 2017: Allowance for loan losses
Individually evaluated for impairment	$	205			180			1,351			8			310			—			—			2,054			$	144			23			929			—			487			—			—		1,583
Collectively evaluated for impairment	$	3,587			2,584			6,025			2,130			5,669			1,067			430			21,492			$	3,171			2,446			5,546			1,915			5,511			1,028			3,393		23,010
Purchased credit impaired	$	—			—			—			—			—			—			—			—			$	—			—			—			—			—			—			—		—

Loans receivable as of March 31, 2017:
Loans receivable as of September 30, 2017:																									Loans receivable as of September 30, 2017:
Ending balance – total	$	363,219			424,539			792,791			317,336			1,335,924			56,250			—			3,290,059			$	376,940			450,746			796,222			315,322			1,431,934			59,028			—		3,430,192
Unamortized net deferred loan fees																							(704	)																							(437	)
Total loans																						$	3,289,355																							$	3,429,755

Ending balances as of March 31, 2017: Loans
Ending balances as of September 30, 2017: Loans																									Ending balances as of September 30, 2017: Loans
Individually evaluated for impairment	$	504			3,445			18,047			223			9,074			2			—			31,295			$	490			3,072			14,987			52			9,443			—			—		28,044
Collectively evaluated for impairment	$	362,433			420,640			771,067			316,370			1,312,341			56,248			—			3,239,099			$	376,195			446,798			777,925			314,559			1,412,666			58,971			—		3,387,114
Purchased credit impaired	$	282			454			3,677			743			14,509			—			—			19,665			$	255			876			3,310			711			9,825			57			—		15,034

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of ~~March 31,~~September 30, 2018.

($ in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
Impaired loans with no related allowance recorded:

Commercial, financial, and agricultural	$	70		94		—		126	$	1,693		2,117		—		1,119
Real estate – mortgage – construction, land development & other land loans		3,011		3,419		—		2,877		2,642		2,956		—		2,836
Real estate – mortgage – residential (1-4 family) first mortgages		4,937		5,236		—		5,071		4,740		5,072		—		4,849
Real estate – mortgage –home equity loans / lines of credit		23		32		—		195		22		32		—		109
Real estate – mortgage –commercial and other		3,762		4,038		—		3,415		4,550		5,016		—		3,718
Installment loans to individuals		—		—		—		—		—		—		—		—
Total impaired loans with no allowance	$	11,803		12,819		—		11,684	$	13,647		15,193		—		12,631


Impaired loans with an allowance recorded:

Commercial, financial, and agricultural	$	363		364		143		379	$	288		289		126		431
Real estate – mortgage – construction, land development & other land loans		231		240		22		232		—		—		—		266
Real estate – mortgage – residential (1-4 family) first mortgages		8,846		9,100		1,120		9,220		7,877		8,017		1,004		9,263
Real estate – mortgage –home equity loans / lines of credit		—		—		—		—		—		—		—		162
Real estate – mortgage –commercial and other		5,301		5,329		398		5,364		5,940		6,233		502		5,877
Installment loans to individuals		—		—		—		—		—		—		—		2
Total impaired loans with allowance	$	14,741		15,033		1,683		15,195	$	14,105		14,539		1,632		16,001

Interest income recorded on impaired loans during the ~~three~~nine months ended ~~March 31,~~September 30, 2018 was insignificant.

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2017.

Interest income recorded on impaired loans during the year ended December 31, 2017 was insignificant.

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

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

The following table presents the Company’s recorded investment in loans by credit quality indicators as of ~~March 31,~~September 30, 2018.

($ in thousands)
	Pass		Special Mention Loans		Classified Accruing Loans		Classified Nonaccrual Loans		Total			Pass		Special Mention Loans		Classified Accruing Loans		Classified Nonaccrual Loans		Total

Commercial, financial, and agricultural	$	405,159		4,546		742		801		411,248		$	429,721		2,797		856		2,092		435,466
Real estate – construction, land development & other land loans		527,835		7,538		5,421		1,766		542,560			547,323		6,331		4,620		651		558,925
Real estate – mortgage – residential (1-4 family) first mortgages		932,840		16,243		26,177		12,073		987,333			984,851		13,052		25,551		8,807		1,032,261
Real estate – mortgage – home equity loans / lines of credit		360,194		1,884		9,466		1,980		373,524			351,575		1,697		7,793		1,419		362,484
Real estate – mortgage – commercial and other		1,673,395		20,277		7,591		5,119		1,706,382			1,684,024		15,075		6,733		5,178		1,711,010
Installment loans to individuals		70,286		219		227		110		70,842			69,072		212		400		120		69,804
Purchased credit impaired		6,459		7,162		8,526		—		22,147			9,269		5,306		5,614		—		20,189
Total	$	3,976,168		57,869		58,150		21,849		4,114,036		$	4,075,835		44,470		51,567		18,267		4,190,139
Unamortized net deferred loan fees										(251	)
Unamortized net deferred loan costs																					489
Total loans										4,113,785											4,190,628

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2017.

($ in thousands)
	Pass		Special Mention Loans		Classified Accruing Loans		Classified Nonaccrual Loans		Total			Pass		Special Mention Loans		Classified Accruing Loans		Classified Nonaccrual Loans		Total

Commercial, financial, and agricultural	$	368,658		9,901		922		1,001		380,482		$	368,658		9,901		922		1,001		380,482
Real estate – construction, land development & other land loans		523,642		7,129		6,020		1,822		538,613			523,642		7,129		6,020		1,822		538,613
Real estate – mortgage – residential (1-4 family) first mortgages		905,111		16,235		30,366		12,201		963,913			905,111		16,235		30,366		12,201		963,913
Real estate – mortgage – home equity loans / lines of credit		365,982		3,784		7,405		2,524		379,695			365,982		3,784		7,405		2,524		379,695
Real estate – mortgage – commercial and other		1,647,725		23,335		9,190		3,345		1,683,595			1,647,725		23,335		9,190		3,345		1,683,595
Installment loans to individuals 54,421 256 259 101 55,037		73,379		222		216		75		73,892
Installment loans to individuals													73,379		222		216		75		73,892
Purchased credit impaired		6,541		12,309		4,315		—		23,165			6,541		12,309		4,315		—		23,165
Total	$	3,891,038		72,915		58,434		20,968		4,043,355		$	3,891,038		72,915		58,434		20,968		4,043,355
Unamortized net deferred loan fees										(986	)										(986	)
Total loans										4,042,369											4,042,369

The restructuring of a loan is considered a “troubled debt restructuring” 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, restructuring amortization schedules and other actions intended to minimize potential losses.

The vast majority of the Company’s troubled debt restructurings modified related to interest rate reductions combined with restructured amortization schedules. The Company does not generally grant principal forgiveness.

All loans classified as troubled debt restructurings are considered to be impaired and are evaluated as such for determination of the allowance for loan losses. The Company’s troubled debt restructurings can be classified as either nonaccrual or accruing based on the loan’s payment status. The troubled debt restructurings that are nonaccrual are reported within the nonaccrual loan totals presented previously.

The following table presents information related to loans modified in a troubled debt restructuring during the three months ended ~~March 31,~~September 30, 2018 and 2017.

($ in thousands)	For three months ended March 31, 2018						For the three months ended March 31, 2017						For three months ended September 30, 2018						For the three months ended September 30, 2017
	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
Commercial, financial, and agricultural		—	$	—	$	—		—	$	—	$	—		—	$	—	$	—		—	$	—	$	—
Real estate – construction, land development & other land loans		—		—		—		—		—		—		—		—		—		—		—		—
Real estate – mortgage – residential (1-4 family) first mortgages		—		—		—		—		—		—		—		—		—		—		—		—
Real estate – mortgage – home equity loans / lines of credit		—		—		—		—		—		—		—		—		—		—		—		—
Real estate – mortgage – commercial and other		—		—		—		2		2,550		2,525		—		—		—		1		570		570
Installment loans to individuals		—		—		—		—		—		—		—		—		—		—		—		—

TDRs – Nonaccrual
Commercial, financial, and agricultural		—		—		—		—		—		—		—		—		—		—		—		—
Real estate – construction, land development & other land loans		1		61		61		—		—		—		—		—		—		—		—		—
Real estate – mortgage – residential (1-4 family) first mortgages		2		254		264		—		—		—		—		—		—		1		47		47
Real estate – mortgage – home equity loans / lines of credit		—		—		—		—		—		—		—		—		—		—		—		—
Real estate – mortgage – commercial and other		—		—		—		—		—		—		—		—		—		—		—		—
Installment loans to individuals		—		—		—		—		—		—		—		—		—		—		—		—
Total TDRs arising during period		3	$	315	$	325		2	$	2,550	$	2,525		—	$	—	$	—		2	$	617	$	617

The following table presents information related to loans modified in a troubled debt restructuring during the nine months ended September 30, 2018 and 2017.

Accruing restructured loans that were modified in the previous 12 months and that defaulted during the ~~three~~nine months ended ~~March 31,~~September 30, 2018 and 2017 are presented in the table below. 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.

($ in thousands)	For the three months ended March 31, 2018				For the three months ended March 31, 2017				For the nine months ended September 30, 2018				For the nine months ended September 30, 2017
	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment

Accruing TDRs that subsequently defaulted
Real estate – mortgage – residential (1-4 family first mortgages)		—	$	—		1		626		1	$	60		2		880
Real estate – mortgage – commercial and other		1		570		—		—		3		1,333		—		—

Total accruing TDRs that subsequently defaulted		1	$	570		1	$	626		4	$	1,393		2	$	880

There were no accruing restructured loans that were modified in the previous 12 months and defaulted during the three months ended September 30, 2018 or 2017.

The amount of loans shown on the consolidated balance sheets includes net deferred loan (fees) costs of approximately ~~($251,000),~~$489,000, ($986,000), and ($~~704,000)~~437,000) at ~~March 31,~~September 30, 2018, December 31, 2017, and ~~March 31,~~September 30, 2017, respectively.

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of ~~March 31,~~September 30, 2018, December 31, 2017, and ~~March 31,~~September 30, 2017 and the carrying amount of unamortized intangible assets as of those same dates.

	March 31, 2018				December 31, 2017				March 31, 2017				September 30, 2018				December 31, 2017				September 30, 2017
($ in thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortizable intangible assets:
Customer lists	$	6,013		1,185		6,013		1,090		2,369		806	$	6,013		1,459		6,013		1,090		6,013		953
Core deposit intangibles		28,440		12,803		28,280		11,475		18,520		8,580		28,440		15,300		28,280		11,475		18,520		10,084
SBA servicing asset		3,348		319		2,194		207		579		31		4,949		761		2,194		207		1,418		112
Other		1,303		718		1,303		581		1,032		303		1,303		906		1,303		581		1,303		471
Total	$	39,104		15,025		37,790		13,353		22,500		9,720	$	40,705		18,426		37,790		13,353		27,254		11,620

Unamortizable intangible
assets:
Goodwill	$	231,681				233,070				142,872			$	232,458				233,070				144,667

In addition to the above acquisition related activity, the Company recorded ~~$1,154,000~~$2,755,000 and ~~$195,000~~$1,003,000 in servicing assets associated with the guaranteed portion of SBA loans originated and sold during the first ~~quarters~~nine months of 2018 and 2017, respectively. During the first ~~quarters~~nine months of 2018 and 2017, the Company recorded ~~$112,000~~$555,000 and ~~$31,000,~~$112,000, respectively, in related amortization expense. Servicing assets are recorded at fair value and amortized over the expected life of the related loans.

Amortization expense of all intangible assets totaled ~~$1,672,000~~$1,656,000 and ~~$576,000~~$902,000 for the three months ended ~~March 31,~~September 30, 2018 and 2017, respectively, and $5,073,000 and $2,509,000 for the nine months ended September 30, 2018 and 2017, respectively.

The following table presents the estimated amortization expense related to amortizable intangible assets ~~excluding SBA servicing assets,~~ for the last ~~three quarters~~quarter of calendar year 2018 and for each of the four calendar years ending December 31, 2022 and the estimated amount amortizable thereafter. These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortized intangible assets.

($ in thousands)	Estimated Amortization Expense		Estimated Amortization Expense
April 1 to December 31, 2018	$	4,357
October 1 to December 31, 2018			$	1,589
2019		4,858		5,570
2020		3,841		4,481
2021		2,927		3,492
2022		2,022		2,411
Thereafter		3,045		4,736
Total	$	21,050	$	22,279

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

The Company recorded periodic pension cost (income) totaling ~~$365,000~~$136,000 and ($~~162,000)~~202,000) for the three months ended ~~March 31,~~September 30, 2018 and 2017, respectively. ~~In 2017, the pension income was primarily from the investment income on the Pension Plan’s assets.~~ The following table contains the components of the pension cost (income).

	For the Three Months Ended March 31,																		For the Three Months Ended September 30,
	2018			2017			2018			2017			2018 Total			2017 Total			2018			2017			2018		2017			2018 Total			2017 Total
($ in thousands)	Pension Plan			Pension Plan			SERP			SERP			Both Plans			Both Plans			Pension Plan			Pension Plan			SERP		SERP			Both Plans			Both Plans
Service cost	$	—			—			29			27			29			27		$	—			—			32		29			32			29
Interest cost		330			375			57			60			387			435			328			361			40		57			368			418
Expected return on plan assets		(103	)		(675	)		—			—			(103	)		(675	)		(177	)		(702	)		—		—			(177	)		(702	)
Amortization of net (gain)/loss		60			60			(8	)		(9	)		52			51			(93	)		61			6		(8	)		(87	)		53
Net periodic pension cost (income)	$	287			(240	)		78			78			365			(162	)	$	58			(280	)		78		78			136			(202	)

The Company recorded periodic pension cost (income) totaling $408,000 and ($605,000) for the nine months ended September 30, 2018 and 2017, respectively. The following table contains the components of the pension cost (income).

The service cost component of net periodic pension cost (income) is included in salaries and benefits expense and all other components of net periodic pension cost (income) 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~~does not expect to contribute to the Pension Plan in ~~the first quarter~~ 2018.

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

Comprehensive income (loss) is defined as the change in equity during a period for non-owner transactions and is divided into net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes revenues, expenses, gains, and losses that are excluded from earnings under current accounting standards. The components of accumulated other comprehensive income (loss) for the Company are as follows:

~~The following table discloses the changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2018 (all amounts are net of tax).~~

The following table discloses the changes in accumulated other comprehensive income (loss) for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 (all amounts are net of tax).

The following table discloses the changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2017 (all amounts are net of tax).

($ in thousands)	Unrealized Gain (Loss) on Securities Available for Sale			Additional Pension Asset (Liability)			Total			Unrealized Gain (Loss) on Securities Available for Sale			Additional Pension Asset (Liability)			Total
Beginning balance at January 1, 2017	$	(1,947	)		(3,160	)		(5,107	)	$	(1,947	)		(3,160	)		(5,107	)
Other comprehensive income (loss) before reclassifications		706			—			706			2,075			—			2,075
Amounts reclassified from accumulated other comprehensive income		148			31			179			148			102			250
Net current-period other comprehensive income (loss)		854			31			885			2,223			102			2,325

Ending balance at March 31, 2017	$	(1,093	)		(3,129	)		(4,222	)
Ending balance at September 30, 2017										$	276			(3,058	)		(2,782	)

Relevant accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:

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

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

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

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at ~~March 31,~~September 30, 2018.

($ in thousands)
Description of Financial Instruments	Fair Value at March 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at September 30, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	18,604		—		18,604		—	$	43,422		—		43,422		—
Mortgage-backed securities		288,924		—		288,924		—		276,474		—		276,474		—
Corporate bonds		33,473		—		33,473		—		33,172		—		33,172		—
Total available for sale securities	$	341,001		—		341,001		—	$	353,068		—		353,068		—

Nonrecurring
Impaired loans	$	13,057		—		—		13,057	$	13,820		—		—		13,820
Foreclosed real estate		11,307		—		—		11,307		6,140		—		—		6,140

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at December 31, 2017.

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

Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by 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 benchmark quoted securities. For the Company, Level 2 securities include mortgage-backed securities, collateralized mortgage 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. Further, the Company validates the fair values for a sample of securities in the portfolio by comparing the fair values provided by the bond accounting provider to prices from other independent sources for the same or similar securities. The Company analyzes unusual or significant variances and conducts additional research with the portfolio manager, if necessary, and takes appropriate action based on its findings.

Impaired loans — Fair values for impaired loans in the above table are measured on a non-recurring basis and are based on the underlying collateral values securing the loans, adjusted for estimated selling costs, or the net present value of the cash flows expected to be received for such loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined 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). Any fair value adjustments are recorded in the period incurred as provision for loan 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). 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 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,~~September 30, 2018, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands)

Description

Fair Value at
March 31,
2018

Valuation
Technique

Significant Unobservable
Inputs

General Range
of Significant
Unobservable
Input Values

Fair Value at
September
30, 2018

Valuation
Technique

Significant Unobservable
Inputs

General Range
of Significant
Unobservable
Input Values

Impaired loans

13,057

Appraised value; PV of expected cash flows

Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell

0-10%

13,820

Appraised value; PV of expected cash flows

Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell

0-10%

Foreclosed real estate

11,307

Appraised value; List or contract price

Discounts to reflect current market conditions, abbreviated holding period and estimated costs to sell

0-10%

6,140

Appraised value; List or contract price

Discounts to reflect current market conditions, abbreviated holding period and estimated costs to sell

0-10%

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2017, the significant unobservable inputs used in the fair value measurements were as follows:

Transfers of assets or liabilities between levels within the fair value hierarchy are recognized when an event or change in circumstances occurs. There were no transfers between Level 1 and Level 2 for assets or liabilities measured on a recurring basis during the ~~three~~nine months ended ~~March 31,~~September 30, 2018 or 2017.

For the ~~three~~nine months ended ~~March 31,~~September 30, 2018 and 2017, the increase (decrease) in the fair value of securities available for sale was ($~~7,290,000)~~10,229,000) and ~~$1,120,000,~~$3,288,000, respectively, which is included in other comprehensive income (net of tax benefit (expense) of ~~$1,703,000~~$2,390,000 and ($~~414,000)~~1,213,000), respectively). Fair value measurement methods at ~~March 31,~~September 30, 2018 and 2017 are consistent with those used in prior reporting periods.

The carrying amounts and estimated fair values of financial instruments at ~~March 31,~~September 30, 2018 and December 31, 2017 are as follows:

		March 31, 2018				December 31, 2017					September 30, 2018				December 31, 2017
($ in thousands)	Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value

Cash and due from banks, noninterest-bearing	Level 1	$	78,217		78,217		114,301		114,301	Level 1	$	50,209		50,209		114,301		114,301
Due from banks, interest-bearing	Level 1		448,515		448,515		375,189		375,189	Level 1		460,520		460,520		375,189		375,189
Securities available for sale	Level 2		341,001		341,001		343,270		343,270	Level 2		353,068		353,068		343,270		343,270
Securities held to maturity	Level 2		112,058		111,201		118,503		118,998	Level 2		104,819		103,360		118,503		118,998
Presold mortgages in process of settlement	Level 1		6,029		6,029		12,459		12,459	Level 1		6,111		6,111		12,459		12,459
Total loans, net of allowance	Level 3		4,090,487		4,048,125		4,019,071		4,010,551	Level 3		4,170,082		4,126,000		4,019,071		4,010,551
Accrued interest receivable	Level 1		13,270		13,270		14,094		14,094	Level 1		14,982		14,982		14,094		14,094
Bank-owned life insurance	Level 1		99,786		99,786		99,162		99,162	Level 1		101,055		101,055		99,162		99,162

Deposits	Level 2		4,495,708		4,489,701		4,406,955		4,401,757	Level 2		4,528,373		4,522,134		4,406,955		4,401,757
Borrowings	Level 2		407,059		397,559		407,543		397,903	Level 2		406,593		398,109		407,543		397,903
Accrued interest payable	Level 2		1,306		1,306		1,235		1,235	Level 2		1,916		1,916		1,235		1,235

Fair value methods and assumptions are set forth below for the Company’s financial instruments.

Cash and Amounts Due from Banks, Presold Mortgages in Process of Settlement, Accrued Interest Receivable, and Accrued Interest Payable-The carrying amounts approximate their fair value because of the short maturity of these financial instruments.

Available for Sale and Held to Maturity Securities-Fair values are provided by a third-party and are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or matrix pricing.

Loans-For nonimpaired loans, fair values are determined assuming the sale of the notes to a third-party financial investor. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, financial and agricultural, real estate construction, real estate mortgages and installment loans to individuals. Each loan category is further segmented into fixed and variable interest rate terms. The fair value for each category is determined by discounting scheduled future cash flows using current interest rates with a liquidity discount offered on loans with similar risk ~~characteristics.~~characteristics, and includes the Company’s estimate of future credit losses expected to be incurred over the life of the loan. Fair values for impaired loans are primarily based on estimated proceeds expected upon liquidation of the collateral or the present value of expected cash flows.

Bank-Owned Life Insurance – The carrying value of life insurance approximates fair value because this investment is carried at cash surrender value, as determined by the issuer.

Deposits-The fair value of deposits with no stated maturity, such as noninterest-bearing checking accounts, savings accounts, interest-bearing checking accounts, and money market accounts, is equal to the amount payable on demand as of the valuation date. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered in the marketplace for deposits of similar remaining maturities.

Borrowings-The fair value of borrowings is based on the discounted value of the contractual cash flows. The discount rate is estimated using the rates currently offered by the Company’s lenders for debt of similar maturities.

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

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include net premises and equipment, intangible and other assets such as deferred income taxes, prepaid expense 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.

All of the Company’s revenues that are inwithin 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~~nine months ended ~~March 31,~~September 30, 2018 and 2017. Items outside the scope of ASC 606 are noted as such.

	For the Three Months Ended						For the Nine Months Ended
$ in thousands	March 31, 2018			March 31, 2017			September 30, 2018			September 30, 2017

Service charges on deposit accounts:
Overdraft fees	$	2,049			1,674
Maintenance and activity fees		1,214			940
Service charges on deposit accounts							$	9,606			8,525
Other service charges, commissions, and fees:
Interchange income		3,064			2,283			9,917			7,175
Other fees		1,533			890			4,739			3,020
Fees from presold mortgage loans (1)		859			768			2,231			4,121
Commissions from sales of insurance and financial products:
Insurance income		1,414			428			4,530			1,663
Wealth management income		526			412			1,954			1,641
SBA consulting fees		1,141			1,260			3,554			3,174
SBA loan sale gains (1)		3,802			622			8,773			3,241
Bank-owned life insurance income (1)		623			508			1,892			1,667
Foreclosed property gains (losses), net		(288	)		25			(579	)		(439	)
Securities gains (losses), net (1)		—			(235	)		—			(235	)
Other gains (losses), net (1)		4			234			811			493
Total noninterest income	$	15,941			9,809		$	47,428			34,046

(1) Not within the scope of ASC 606.

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.

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. 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 commissions from the sale of insurance policies and performance-based commissions from insurance companies. The Company recognizes commission income from 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.

Wealth 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. 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.

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.

Foreclosed property gains (losses), net: The Company records a gain or loss from the sale of foreclosed property when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of foreclosed property to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed property asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.

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.

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

The accounting principles we follow and our methods of applying these principles conform with accounting principles generally accepted in the United States of America 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 loan losses, intangible assets, and the fair value and discount accretion of acquired loans are three policies we have identified as being more sensitive in terms of judgments and estimates, taking into account their overall potential impact to our consolidated financial statements.

Due to the estimation process and the potential materiality of the amounts involved, we have identified the accounting for the allowance for loan losses and the related provision for loan losses as an accounting policy critical to our consolidated financial statements. The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance considered adequate to absorb losses inherent in the portfolio.

Our determination of the adequacy of the allowance is based primarily on a mathematical model that estimates the appropriate allowance for loan losses. This model has two components. The first component involves the estimation of losses on individually evaluated “impaired loans.” A loan is considered to be impaired when, based on current information and events, it is probable we will be unable to collect all amounts due according to the contractual terms of the original loan agreement. A loan is specifically evaluated for an appropriate valuation allowance if the loan balance is above a prescribed evaluation threshold (which varies based on credit quality, accruing status, troubled debt restructured status, purchased credit impaired status, and type of collateral) and the loan is determined to be impaired. The estimated valuation allowance is the difference, if any, between the loan balance outstanding and the value of the impaired loan as determined by either 1) an estimate of the cash flows that we expect to receive from the borrower discounted at the loan’s effective rate, or 2) in the case of a collateral-dependent loan, the fair value of the collateral.

The second component of the allowance model is an estimate of losses for all loans not considered to be impaired loans (“general reserve loans”). General reserve loans are segregated into pools by loan type and risk grade and estimated loss percentages are assigned to each loan pool based on historical losses. The historical loss percentages are then adjusted for any environmental factors used to reflect changes in the collectability of the portfolio not captured by historical data.

The reserves estimated for individually evaluated impaired loans are then added to the reserve estimated for general reserve loans. This becomes our “allocated allowance.” The allocated allowance is compared to the actual allowance for loan losses recorded on our books and any adjustment necessary for the recorded allowance to absorb losses inherent in the portfolio is recorded as a provision for loan losses. The provision for loan losses is a direct charge to earnings in the period recorded. Any remaining difference between the allocated allowance and the actual allowance for loan losses recorded on our books is our “unallocated allowance.”

Purchased loans are recorded at fair value at the acquisition date. Therefore, amounts deemed uncollectible at the acquisition date represent a discount to the loan value and become a part of the fair value calculation. Subsequent decreases in the amount expected to be collected result in a provision for loan losses with a corresponding increase in the allowance for loan losses. Subsequent increases in the amount expected to be collected are accreted into income over the life of the loan and this accretion is referred to as “loan discount accretion.”

Within the purchased loan portfolio, loans are deemed purchased credit impaired at acquisition if the bank believes it will not be able to collect all contractual cash flows. Performing loans with an unamortized discount or premium that are not deemed purchased credit impaired are considered to be purchased performing loans. Purchased credit impaired loans are individually evaluated as impaired loans, as described above, while purchased performing loans are evaluated as general reserve loans. For purchased performing loan pools, any computed allowance that is in excess of remaining net discounts is a component of the allocated allowance.

Although we use the best information available to make evaluations, future material adjustments may be necessary if economic, operational, or other conditions change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize additions to the allowance based on the examiners’ judgment about information available to them at the time of their examinations.

For further discussion, see “Nonperforming Assets” and “Summary of Loan Loss Experience” below.

Due to the estimation process and the potential materiality of the amounts involved, we have also identified the accounting for intangible assets as an accounting policy critical to our consolidated financial statements.

When we complete an acquisition transaction, 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 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 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 to identifiable intangible assets and higher amount of goodwill as opposed to having a higher amount considered to be identifiable intangible assets and a lower amount classified as goodwill.

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, the primary identifiable intangible asset is the value of the acquired customer list. 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 core deposit intangibles 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 the SBA 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.

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, on at least an annual basis, goodwill is evaluated for impairment by comparing the fair value of our reporting units to their related carrying value, including goodwill. We have three reporting units – 1) First Bank with ~~$220.0~~$220.8 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 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.

In our 2017 goodwill impairment evaluation, we concluded that the goodwill for each of our reporting units was not 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.

We consider the determination of the initial fair value of acquired loans and the subsequent discount accretion of the purchased loans to involve a high degree of judgment and complexity.

We determine fair value accounting estimates of newly assumed assets and liabilities in accordance with relevant accounting guidance. However, the amount that we realize on these assets could differ materially from the carrying value reflected in our financial statements, based upon the timing of collections on the acquired loans in future periods. Because of inherent credit losses and interest rate marks associated with acquired loans, the amount that we record as the fair values for the loans is generally less than the contractual unpaid principal balance due from the borrowers, with the difference being referred to as the “discount” on the acquired loans. For non-impaired purchased loans, we accrete the discount over the lives of the loans in a manner consistent with the guidance for accounting for loan origination fees and costs.

For purchased credit-impaired (“PCI”) loans, the excess of the cash flows initially expected to be collected over the fair value of the loans at the acquisition date (i.e., the accretable yield) is accreted into interest income over the estimated remaining life of the loans using the effective yield method, provided that the timing and the amount of future cash flows is reasonably estimable. Accordingly, such loans are not classified as nonaccrual and they are considered to be accruing because their interest income relates to the accretable yield recognized under accounting for PCI loans and not to contractual interest payments. The difference between the contractually required payments and the cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference.

Subsequent to an acquisition, estimates of cash flows expected to be collected are updated periodically based on updated assumptions regarding default rates, loss severities, and other factors that are reflective of current market conditions. If there is a decrease in cash flows expected to be collected, the provision for loan losses is charged, resulting in an increase to the allowance for loan losses. If the Company has a probable increase in cash flows expected to be collected, we will first reverse any previously established allowance for loan losses and then increase interest income as a prospective yield adjustment over the remaining life of the loan. The impact of changes in variable interest rates is recognized prospectively as adjustments to interest income.

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

Net income available to common shareholders amounted to $22.0 million, or $0.74 per diluted common share, for the ~~first~~three months ended September 30, 2018, an increase of 39.6% in earnings per share from the $13.1 million, or $0.53 per diluted common share, recorded in the third quarter of 2017.

For the nine months ended September 30, 2018, ~~was $20.7~~we recorded net income available to common shareholders of $65.4 million, or ~~$0.70~~$2.21 per diluted common share, an increase of ~~106%~~66.2% in earnings per share from the ~~$7.6~~$31.8 million, or ~~$0.34~~$1.33 per diluted common share, ~~recorded in~~for the ~~first quarter of~~nine months ended September 30, 2017.

~~Affecting~~Comparisons for the ~~quarter’s comparability with 2017~~financial periods presented were ~~the Company’s~~significantly impacted by our acquisitions of Carolina Bank ~~Holdings, Inc. (“Carolina Bank”)~~ in March 2017 with total assets of $682 million and ~~ASB Bancorp, Inc. (“~~Asheville Savings ~~Bank”)~~Bank in October 2017 with $798 million in total assets. The assets, liabilities and earnings for ~~each acquisition~~the acquisitions were recorded beginning on their respective acquisition dates.

Net interest income for the ~~first~~third quarter of 2018 was ~~$50.5~~$51.8 million, a ~~47.3%~~24.5% increase from the ~~$34.3~~$41.6 million recorded in the third quarter of 2017. Net interest income for the first ~~quarter~~nine months of 2018 amounted to $153.6 million, a 32.6% increase from the $115.9 million recorded in the comparable period of 2017. The increase in net interest income was primarily due to the acquisitions of Carolina Bank and Asheville Savings Bank, as well as higher amounts of loans outstanding as a result of organic growth.

Our ~~tax-equivalent~~ net interest margin (tax-equivalent net interest income divided by average earning assets) ~~amounted to 4.19%~~ for the ~~first~~third quarter of 2018 was 4.06% compared to ~~4.07%~~4.16% for the ~~first~~third quarter of 2017. ~~Asset~~For the nine month period ended September 30, 2018, our net interest margin was 4.12% compared to 4.11% for the same period in 2017. Although asset yields increased primarily as a result of ~~four~~several Federal Reserve interest rate increases since January 1, ~~2017. Funding~~2017, we have also experienced higher funding costs, ~~also increased, but~~particularly on the interest rates paid on our borrowings, as these are highly correlated to ~~a lesser degree. Also~~short-term interest rates set by the Federal Reserve. Interest income for the nine months ended September 30, 2018 was positively ~~impacting~~impacted by approximately $0.8 million in interest ~~income~~recoveries received in the first quarter, ~~of 2018 was approximately $750,000 in interest recoveries,~~ which primarily related to the same loans that experienced significant allowance for loan loss recoveries discussed below in “Provisions for Loan Losses and Asset Quality.”

The net interest margins for the periods were also impacted by loan discount accretion associated with acquired loan portfolios. ~~The Company~~We recorded loan discount accretion amounting to ~~$2.1~~$1.6 million in the ~~first~~third quarter of 2018, compared to ~~$1.4~~$1.7 million in the ~~first~~third quarter of 2017. For the first nine months of 2018 and 2017, loan discount accretion amounted to $6.0 million and $5.1 million, respectively. The increase in loan discount accretion in 2018 was primarily due to the loan discounts recorded in the acquisitions of Carolina Bank and Asheville Savings Bank.

We recorded a provision for loan losses of $0.1 million in the third quarter of 2018, compared to no provision for loan losses in the third quarter of 2017. For the nine months ended September 30, 2018, we recorded a total negative provision for loan losses of $4.3 million (reduction of the allowance for loan losses) ~~of $3.7 million in the first quarter of 2018,~~ compared to a total provision for loan losses of $0.7 million in the ~~first~~same period of 2017. Our provisions for loan losses have been favorably impacted by continued improvement in asset quality, including low charge-offs and declining levels of nonperforming assets.

Total net charge-offs for the third quarter of 2018 amounted to $2.8 million in comparison to net recoveries of $0.6 million in the third quarter of 2017. During the third quarter of 2018, we completed a sale of approximately $5.2 million in smaller balance nonperforming loans that resulted in charge-offs of $2.2 million.

For the first ~~quarter~~nine months of 2018, we experienced net loan recoveries of ~~$3.7~~$1.5 million, including full payoffs received on four loans in the first quarter of 2018 that had been previously charged-down by approximately $3.3 million. The amounts received in excess of the prior charge-downs were recorded as interest income recoveries, and those four loans were primarily responsible for the ~~$750,000~~$0.8 million in interest recoveries previously noted. For the comparable period of 2017, net loan recoveries amounted to $0.1 million.

~~Our provision for loan losses have been impacted by continued improvement in asset quality.~~ Our nonperforming assets to total assets ratio was ~~0.92%~~0.72% at ~~March 31,~~September 30, 2018 compared to ~~1.35%~~1.16% at ~~March 31,~~September 30, 2017. The ratio of annualized net charge-offs (recoveries) to average loans for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 was ~~(0.36%~~(0.05%), compared to ~~0.13%~~0.00% for the same period of 2017.

We continue to assess loans that may have been impacted by Hurricane Florence and Hurricane Michael. To date, we believe that any losses will not require a significant provision for loan losses.

Total noninterest income was ~~$15.9~~$15.4 million and ~~$9.8~~$12.4 million for the three months ended ~~March 31,~~September 30, 2018 and ~~March 31,~~September 30, 2017, respectively. For the nine months ended September 30, 2018, noninterest income amounted to $47.4 million compared to $34.0 million for the same period of 2017.

Core noninterest income for the ~~first~~third quarter of 2018 was ~~$16.2~~$15.7 million, an increase of ~~65.8%~~22.3% from the ~~$9.8~~$12.8 million reported for the third quarter of 2017. For the first ~~quarter~~nine months of 2018, core noninterest income amounted to $47.2 million, a 37.9% increase from the $34.2 million recorded in the comparable period of 2017. Core noninterest income includes i) service charges on deposit accounts, ii) other service charges, commissions, and fees, iii) fees from presold mortgage loans, iv) commissions from sales of insurance and financial products, v) SBA consulting fees, vi) SBA loan sale gains, and vii) bank-owned life insurance income.

The primary reason for the increase in core noninterest income in 2018 was an increase in SBA loan sales volume. During the first quarter of 2018, we sold $47.2 million of the guaranteed portions of newly originated SBA loans, which resulted in $3.8 million in gains on sales. In comparison, during the first quarter of 2017, we sold $7.3 million of the guaranteed portions, resulting in $0.6 million in gains on sales. Also contributing to the increase in core noninterest income in the first quarter of 2018 were the acquisitions of Carolina Bank and Asheville Savings ~~Bank.~~Bank were significant contributors to the higher core noninterest income in 2018.

Another significant contributor to the increases in core noninterest income was increased origination and sales of SBA loans. During the three and nine months ended September 30, 2018, we realized $2.4 million and $8.8 million in gains on SBA loan sales, respectively. In comparison, during the three and nine months ended September 30, 2017, we realized $1.7 million and $3.2 million in gains on SBA loan sales, respectively.

Noninterest expenses amounted to ~~$43.6~~$39.2 million in the ~~first~~third quarter of 2018 compared to ~~$32.1~~$34.4 million recorded in the ~~first~~third quarter of 2017. Noninterest expenses for the nine months ended September 30, 2018 amounted to $121.7 million compared to $101.5 million in 2017. The increase in noninterest expenses in 2018 related primarily to our acquisitions of Carolina Bank and Asheville Savings Bank.

Also impacting expenses were other growth initiatives, including continued growth of our SBA consulting firm and SBA lending division, as well as the acquisition of an insurance agency during the third quarter of 2017.

~~Merger and acquisition expenses amounted to $2.8 million and $2.4 million for the three months ended March 31, 2018 and March 31, 2017, respectively.~~

Our effective tax rate for the ~~first~~third quarter of 2018 was ~~22.0%~~21.2% compared to ~~33.2%~~33.3% in the ~~first~~third quarter of 2017. For the nine months ended September 30, 2018 and 2017, our effective tax rates were 21.8% and 33.3%, respectively. The lower effective tax rate in 2018 was due to the ~~2017~~ Tax Cuts and Jobs Act, which was signed into law in December 2017 and reduced the federal corporate tax rate from 35% to 21%.

Total assets at ~~March 31,~~September 30, 2018 amounted to ~~$5.6~~$5.7 billion, a ~~27.0%~~24.4% increase from a year earlier. Total loans at ~~March 31,~~September 30, 2018 amounted to ~~$4.1~~$4.2 billion, a ~~25.1%~~22.2% increase from a year earlier, and total deposits amounted to $4.5 billion at ~~March 31,~~September 30, 2018, a ~~23.9%~~24.0% increase from a year earlier.

~~In addition~~ The significant increases were largely due to ~~the growth realized from~~ the acquisition of Asheville Savings Bank inon October ~~2017, we~~1, 2017.

We experienced steady ~~organic~~ loan and deposit growth during the first ~~quarter~~nine months of ~~2018. Organic loan~~2018, all of which was organic. Loan growth for the nine months ended September 30, 2018 amounted to ~~$71.4~~$148 million, or ~~7.2%~~4.9% annualized, and ~~organic~~ deposit growth amounted to ~~$88.8~~$121.4 million, or ~~8.2% annualized.~~3.7% annualized, during that same period. This growth was a result of ongoing internal initiatives to enhance loan and deposit growth, including our recent expansion into higher growth ~~markets~~markets. As anticipated, a $41 million deposit received in the first quarter of 2018 was transferred outside the Company in the third quarter of 2018.

We remain well-capitalized by all regulatory standards, with ~~an estimated~~a Total Risk-Based Capital Ratio at ~~March 31,~~September 30, 2018 of ~~12.70%~~13.68%, an increase from the ~~12.55%~~12.44% reported at ~~March 31,~~September 30, 2017. Our tangible common equity to tangible assets ratio was ~~8.35%~~8.95% at ~~March 31,~~September 30, 2018, an increase of 56100 basis points from a year earlier.

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. Net interest income for the three month period ended ~~March 31,~~September 30, 2018 amounted to ~~$50.5~~$51.8 million, an increase of ~~$16.2~~$10.2 million, or ~~47.3%~~24.5%, from the ~~$34.3~~$41.6 million recorded in the ~~first~~third quarter of 2017. Net interest income on a tax-equivalent basis for the three month period ended ~~March 31,~~September 30, 2018 amounted to ~~$50.9~~$52.3 million, an increase of ~~$16.0~~$9.9 million, or ~~45.8%~~23.5%, from the ~~$34.9~~$42.3 million recorded in the ~~first~~third quarter of 2017. 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.

	Three Months Ended March 31,				Three Months Ended September 30,
($ in thousands)	2018		2017		2018		2017
Net interest income, as reported	$	50,507		34,296	$	51,845		41,639
Tax-equivalent adjustment		356		585		428		702
Net interest income, tax-equivalent	$	50,863		34,881	$	52,273		42,341

Net interest income for the nine month period ended September 30, 2018 amounted to $153.6 million, an increase of $37.7 million, or 32.6%, from the $115.9 million recorded in the first nine months of 2017. Net interest income on a tax-equivalent basis for the nine month period ended September 30, 2018 amounted to $154.7 million, an increase of $36.9 million, or 31.3%, from the $117.8 million recorded in the comparable period of 2017.

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 and nine months ended ~~March 31,~~September 30, 2018, the higher net interest income compared to the same period of 2017 was due primarily to the growth in our loans ~~outstanding~~ and ~~a higher net interest margin.~~

	For the Three Months Ended March 31,												For the Three Months Ended September 30,
	2018						2017						2018						2017
($ in thousands)	Average Volume		Average Rate		Interest Earned or Paid		Average Volume		Average Rate		Interest Earned or Paid		Average Volume		Average Rate		Interest Earned or Paid		Average Volume		Average Rate		Interest Earned or Paid
Assets
Loans (1)	$	4,099,495		4.96%	$	50,170	$	2,903,279		4.71%	$	33,703	$	4,191,751		4.96%	$	52,407	$	3,404,862		4.84%	$	41,549
Taxable securities		410,586		2.99%		3,032		285,887		2.59%		1,824		400,861		2.48%		2,501		275,544		2.37%		1,649
Non-taxable securities		52,945		2.91%		380		53,418		3.36%		443		50,373		2.89%		367		54,606		2.90%		399
Short-term investments, principally federal funds		354,602		1.69%		1,479		235,941		0.86%		498		462,996		2.52%		2,944		305,245		1.84%		1,414
Total interest-earning assets		4,917,628		4.54%		55,061		3,478,525		4.25%		36,468		5,105,981		4.52%		58,219		4,040,257		4.42%		45,011

Cash and due from banks		93,185						67,296						78,078						80,191
Premises and equipment		115,956						82,177						113,812						96,596
Other assets		422,747						228,590						415,069						297,365
Total assets	$	5,549,516					$	3,856,588					$	5,712,940					$	4,514,409

Liabilities
Interest bearing checking	$	885,428		0.09%	$	199	$	652,672		0.07%	$	107	$	862,065		0.11%	$	235	$	688,739		0.06%	$	105
Money market deposits		1,005,588		0.23%		575		728,723		0.19%		336		1,018,933		0.34%		869		794,788		0.19%		372
Savings deposits		448,785		0.19%		205		273,114		0.12%		79		435,579		0.21%		230		402,330		0.21%		208
Time deposits >$100,000		599,727		0.95%		1,411		436,779		0.66%		714		658,479		1.39%		2,302		494,680		0.84%		1,053
Other time deposits		282,678		0.41%		283		244,798		0.28%		166		272,468		0.39%		270		246,475		0.28%		172
Total interest-bearing deposits		3,222,206		0.34%		2,673		2,336,086		0.24%		1,402		3,247,524		0.48%		3,906		2,627,012		0.29%		1,910
Borrowings		407,158		1.87%		1,881		244,864		1.28%		770		406,652		2.41%		2,468		331,122		1.75%		1,462
Total interest-bearing liabilities		3,629,364		0.51%		4,554		2,580,950		0.34%		2,172		3,654,176		0.69%		6,374		2,958,134		0.45%		3,372

Noninterest bearing checking		1,181,599						816,692						1,278,488						1,005,307
Other liabilities		37,142						32,104						42,716						30,536
Shareholders’ equity		701,411						426,842						737,560						520,432
Total liabilities and shareholders’ equity	$	5,549,516					$	3,856,588					$	5,712,940					$	4,514,409

Net yield on interest-earning assets and net interest income				4.17%	$	50,507				4.00%	$	34,296				4.03%	$	51,845				4.09%	$	41,639
Net yield on interest-earning assets and net interest income – tax-equivalent (2)				4.19%	$	50,863				4.07%	$	34,881				4.06%	$	52,273				4.16%	$	42,341

Interest rate spread				4.03%						3.91%						3.83%						3.97%

Average prime rate				4.53%						3.79%						5.01%						4.25%

~~Average loans outstanding for the first quarter~~The tables above reflect significant increases in our levels of ~~2018~~loan and deposit balances. These increases were ~~$4.10 billion,~~a result of organic growth, which was ~~$1.20 billion, or 41.2%, higher than~~approximately 4%-5% over the ~~average loans outstanding for the first quarter of 2017 ($2.903 billion). The higher amount of average loans outstanding~~periods reflected, and more significantly growth we obtained in ~~2018 is primarily due to the acquisitions of Carolina Bank on~~our acquisitions. On March 3, 2017, we acquired Carolina Bank, which had $498 million in loans and ~~Asheville Savings Bank~~$585 million in deposits, and on October 1, 2017 we acquired Asheville Savings Bank, which had ~~$497 million and~~ $606 million in loans ~~respectively, at~~and $679 million in deposits.

Our net interest margin (tax-equivalent net interest income divided by average earning assets, referred to as “net yield on interest-earning assets” in the ~~acquisition dates. Also,~~tables above) for the periods reflected above was fairly stable, ranging from 4.06%-4.16%. Both asset yields and liability costs have increased in 2018 compared to the same periods of 2017 shown above due to increases in the interest rate environment. For the three months ended September 30, 2018, a 24 basis point increase in liability costs exceeded a 10 basis point increase in asset yields and resulted in the net interest margin declining by 10 basis points from 4.16% to 4.06%. For the nine months ended September 30, 2018, asset yields and liability costs each increased by 20 basis points which led to a virtually unchanged net interest margin of 4.11%-4.12%.

Impacting our net interest margin for all periods reflected in the tables above are net accretion of purchase accounting premiums/discounts associated with acquired loans and deposits. For the three months ended September 30, 2018 and 2017, we recorded $1.6 million and $1.8 million, respectively, in net accretion of purchase accounting premiums/discounts that increased net interest income. For the nine months ended September 30, 2018 and 2017, we recorded $6.1 million and $5.2 million, respectively. The increase in accretion for the year to date period in 2018 is due to the aforementioned acquisitions. Unaccreted loan ~~growth initiatives, including expansion into higher growth markets, and improved loan demand in our market areas, we have grown loan balances organically by $218~~discount has increased from $16.9 million ~~over~~at September 30, 2017 to $24.3 million at September 30, 2018 primarily as a result of the ~~past year.~~Asheville Savings Bank acquisition.

The mix of our loan portfolio remained substantially the same at ~~March 31,~~September 30, 2018 compared to December 31, 2017, with approximately 88% of our loans being real estate loans, 10% being commercial, financial, and agricultural loans, and the remaining 2% being consumer installment loans. The majority of our real estate loans are personal and commercial loans where real estate provides additional security for the loan.

Average total deposits outstanding for the first quarter of 2018 were $4.40 billion, which was $1.25 billion, or 39.7%, higher than the average deposits outstanding for the first quarter of 2017 ($3.153 billion). As discussed previously, we acquired Carolina Bank during the first quarter of 2017, which added $585 million in deposits beginning on March 3, 2017 and acquired Asheville Savings Bank during the fourth quarter of 2017, which added $679 million in deposits beginning on October 1, 2017. Including the acquisitions, average transaction deposit accounts (noninterest bearing checking, interest bearing checking, money market and savings accounts) increased from $2.471 billion at March 31, 2017 to $3.521 billion at March 31, 2018, representing growth of $1.05 billion, or 42.5%. Average time deposits also increased from $682 million at March 31, 2017 to $882 million at March 31, 2018, an increase of $201 million, or 29.5%.

Average borrowings increased from $245 million at March 31, 2017 to $407 million at March 31, 2018, which helped support loan growth. Carolina Bank had approximately $19 million in borrowings on the date of acquisition. Asheville Savings Bank had no borrowings on the date of acquisition. Our cost of funds, which includes noninterest bearing checking accounts at a zero percent cost, was 0.38% in the first quarter of 2018 compared to 0.26% in the first quarter of 2017.

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

Our net interest margin (tax-equivalent net interest income divided by average earning assets) for the first quarter of 2018 was 4.19% and was 4.07% for the first quarter of 2017. The first quarter of 2018 net interest margin was positively impacted by approximately $750,000 in interest income recoveries recorded due to full payoffs on four loans that were previously charged-off.

Our net interest margin benefits from the net accretion of purchase accounting premiums/discounts associated with acquired loans and deposits. For the three months ended March 31, 2018 and 2017, we recorded $2.1 million and $1.4 million, respectively, in net accretion of purchase accounting premiums/discounts that increased net interest income. The increase in accretion in 2018 is due to the aforementioned acquisitions. Unaccreted loan discount has increased from $19.6 million at March 31, 2017 to $26.2 million at March 31, 2018 primarily as a result of the Carolina Bank and Asheville Savings Bank acquisitions.

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

We recorded a provision for loan losses of $0.1 million in third quarter of 2018 compared to no provision for loan losses for the third quarter of 2017. For the nine months ended September 30, 2018, we recorded total negative ~~provision~~provisions for loan losses (reduction of the allowance for loan losses) of ~~$3.7~~$4.3 million ~~in first quarter of 2018~~ compared to ~~a provision~~provisions for loan losses of $0.7 million ~~for the first quarter of 2017. During the first quarter of 2018, we experienced net loan recoveries of $3.7 million compared to net loan charge-offs of $1.0 million~~ in the ~~first quarter~~same period of 2017.

Our provision for loan loss levels have been impacted by continued improvement in asset quality. Nonperforming assets amounted to ~~$51.7~~$41.1 million at ~~March 31,~~September 30, 2018, a decrease of ~~14.0%~~22.6% from the ~~$60.0~~$53.0 million one year earlier. Our nonperforming assets to total assets ratio was ~~0.92%~~0.72% at ~~March 31,~~September 30, 2018 compared to ~~1.35%~~1.16% at ~~March 31,~~September 30, 2017. Annualized net charge-offs (recoveries) as a percentage of average loans for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 was ~~(0.36%~~(0.05%), compared to ~~0.13%~~0.00% for the same period of 2017.

Total noninterest income was ~~$15.9~~$15.4 million in the ~~first~~third quarter of 2018 compared to ~~$9.8~~$12.4 million for the ~~first~~third quarter of 2017. For the nine months ended September 30, 2018, noninterest income amounted to $47.4 million compared to $34.0 million for the same period of 2017.

As presented in the table below, core noninterest income for the ~~first~~third quarter of 2018 was ~~$16.2~~$15.7 million, an increase of ~~62.5%~~22.3% from the ~~$9.8~~$12.8 million reported for the third quarter of 2017. For the first ~~quarter~~nine months of 2018, core noninterest income amounted to $47.2 million, a 37.9% increase from the $34.2 million recorded in the comparable period of 2017. As noted above, core noninterest income includes i) service charges on deposit accounts, ii) other service charges, commissions, and fees, iii) fees from presold mortgage loans, iv) commissions from sales of insurance and financial products, and v) SBA consulting fees, vi) SBA loan sale gains, and vii) bank-owned life insurance income.

The following table presents our core noninterest income for the three and nine month periods ~~ended March 31,~~ending September 30, 2018 and 2017, respectively.

As shown in the table above, service charges on deposit accounts increased from ~~$2.6~~$2.9 million in the ~~first~~third quarter of 2017 to ~~$3.3~~$3.2 million in the ~~first~~third quarter of 2018. For the nine months ended September 30, 2018, service charges on deposit accounts amounted to $9.6 million, which is a $1.1 million increase from the $8.5 million recorded in the comparable period of 2017. The increase in 2018 was primarily due to the aforementioned acquisitions.

Other service charges, commissions, and fees increased in 2018 compared to 2017, primarily due to a combination of the aforementioned acquisitions and a result of higher debit card and credit card interchange fees. We earn a small fee each time a customer uses a debit card to make a purchase. Due to the growth in checking accounts and increased customer usage of debit cards, we have experienced increases in this line item. Interchange income from credit cards has also increased due to growth in the number and usage of credit cards, which we believe is a result of increased promotion of this product.

Fees from presold mortgages ~~increased from $0.8~~amounted to $0.6 million and $2.2 million for the three and nine month periods ended September 30, 2018, respectively, compared to $1.8 million and $4.1 million for the three and nine month periods ended September 30, 2017, respectively. The declines in ~~the first quarter of 2017 to $0.9 million in the first quarter of 2018. Fees increased in the first quarter of~~ 2018 were primarily due to ~~the acquisition~~our mortgage loan department originating a higher percentage of ~~Carolina Bank~~loans with construction components that are held in ~~March 2017~~our loan portfolio and ~~the acquisition of Asheville Savings Bank~~not sold, as well as employee turnover that has occurred in ~~October 2017.~~2018.

Commissions from sales of insurance and financial products amounted to ~~approximately $1.9~~$2.4 million ~~and $0.8~~in the third quarter of 2018, compared to $1.4 million ~~for~~in the ~~first three~~third quarter of 2017. For the nine months ofended September 30, 2018 and 2017, ~~respectively.~~we recorded $6.5 million and $3.3 million, respectively, in commissions from sales of insurance and financial products. The increase ~~in 2018~~ was primarily due to ~~increases in sales of property and casualty insurance due to our~~the acquisition of an insurance agency in September 2017.

The ~~primary reason for the~~largest increase in core noninterest income in 2018 was in our SBA loan sale gains, which resulted from an increase in ~~SBA loan~~ sales ~~volume.~~volumes. During the first ~~quarter~~nine months of 2018, we sold ~~$47.2~~$121.7 million of the guaranteed portions of newly originated SBA loans, which resulted in ~~$3.8~~$8.8 million in gains on sales. In comparison, during the first ~~quarter~~nine months of 2017, we sold ~~$7.3~~$41.0 million of the guaranteed portions, resulting in ~~$0.6~~$3.2 million in gains on sales.

Bank-owned life insurance income was ~~$0.6~~$1.9 million in the first ~~quarter~~nine months of 2018 and ~~$0.5~~$1.7 million in the first ~~quarter~~nine months of 2017, which increased due to bank-owned life insurance policies assumed in the aforementioned acquisitions.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2017, we recorded $0.2 million in losses from sales of securities. ~~During~~For the ~~three months ended March 31,~~comparable period of 2018, ~~there were~~we had no sales of securities.

Other gains and losses for the periods presented represent the net effects of miscellaneous gains and losses that are non-routine in nature. We recorded other gains of $0.8 million in the first nine months of 2018, which primarily related to a gain on a sale of a previously closed branch building. In the comparable period of 2017, we reported other gains of $0.5 million, which primarily related to the sale of a pool of default judgements to a third-party firm.

Noninterest expenses amounted to ~~$43.6~~$39.2 million in the ~~first~~third quarter of 2018, a ~~35.9%~~14.1% increase over the ~~$32.1~~$34.4 million recorded in the same period of 2017. Noninterest expenses for the nine months ended September 30, 2018 amounted to $121.7 million compared to $101.5 million in 2017. The increase in noninterest expenses in 2018 related primarily to the acquisitions we completed in 2017.

Also impacting expenses were other growth initiatives, including continued growth of our SBA consulting firm and SBA lending division.

The acquisition activity was primarily responsible for the increase in salaries expense, which increased to ~~$19.4~~$18.8 million in the ~~first~~third quarter of 2018 from the ~~$14.0~~$16.6 million recorded in the ~~first~~third quarter of 2017. Salaries expense for the first nine months of 2018 amounted to $56.6 million compared to $46.8 million in 2017.

Employee benefits expense was also impacted by the acquisition activity and amounted to ~~$4.6~~$4.1 million in the ~~first~~third quarter of 2018 compared to ~~$3.9~~$3.6 million in the ~~first~~third quarter of 2017. For the first nine months of 2018, employee benefits expense amounted to $12.8 million compared to $11.4 million in 2017. Also increasing expense in 2018 was our increased 401k match effective January 1, 2018, which increased from effectively a 100% match up to 4% of an employee’s salary contribution to a 100% match up to 6% of an employee’s salary contribution.

~~The combined amount of~~Occupancy and equipment expense increased in 2018 primarily due to the acquisitions discussed above. For the three months ended September 30, 2018, occupancy and equipment expense ~~increased by $0.8~~totaled $4.2 million ~~when comparing~~compared to $3.5 million in the third quarter of 2017. For the nine months ended September 30, 2018, occupancy and equipment expense totaled $12.0 million compared to $10.3 million in the first ~~quarter~~nine months of ~~2018 to the first quarter of 2017, amounting to approximately $4.1 million and $3.2 million during the periods, respectively. The majority of the increase relates to the acquisitions discussed above.~~2017.

Merger and acquisition expenses amounted to ~~$2.8~~$0.2 million and $3.6 million for the three and nine months ended ~~March 31,~~September 30, 2018, respectively, compared to ~~$2.4~~$1.3 million and $4.8 million for the three and nine months ended September 30, 2017, respectively. For the nine months ended September 30, 2018, merger and acquisition expense includes $1.3 million related to increases in ~~the comparable period of 2017.~~an earn-out liability associated with a prior year acquisition.

Intangibles amortization expense increased from ~~$0.6~~$0.9 million in the ~~first~~third quarter of 2017 to $1.7 million in the ~~first~~third quarter of 2018 and from $2.5 million in the first nine months of 2017 to $5.1 million in the first nine months of 2018, primarily as a result of the amortization of intangible assets that ~~were~~we recorded in connection with our acquisitions.

Other operating expenses amounted to ~~$11.1~~$10.4 million and $8.5 million for the third quarters of 2018 and 2017, respectively, and $31.7 million in the first ~~quarter~~nine months of 2018 compared to ~~$8.2~~$25.7 million in the first ~~quarter~~nine months of 2017, with the ~~increase~~increases primarily due to the acquisitions of Carolina Bank and Asheville Savings Bank. On March 16, 2018, we converted the data processing systems of Asheville Savings Bank to First Bank and consolidated three branches in Asheville. This is expected to result in annual expense savings of approximately $4.0 to 4.5 million.

For the ~~first~~third quarter of 2018, the provision for income taxes was ~~$5.8~~$5.9 million, an effective tax rate of ~~22.0%~~21.2%, compared to $6.5 million for the same period of 2017, which is an effective tax rate of 33.3%. For the first ~~quarter~~nine months of ~~2017,~~2018, the provision for income taxes was ~~$3.8~~$18.2 million, an effective tax rate of ~~33.2%~~21.8%, compared to $15.8 million for the same period of 2017, which was an effective tax rate of 33.3%. The lower effective tax rate in 2018 was due to the ~~2017~~ Tax Cuts and Jobs Act, which was signed into law in December 2017 and reduced the federal corporate tax rate from 35% to 21%.

The consolidated statements of comprehensive income reflect other comprehensive loss of ~~$5.5~~$0.8 million during the ~~first~~third quarter of 2018 compared to other comprehensive income of ~~$0.9~~$0.2 million during the ~~first~~third quarter of 2017. During the nine months ended September 30, 2018 and 2017, we recorded other comprehensive loss of $7.8 million and other comprehensive income of $2.3 million, respectively. 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, which occurred in the first ~~quarter~~nine months of 2018 and was primarily responsible for the other comprehensive loss. Management has evaluated any unrealized losses on individual securities at each period end and determined that there is no other-than-temporary impairment.

The following table presents information regarding the nature of changes in our levels of loans and deposits for the twelve months ended ~~March 31,~~September 30, 2018 and for the first ~~quarter~~nine months of 2018.

April 1, 2017 to March 31, 2018	Balance at beginning of period		Internal Growth, net			Growth from Acquisitions (1)		Balance at end of period		Total percentage growth		Internal percentage growth
October 1, 2017 to September 30, 2018														Balance at beginning of period		Internal Growth, net			Growth from Acquisitions (1)		Balance at end of period		Total percentage growth		Internal percentage growth


Total loans	$	3,289,355		218,250			606,180		4,113,785		25.1%		6.6%	$	3,429,755		154,693			606,180		4,190,628		22.2%		4.5%

Deposits – Noninterest bearing checking		958,175		135,677			133,756		1,227,608		28.1%		14.2%		1,016,947		129,705			133,756		1,280,408		25.9%		12.8%
Deposits – Interest bearing checking		694,898		28,086			173,205		896,189		29.0%		4.0%		683,113		14,169			173,205		870,487		27.4%		2.1%
Deposits – Money market		812,427		37,678			175,938		1,026,043		26.3%		4.6%		793,919		37,320			175,938		1,007,177		26.9%		4.7%
Deposits – Savings		415,600		(32,978	)		62,783		445,405		7.2%		-7.9%		396,192		(26,640	)		62,783		432,335		9.1%		-6.7%
Deposits – Brokered		157,198		59,683			34,162		251,043		59.7%		38.0%		215,615		5,638			34,162		255,415		18.5%		2.6%
Deposits – Internet time		10,022		(2,774	)		—		7,248		-27.7%		-27.7%		7,995		(4,071	)		—		3,924		-50.9%		-50.9%
Deposits – Time>$100,000		321,407		417			35,771		357,595		11.3%		0.1%		296,006		77,965			35,771		409,742		38.4%		26.3%
Deposits – Time<$100,000		259,443		(38,388	)		63,522		284,577		9.7%		-14.8%		241,454		(36,091	)		63,522		268,885		11.4%		-14.9%
Total deposits	$	3,629,170		187,401			679,137		4,495,708		23.9%		5.2%	$	3,651,241		197,995			679,137		4,528,373		24.0%		5.4%

January 1, 2018 to March 31, 2018
January 1, 2018 to September 30, 2018
Total loans	$	4,042,369		71,416			—		4,113,785		1.8%		1.8%	$	4,042,369		148,259			—		4,190,628		3.7%		3.7%

Deposits – Noninterest bearing checking		1,196,161		31,447			—		1,227,608		2.6%		2.6%		1,196,161		84,247			—		1,280,408		7.0%		7.0%
Deposits – Interest bearing checking		884,254		11,935			—		896,189		1.3%		1.3%		884,254		(13,767	)		—		870,487		-1.6%		-1.6%
Deposits – Money market		982,822		43,221			—		1,026,043		4.4%		4.4%		982,822		24,355			—		1,007,177		2.5%		2.5%
Deposits – Savings		454,860		(9,455	)		—		445,405		-2.1%		-2.1%		454,860		(22,525	)		—		432,335		-5.0%		-5.0%
Deposits – Brokered		239,659		11,384			—		251,043		4.8%		4.8%		239,659		15,756			—		255,415		6.6%		6.6%
Deposits – Internet time		7,995		(747	)		—		7,248		-9.3%		-9.3%		7,995		(4,071	)		—		3,924		-50.9%		-50.9%
Deposits – Time>$100,000		347,862		9,733			—		357,595		2.8%		2.8%		347,862		61,880			—		409,742		17.8%		17.8%
Deposits – Time<$100,000		293,342		(8,765	)		—		284,577		-3.0%		-3.0%		293,342		(24,457	)		—		268,885		-8.3%		-8.3%
Total deposits	$	4,406,955		88,753			—		4,495,708		2.0%		2.0%	$	4,406,955		121,418			—		4,528,373		2.8%		2.8%

(1) Includes the acquisition of Asheville Savings Bank on October 1, 2017, which had $606.2 million in loans and $679.1 million in deposits.

(1) Includes the acquisition of Asheville Savings Bank on October 1, 2017, which had $606.2 million in loans and $679.1 million in deposits.

As derived from the table above, for the twelve months preceding ~~March 31,~~September 30, 2018, our total loans increased ~~$824.4~~$760.9 million, or ~~25.1%~~22.2%. The loan growth from acquisitions iswas due to our acquisition of Asheville Savings Bank, which had $606 million on the date of acquisition. ~~Asheville Savings Bank operated through 13 branches in the Asheville region of North Carolina.~~ Internal loan growth was ~~$218.3~~$154.7 million, or ~~6.6%~~4.5%, for the twelve months ended ~~March 31,~~September 30, 2018 and was ~~$71.4~~$148.3 million, or ~~1.8%~~3.7%, for the first ~~three~~nine months of ~~2018.~~2018 (4.9% annualized). Internal loan growth has been driven by our continued expansion into high-growth markets. We expect continued growth in our loan portfolio inthroughout the remainder of 2018.

The mix of our loan portfolio remains substantially the same at ~~March 31,~~September 30, 2018 compared to December 31, 2017. The majority of our real estate loans are personal and commercial loans where real estate provides additional security for the loan. Note 8 to the consolidated financial statements presents additional detailed information regarding our mix of loans.

~~For both the three and twelve month periods ended March 31, 2018, we~~We have also experienced ~~net internal~~ growth in ~~total deposits.~~our deposit balances. Total deposits increased by $877.1 million for the twelve months ended September 30, 2018, an increase of 24.0%. Of that increase, $679 million was assumed in the Asheville Savings Bank acquisition. Internal growth for that same period amounted to $198.0 million, or 5.4%. For ~~these periods, increases~~the nine months ended September 30, 2018, deposit growth amounted to $121.4 million, or 2.8% (3.7% annualized). We have generally experienced higher growth in our transaction ~~deposit account balances~~accounts (checking, money market, and savings) ~~offset the declines in~~compared to time ~~deposits. Due to the low interest rate environment,~~deposits, which we believe is due customers ~~are depositing their funds into~~favoring transaction accounts ~~which do~~due to their higher liquidity and the fact that transaction accounts have not ~~pay a~~been paying materially lower interest ~~rate than~~rates compared to time ~~deposits, while being more liquid. Also impacting the first quarter deposit growth was the receipt~~deposits. However, we have recently seen some of ~~a $41 million~~our customers with larger balances transfer funds from their money market ~~deposit that is expected to be transferred outside the Company in the second quarter of 2018. We also experienced net growth from acquisitions, primarily due~~accounts to the ~~Asheville Savings Bank acquisition. We acquired $679 million in deposits from the Asheville Savings Bank acquisition, and of that amount, $546 million were in the transaction~~time deposit ~~categories.~~> $100,000 category to attain higher interest rates.

Our overall liquidity increased ~~slightly~~ since ~~March 31,~~September 30, 2017. Our liquid assets (cash and securities) as a percentage of our total deposits and borrowings increased from ~~19.2%~~18.1% at ~~March 31,~~September 30, 2017 to ~~20.0%~~19.6% at ~~March 31,~~September 30, 2018. Brokered deposits and borrowings as a percent of overall funding remained substantially unchanged among the periods presented.

Nonperforming assets include nonaccrual loans, troubled debt restructurings, 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, 2018			As of/for the quarter ended December 31, 2017		As of/for the quarter ended March 31, 2017		As of/for the quarter ended September 30, 2018		As of/for the quarter ended December 31, 2017		As of/for the quarter ended September 30, 2017

Nonperforming assets
Nonaccrual loans	$	21,849			20,968		25,684	$	18,267		20,968		23,350
Restructured loans – accruing		18,495			19,834		21,559		16,657		19,834		20,330
Accruing loans >90 days past due		—			—		—		—		—		—
Total nonperforming loans		40,344			40,802		47,243		34,924		40,802		43,680
Foreclosed real estate		11,307			12,571		12,789		6,140		12,571		9,356
Total nonperforming assets	$	51,651			53,373		60,032	$	41,064		53,373		53,036

Purchased credit impaired loans not included above (1)	$	22,147			23,165		19,167	$	20,189		23,165		15,034

Asset Quality Ratios – All Assets
Net charge-offs to average loans - annualized		(0.36%	)		0.13%		0.13%
Net charge-offs to average loans – annualized									0.27%		0.13%		(0.07%	)
Nonperforming loans to total loans		0.98%			1.01%		1.44%		0.83%		1.01%		1.27%
Nonperforming assets to total assets		0.92%			0.96%		1.35%		0.72%		0.96%		1.16%
Allowance for loan losses to total loans		0.57%			0.58%		0.72%		0.49%		0.58%		0.72%
Allowance for loan losses + unaccreted discount to total loans		1.20%			1.24%		1.29%		1.07%		1.24%		1.21%
Allowance for loan losses to nonperforming loans		57.75%			57.10%		49.84%		58.83%		57.10%		56.30%

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 losses discussed below.

Consistent with the weak economy experienced in much of our market associated with the onset of the recession in 2008, we experienced higher levels of loan losses, delinquencies and nonperforming assets compared to our historical averages. In recent years, economic conditions have improved and our asset quality has steadily improved.

As noted in the table above, at ~~March 31,~~September 30, 2018, total nonaccrual loans amounted to ~~$21.8~~$18.3 million, compared to $21.0 million at December 31, 2017 and ~~$25.7~~$23.4 million at ~~March 31,~~September 30, 2017. Nonaccrual loans have generally declined in recent years as our local economies have improved, and we continue to focus on resolving our problem assets. Also, in the third quarter of 2018, we completed a loan sale of approximately $5.2 million in smaller balance nonperforming loans.

The following is the composition, by loan type, of all of our nonaccrual loans at each period end:

“Restructured loans – accruing”, or troubled debt restructurings (“TDRs”), are accruing loans for which we have granted concessions to the borrower as a result of the borrower’s financial difficulties.A~~t March 31,~~ At September 30, 2018, total accruing TDRs amounted to ~~$18.5~~$16.7 million, compared to $19.8 million at December 31, 2017 and ~~$21.6~~$20.3 million at ~~March 31,~~September 30, 2017.

Foreclosed real estate includes primarily foreclosed properties. Total foreclosed real estate amounted to ~~$11.3~~$6.1 million at ~~March 31,~~September 30, 2018, $12.6 million at December 31, 2017, and ~~$12.8~~$9.4 million at ~~March 31,~~September 30, 2017. Our foreclosed property balances have generally been decreasing as a result of sales activity during the periods and the improvement in our overall asset quality. In the fourth quarter of 2017, we acquired Asheville Savings Bank and assumed ~~$3.9~~approximately $3 million of foreclosed real estate in this transaction.

~~The following is the composition, by loan type, of all of our nonaccrual loans at each period end~~

The table above indicated decreases in most categories of nonaccrual loans. The decreases reflect stabilization in most of our market areas and our increased focus on the resolution of our nonperforming assets.

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

($ in thousands)	At March 31, 2018		At December 31, 2017		At March 31, 2017		At September 30, 2018		At December 31, 2017		At September 30, 2017
Vacant land	$	2,852		6,032		4,977	$	2,113		6,032		3,617
1-4 family residential properties		3,710		4,229		4,864		2,446		4,229		3,257
Commercial real estate		4,745		2,310		2,948		1,581		2,310		2,482
Total foreclosed real estate	$	11,307		12,571		12,789	$	6,140		12,571		9,356

The following table presents geographical information regarding our nonperforming assets at ~~March 31,~~September 30, 2018.

	As of March 31, 2018										As of September 30, 2018
($ in thousands)	Total Nonperforming Loans		Total Loans		Nonperforming Loans to Total Loans		Total Foreclosed Real Estate		($ in thousands)		Total Nonperforming Loans	Total Loans	Nonperforming Loans to Total Loans	Total Foreclosed Real Estate

Region (1)									Region (1)
Eastern Region (NC)	$	10,669		837,000		1.3%		365		$	11,912	883,000	1.3%	259
Triangle Region (NC)		11,316		872,000		1.3%		1,647			8,193	889,000	0.9%	984
Triad Region (NC)		7,981		924,000		0.9%		1,670			6,562	888,000	0.7%	909
Charlotte Region (NC)		1,203		271,000		0.4%		275			872	294,000	0.3%	233
Southern Piedmont Region (NC)		6,563		286,000		2.3%		1,179			5,158	264,000	2.0%	819
Western Region (NC)		256		683,000		0.0%		4,218			320	690,000	0.0%	1,233
South Carolina Region		1,970		135,000		1.5%		596			1,458	148,000	1.0%	661
Former Virginia Region		357		2,000		17.9%		1,357			—	2,000	0.0%	1,042
Other		29		104,000		0.0%		—			449	133,000	0.3%	—
Total	$	40,344		4,114,000		1.0%		11,307		$	34,924	4,191,000	0.8%	6,140

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

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

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

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

Other includes loans originated on a national basis through the Company’s SBA Lending Division

The allowance for loan losses is created by direct charges to operations (known as a “provision for loan losses” for the period in which the charge is taken). Losses on loans are charged against the allowance in the period in which such loans, in management’s opinion, become uncollectible. The recoveries realized during the period are credited to this allowance.

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.

The factors that influence management’s judgment in determining the amount charged to operating expense include recent loan loss experience, composition of the loan portfolio, evaluation of probable inherent losses and current economic conditions.

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

We recorded a negative provision for loan losses (reduction of the allowance for loan losses) of ~~$3.7~~$4.3 million in the first ~~quarter~~nine months of 2018, compared to a provision for loan losses of $0.7 million in the first ~~quarter~~nine months of 2017.

The provision for loan losses that we record is driven by an allowance for loan loss mathematical ~~model. The~~model, with the primary factors impacting this model ~~are~~being loan growth, asset quality trends, and net charge-off history. The net charge-off history component incorporates our net charge-offs experienced in the most recent years. Thus, older periods systematically age out and ~~asset quality trends. Organic~~are excluded from the analysis as time goes on. In most recent quarters, the new periods have had significantly lower net charge-offs (and net recoveries in some periods) than the older periods rolling out of the model. This has resulted in a lower required amount of allowance for loan ~~growth was relatively similar~~losses in our modeling. The low level of net-charge offs (or net recoveries) experienced over the past two years has been the primary reason for the ~~first three months of 2018 compared to the first three months of 2017, amounting to $71.4 million and $81.3 million~~low (or negative) provisions for ~~those periods respectively.~~ loan losses recorded.

As it relates to asset quality trends, as shown in a table within Note 8 to the consolidated financial statements, our total classified and nonaccrual loans remained stable at $79-80 million at December 31, 2017 and March 31, 2018. The largest driver of the changediscussed previously, in the ~~provisions recorded in the first quarters of 2018 and 2017 was the net loan recoveries recorded during the first~~third quarter ~~of 2018. During the first three months~~ of 2018, we ~~recorded $3.7~~completed a loan sale of approximately $5.2 million in ~~net recoveries, compared to $1.0 million~~smaller balance nonperforming loans that resulted in ~~net~~ charge-offs ~~for the same period~~ of ~~2017.~~$2.2 million.

The allowance for loan losses amounted to ~~$23.3~~$20.5 million at ~~March 31,~~September 30, 2018, compared to $23.3 million at December 31, 2017 and ~~$23.5~~$24.6 million at ~~March 31,~~September 30, 2017. The ratio of our allowance to total loans has declined from 0.72% at ~~March 31,~~September 30, 2017 to ~~0.57%~~0.49% at ~~March 31,~~September 30, 2018 as a result of the factors discussed above that impacted our provision for loan losses, as well as applicable accounting guidance that does not allow us to record an allowance for loan losses upon the acquisition of loans. Instead acquired loans are recorded at their discounted fair value, which includes the consideration of any expected losses. No allowance for loan losses is recorded for the acquired loans until the expected credit losses exceed the remaining unamortized discounts – based on an individual basis for purchased credit impaired loans and on a pooled basis for performing acquired loans. See Critical Accounting Policies above for further discussion. Unaccreted discount, which is available to absorb loan losses, amounted to ~~$26.2~~$24.3 million, $26.9 million, and ~~$19.6~~$16.9 million at ~~March 31,~~September 30, 2018, December 31, 2017, and ~~March 31,~~September 30, 2017, respectively. The ratio of allowance for loan losses plus unaccreted discount was ~~1.20%~~1.07%, 1.24%, and ~~1.29%~~1.21% at ~~March 31,~~September 30, 2018, December 31, 2017, and ~~March 31,~~September 30, 2017, respectively.

We continue to assess loans that may have been impacted by Hurricane Florence and Hurricane Michael. To date, we believe that any losses will not require a significant provision for loan losses.

We believe our reserve levels are adequate to cover probable loan losses on the loans outstanding as of each reporting date. It must be emphasized, however, that the determination of the reserve 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 losses or future charges to earnings. See “Critical Accounting Policies – Allowance for Loan Losses” above.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan 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.

Based on the results of our loan analysis and grading program and our evaluation of the allowance for loan losses at ~~March 31,~~September 30, 2018, there have been no material changes to the allocation of the allowance for loan losses among the various categories of loans since December 31, 2017.

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.

In addition to internally generated liquidity sources, we have the ability to obtain borrowings from the following three sources - 1) an approximately ~~$911 million~~$1.0 billion line of credit with the Federal Home Loan Bank (of which $353 million was outstanding at ~~March 31,~~September 30, 2018 and $354 million was outstanding at December 31, 2017), 2) a $35 million federal funds line with a correspondent bank (of which none was outstanding at ~~March 31,~~September 30, 2018 or December 31, 2017), and 3) an approximately ~~$93~~$136 million line of credit through the Federal Reserve Bank of Richmond’s discount window (of which none was outstanding at ~~March 31,~~September 30, 2018 or December 31, 2017). In addition to the outstanding borrowings from the FHLB that reduce the available borrowing capacity of that line of credit, our borrowing capacity was reduced by $190 million at ~~March 31,~~September 30, 2018 and $198 million at December 31, 2017, as a result of our pledging letters of credit for public deposits at each of those dates. Unused and available lines of credit amounted to ~~$496~~$657 million at ~~March 31,~~September 30, 2018 compared to $528 million at December 31, 2017.

Our overall liquidity increased since ~~March 31,~~September 30, 2017. Our liquid assets (cash and securities) as a percentage of our total deposits and borrowings increased from ~~19.2%~~18.1% at ~~March 31,~~September 30, 2017 to ~~20.0%~~19.6% at ~~March 31,~~September 30, 2018.

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, 2017, detail of which is presented in Table 18 on page 82 of our 2017 Annual Report on Form 10-K.

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 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.

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,~~September 30, 2018, and have no current plans to do so.

The Company is regulated by the Board of Governors of the Federal Reserve Board (“Federal Reserve”) and is subject to the securities registration and public reporting regulations of the Securities and Exchange Commission. Our banking subsidiary, First Bank, is also regulated by the North Carolina Office of the Commissioner of Banks. 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.

We must comply with regulatory capital requirements established by the Federal Reserve. Failure to 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. Under 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 allowance for loan losses. Risk-weighted assets refer to our on- and off-balance sheet exposures, adjusted for their related risk levels using formulas set forth in Federal Reserve regulations.

The capital conservation buffer requirement began to be phased in on January 1, 2016, at 0.625% of risk weighted assets, and will increase each year until fully implemented at 2.5% in 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 Federal Reserve has not advised us of any requirement specifically applicable to us.

At ~~March 31,~~September 30, 2018, our capital ratios exceeded the regulatory minimum ratios discussed above. The following table presents our capital ratios and the regulatory minimums discussed above for the periods indicated.

	March 31, 2018		December 31, 2017		March 31, 2017		September 30, 2018		December 31, 2017		September 30, 2017

Risk-based capital ratios:
Common equity Tier 1 to Tier 1 risk weighted assets		11.01%		10.72%		10.33%		11.97%		10.72%		10.30%
Minimum required Common equity Tier 1 capital		6.375%		5.75%		5.75%		6.375%		5.75%		5.75%

Tier I capital to Tier 1 risk weighted assets		12.23%		11.94%		11.85%		13.18%		11.94%		11.74%
Minimum required Tier 1 capital		7.875%		7.25%		7.25%		7.875%		7.25%		7.25%

Total risk-based capital to Tier II risk weighted assets		12.78%		12.50%		12.56%		13.68%		12.50%		12.44%
Minimum required total risk-based capital		9.875%		9.25%		9.25%		9.875%		9.25%		9.25%

Leverage capital ratios:
Tier 1 capital to quarterly average total assets		9.88%		9.58%		11.05%		10.34%		9.58%		9.72%
Minimum required Tier 1 leverage capital		4.00%		4.00%		4.00%		4.00%		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,~~September 30, 2018, First Bank significantly exceeded the minimum ratios established by the regulatory authorities.

In addition to regulatory capital ratios, we also closely monitor our ratio of tangible common equity to tangible assets (“TCE Ratio”). Our TCE ratio was ~~8.35%~~8.95% at ~~March 31,~~September 30, 2018 compared to 8.23% at December 31, 2017 and ~~7.79%~~7.95% at ~~March 31,~~September 30, 2017.

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

We did not repurchase any shares of our common stock during the first ~~three~~nine months of 2018. At ~~March 31,~~September 30, 2018, we had approximately 214,000 shares available for repurchase under existing authority from our board of directors. We may repurchase these shares 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.”

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

Net interest income is our most significant component of earnings. Notwithstanding 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. Our exposure to interest rate risk is analyzed on a regular basis by management using standard GAP reports, 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). Over the past five calendar years, our net interest margin has ranged from a low of 4.03% (realized in 2016) to a high of 4.92% (realized in 2013). Up until the end of 2015, the prime rate of interest had remained at 3.25% since 2008. In response to Federal Reserve actions, the prime rate increased to 3.50% on December 31, 2015 and to 3.75% on December 15, 2016. In 2017 and 2018, ~~the~~ Federal Reserve actions steadily increased the prime rate ~~four~~six additional times, up to ~~4.75% (the~~5.25%, which was the rate at ~~March 31, 2018).~~September 30, 2018. The consistency of ~~the~~our net interest margin is aided by the relatively low level of long-term interest rate exposure that we maintain. At ~~March 31,~~September 30, 2018, approximately 77% of our interest-earning assets were 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.

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,~~September 30, 2018, we had $1.3 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 at ~~March 31,~~September 30, 2018 are deposits totaling ~~$2.4~~$2.3 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 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 six months), this 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. However, in the twelve-month horizon, the impact of having a higher level of interest-sensitive liabilities lessens the short-term effects of changes in interest rates.

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. As a result of the prolonged negative/fragile economic environment, the Federal Reserve took steps to suppress long-term interest rates in an effort to boost the housing market, increase employment, and stimulate the economy, which resulted in a flat interest rate curve. A flat interest rate curve is an unfavorable interest rate environment for many banks, including the Company, 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 somewhat, it currently remains relatively flat. This flat yield curve and the intense competition for high-quality loans in our market areas have limited our ability to charge higher rates on loans, and thus we continue to experience challenges in increasing our loan yields and net interest margin.

As it relates to deposits, the Federal Reserve made no changes to the short term interest rates it sets directly from 2008 until mid-December 2015, and since that time we ~~have been~~were able to reprice many of our maturing time deposits at lower interest rates. We were also able to generally decrease the rates we paid on other categories of deposits as a result of declining short-term interest rates in the marketplace and an increase in liquidity that lessened our need to offer premium interest rates. However, as our average funding rate approached zero several years ago, meaningful further declines were not possible. Thus far, the ~~six~~eight interest rate increases initiated by the Federal Reserve over the past few years have not resulted in significant competitive pressure to increase deposit ~~rates.~~rates, although we are choosing to pay higher rates to price-sensitive customers in certain situations.

As previously discussed in the section “Net Interest Income,” our net interest income has been impacted by certain purchase accounting adjustments related to 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, which amounted to ~~$2.1~~$6.0 million and ~~$1.4~~$5.1 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 and 2017, respectively, is less predictable and could be materially different among periods. This is because of the magnitude of the discounts that were 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 remaining discount will cease to be accreted into income. If 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 difficult to predict and susceptible to volatility. The remaining loan discount on acquired accruing loans amounted to ~~$26.2~~$24.3 million at ~~March 31,~~September 30, 2018.

Based on our most recent interest rate modeling, which assumes ~~two additional interest rate~~steady increases ~~for~~by the ~~remainder of 2018 (federal funds rate = 2.25%, prime = 5.25%),~~Federal Reserve over the next twelve months, we project that our net interest margin will likely remain fairly stable ~~for the remainder of the year.~~during that period. We expect asset yields to increase, and we also expect that we will experience pressure to increase our deposit rates.

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 net interest margin in the section entitled “Net Interest Income” above.

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 Securities and Exchange Commission (“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.

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.

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, 2017, 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.

During the three months ended ~~March 31,~~September 30, 2018, there were no unregistered sales of the Company’s securities.

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 (*).

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

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.

North Carolina		56-1421916
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

300 SW Broad St., Southern Pines, North Carolina		28387
(Address of Principal Executive Offices)		~~(Zip~~(Zip Code)

(Registrant's telephone number, including area code)		(910) 246-2500


	Page

Part I. Financial Information

Item 1 - Financial Statements

Consolidated Balance Sheets - ~~March 31,~~September 30, 2018 and ~~March 31,~~September 30, 2017 (With Comparative Amounts at December 31, 2017)	4

Consolidated Statements of Income - For the Periods Ended ~~March 31,~~September 30, 2018 and 2017	5

Consolidated Statements of Comprehensive Income - For the Periods Ended ~~March 31,~~September 30, 2018 and 2017	6

Consolidated Statements of Shareholders’ Equity - For the Periods Ended ~~March 31,~~September 30, 2018 and 2017	7

Consolidated Statements of Cash Flows - For the Periods Ended ~~March 31,~~September 30, 2018 and 2017	8

Notes to Consolidated Financial Statements	9

Item 2 – Management’s Discussion and Analysis of Consolidated Results of Operations and Financial Condition	3740

Item 3 – Quantitative and Qualitative Disclosures About Market Risk	5356

Item 4 – Controls and Procedures	5558

Part II. Other Information

Item 1 – Legal Proceedings	5558

Item 1A – Risk Factors	5658

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	5659

Item 6 – Exhibits	5659

Signatures	5861

($ in thousands)	As Recorded by Carolina Bank			Initial Fair Value Adjustments			Measurement Period Adjustments			As Recorded by First Bancorp
Assets
Cash and cash equivalents	$	81,466			(2	) (a)		—			81,464
Securities		49,629			(261	) (b)		—			49,368
Loans, gross		505,560			(5,469	) (c)		146	(l)		497,522
					(2,715	) (d)		—
Allowance for loan losses		(5,746	)		5,746	(e)		—			̶
Premises and equipment		17,967			4,251	(f)		(319	) (m)		21,899
Core deposit intangible		—			8,790	(g)		—			8,790
Other		34,976			(4,804	) (h)		2,225	(n)		32,397
Total		683,852			5,536			2,052			691,440

Liabilities
Deposits	$	584,950			431	(i)		—			585,381
Borrowings		21,855			(2,855	) (j)		(262	) (o)		18,738
Other		12,855			225	(k)		(444	) (p)		12,636
Total		619,660			(2,199	)		(706	)		616,755

Net identifiable assets acquired											74,685

Total cost of acquisition
Value of stock issued				$	114,478
Cash paid in the acquisition					25,279
Total cost of acquisition											139,757

Goodwill recorded related to acquisition of Carolina Bank										$	65,072

	Long-Term Restricted Stock
	Number of Units		Weighted-Average Grant-Date Fair Value

Nonvested at January 1, 2018		103,063	$	24.08

Granted during the period		13,485		35.29
Vested during the period		—		—
Forfeited or expired during the period		—		—

Nonvested at March 31, 2018		116,548	$	25.37

	Long-Term Restricted Stock
	Number of Units			Weighted-Average Grant-Date Fair Value

Nonvested at January 1, 2018		103,063		$	24.08

Granted during the period		66,060			40.04
Vested during the period		(16,533	)		17.31
Forfeited or expired during the period		(2,977	)		25.21

Nonvested at September 30, 2018		149,613		$	31.85

	For the Nine Months Ended September 30,
	2018						2017
($ in thousands except per share amounts)	Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount		Income (Numer- ator)		Shares (Denom- inator)		Per Share Amount

Basic EPS
Net income available to common shareholders	$	65,394		29,536,273	$	2.21	$	31,795		23,728,262	$	1.34

Effect of Dilutive Securities		—		102,853				—		98,749

Diluted EPS per common share	$	65,394		29,639,126	$	2.21	$	31,795		23,827,011	$	1.33

($ in thousands)	Carolina Bank Acquisition on March 3, 2017
Contractually required payments	$	27,108
Nonaccretable difference		(4,237	)
Cash flows expected to be collected at acquisition		22,871
Accretable yield		(3,617	)
Fair value of PCI loans at acquisition date	$	19,254

($ in thousands)	Asheville Savings Bank Acquisition on October 1, 2017
Contractually required payments	$	13,424
Nonaccretable difference		(1,734	)
Cash flows expected to be collected at acquisition		11,690
Accretable yield		(1,804	)
Fair value of PCI loans at acquisition date	$	9,886

($ 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	$	89		151		—		1,001		379,241		380,482
Real estate – construction, land development & other land loans		1,154		214		—		1,822		535,423		538,613
Real estate – mortgage – residential (1-4 family) first mortgages		6,777		1,370		—		12,201		943,565		963,913
Real estate – mortgage – home equity loans / lines of credit		1,347		10		—		2,524		375,814		379,695
Real estate – mortgage – commercial and other		1,270		451		—		3,345		1,678,529		1,683,595
Installment loans to individuals		445		95		—		75		73,277		73,892
Purchased credit impaired		821		77		601		—		21,666		23,165
Total	$	11,903		2,368		601		20,968		4,007,515		4,043,355
Unamortized net deferred loan fees												(986	)
Total loans											$	4,042,369

	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.

($ in thousands)	For nine months ended September 30, 2018						For the nine months ended September 30, 2017
	Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances		Number of Contracts		Pre- Modification Restructured Balances		Post- Modification Restructured Balances
TDRs – Accruing
Commercial, financial, and agricultural		—	$	—	$	—		—	$	—	$	—
Real estate – construction, land development & other land loans		—		—		—		—		—		—
Real estate – mortgage – residential (1-4 family) first mortgages		1		18		18		—		—		—
Real estate – mortgage – home equity loans / lines of credit		—		—		—		—		—		—
Real estate – mortgage – commercial and other		—		—		—		6		4,120		4,095
Installment loans to individuals		—		—		—		—		—		—

TDRs – Nonaccrual
Commercial, financial, and agricultural		—		—		—		1		38		25
Real estate – construction, land development & other land loans		1		61		61		1		32		32
Real estate – mortgage – residential (1-4 family) first mortgages		2		254		264		2		262		262
Real estate – mortgage – home equity loans / lines of credit		—		—		—		—		—		—
Real estate – mortgage – commercial and other		—		—		—		—		—		—
Installment loans to individuals		—		—		—		—		—		—

Total TDRs arising during period		4	$	333	$	343		10	$	4,452	$	4,414

($ in thousands)
Description of Financial Instruments	Fair Value at December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring
Securities available for sale:
Government-sponsored enterprise securities	$	13,867		—		13,867		—
Mortgage-backed securities		295,213		—		295,213		—
Corporate bonds		34,190		—		34,190		—
Total available for sale securities	$	343,270		—		343,270		—

Nonrecurring
Impaired loans	$	14,086		—		—		14,086
Foreclosed real estate		12,571		—		—		12,571

	Nine Months Ended September 30,
($ in thousands)	2018		2017
Net interest income, as reported	$	153,584		115,851
Tax-equivalent adjustment		1,151		1,979
Net interest income, tax-equivalent	$	154,735		117,830

($ in thousands)	At September 30, 2018		At December 31, 2017		At September 30, 2017
Commercial, financial, and agricultural	$	2,092		1,001		996
Real estate – construction, land development, and other land loans		651		1,822		1,565
Real estate – mortgage – residential (1-4 family) first mortgages		8,807		12,201		14,878
Real estate – mortgage – home equity loans/lines of credit		1,419		2,524		2,250
Real estate – mortgage – commercial and other		5,178		3,345		3,534
Installment loans to individuals		120		75		127
Total nonaccrual loans	$	18,267		20,968		23,350

($ in thousands)	At March 31, 2018		At December 31, 2017		At March 31, 2017
Commercial, financial, and agricultural	$	801		1,001		1,368
Real estate – construction, land development, and other land loans		1,766		1,822		1,607
Real estate – mortgage – residential (1-4 family) first mortgages		12,073		12,201		15,833
Real estate – mortgage – home equity loans/lines of credit		1,980		2,524		2,238
Real estate – mortgage – commercial and other		5,119		3,345		4,577
Installment loans to individuals		110		75		61
Total nonaccrual loans	$	21,849		20,968		25,684

($ in thousands)	Three Months Ended March 31,			Twelve Months Ended December 31,			Three Months Ended March 31,
	2018			2017			2017
Loans outstanding at end of period	$	4,113,785			4,042,369			3,289,355
Average amount of loans outstanding	$	4,099,495			3,420,939			2,903,279

Allowance for loan losses, at beginning of year	$	23,298			23,781			23,781
Provision (reversal) for loan losses		(3,659	)		723			723
		19,639			24,504			24,504
Loans charged off:
Commercial, financial, and agricultural		(239	)		(1,622	)		(267	)
Real estate – construction, land development & other land loans		(2	)		(589	)		(176	)
Real estate – mortgage – residential (1-4 family) first mortgages		(243	)		(2,641	)		(894	)
Real estate – mortgage – home equity loans / lines of credit		(176	)		(978	)		(231	)
Real estate – mortgage – commercial and other		(41	)		(1,182	)		(326	)
Installment loans to individuals		(118	)		(799	)		(311	)
Total charge-offs		(819	)		(7,811	)		(2,205	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		499			1,311			274
Real estate – construction, land development & other land loans		3,046			2,579			491
Real estate – mortgage – residential (1-4 family) first mortgages		145			1,076			196
Real estate – mortgage – home equity loans / lines of credit		153			333			64
Real estate – mortgage – commercial and other		582			1,027			142
Installment loans to individuals		53			279			80
Total recoveries		4,478			6,605			1,247
Net recoveries (charge-offs)		3,659			(1,206	)		(958	)
Allowance for loan losses, at end of period	$	23,298			23,298			23,546

Ratios:
Net charge-offs as a percent of average loans (annualized)		(0.36%	)		0.04%			0.13%
Allowance for loan losses as a percent of loans at end of period		0.57%			0.58%			0.72%
Allowance for loan losses + unaccreted discount as a percent of loans		1.20%			1.24%			1.29%

($ in thousands)	Nine Months Ended September 30,			Twelve Months Ended December 31,			Nine Months Ended September 30,
	2018			2017			2017
Loans outstanding at end of period	$	4,190,628			4,042,369			3,429,755
Average amount of loans outstanding	$	4,141,645			3,420,939			3,211,844

Allowance for loan losses, at beginning of year	$	23,298			23,781			23,781
Provision (reversal) for loan losses		(4,282	)		723			723
		19,016			24,504			24,504
Loans charged off:
Commercial, financial, and agricultural		(1,542	)		(1,622	)		(1,335	)
Real estate – construction, land development & other land loans		(158	)		(589	)		(312	)
Real estate – mortgage – residential (1-4 family) first mortgages		(1,598	)		(2,641	)		(1,746	)
Real estate – mortgage – home equity loans / lines of credit		(378	)		(978	)		(791	)
Real estate – mortgage – commercial and other		(1,398	)		(1,182	)		(573	)
Installment loans to individuals		(494	)		(799	)		(521	)
Total charge-offs		(5,568	)		(7,811	)		(5,278	)
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural		971			1,311			848
Real estate – construction, land development & other land loans		3,568			2,579			2,280
Real estate – mortgage – residential (1-4 family) first mortgages		671			1,076			806
Real estate – mortgage – home equity loans / lines of credit		294			333			250
Real estate – mortgage – commercial and other		1,333			1,027			973
Installment loans to individuals		261			279			210
Total recoveries		7,098			6,605			5,367
Net recoveries (charge-offs)		1,530			(1,206	)		89
Allowance for loan losses, at end of period	$	20,546			23,298			24,593

Ratios:
Net charge-offs (recoveries) as a percent of average loans (annualized)		(0.05%	)		0.04%			0.00%
Allowance for loan losses as a percent of loans at end of period		0.49%			0.58%			0.72%
Allowance for loan losses + unaccreted discount as a percent of loans		1.07%			1.24%			1.21%

Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased (2)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
~~January~~July 1, 2018 to ~~January~~July 31, ~~2018~~	—		—		—		~~214,241~~
~~February 1, 2018 to February 28,~~ 2018		—		—		—		214,241
~~March~~August 1, 2018 to ~~March~~August 31, 2018		—		—		—		214,241
September 1, 2018 to September 30, 2018		—		—		—		214,241
Total		—		—		—		214,241



		FIRST BANCORP


	~~May 10,~~November 9, 2018	BY:/s/ Richard H. Moore
		Richard H. Moore
		Chief Executive Officer
		(Principal Executive Officer),
		and Director



	~~May 10,~~November 9, 2018	BY:/s/ Eric P. Credle
		Eric P. Credle
		Executive Vice President
		and Chief Financial Officer