UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

2020

Commission File Number 0-15572

FIRST BANCORP

(Exact Name of Registrant as Specified in its Charter)

North Carolina56-1421916
North Carolina56-1421916
(State or Other Jurisdiction of Incorporation)Incorporation or Organization)(I.R.S. Employer Identification Number)
300 SW Broad Street, St.,Southern Pines,North Carolina28387
(Address of Principal Executive Offices)(Zip Code)
Registrant’s(Registrant's telephone number, including area code:code)(910)246-2500
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, No Par ValueFBNCThe Nasdaq Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.xYES      oNO

☒ Yes       ☐ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.oYES      xNO

☐ Yes       ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 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.xYES      oNO

☒ Yes       ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).xYES      oNO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to the Form 10-K.o

☒ Yes       ☐ No

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

x

☒Large Accelerated Filer       o☐Accelerated Filer       o☐Non-Accelerated Filer

o

☐Smaller Reporting Company       o☐Emerging growth company

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

☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.     ☒

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

☐ Yes       ☒ No

The aggregate market value of the Common Stock, no par value, held by non-affiliates of the registrant, based on the closing price of the Common Stock as of June 30, 20182020 as reported by The NASDAQ Global Select Market, was approximately $1,188,000,000.

$711,100,000.

The number of shares of the registrant’s Common Stock outstanding on February 28, 201926, 2021 was 29,723,682.

28,492,779.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement to be filed pursuant to Regulation 14A are incorporated herein by reference into Part III.

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TABLE OF CONTENTS

Begins on
Page(s)
Forward-Looking Statements5Page
PART I
5
4
20
17
30
27
30
27
30
27
30
27
PART II
31, 63
27
33, 63
29
29
34
Overview – 2017 Compared to 201636
Outlook for 201937
Critical Accounting Policies38
Merger and Acquisition Activity40
FDIC Indemnification Asset41
Statistical Information
Net Interest Income41, 64
Provision for Loan Losses43, 74
Noninterest Income44, 65
Noninterest Expenses45, 66
Income Taxes46, 66
Stock-Based Compensation47
Distribution of Assets and Liabilities49, 67
Securities49, 67
Loans51, 69
Nonperforming Assets52, 71
Allowance for Loan Losses and Loan Loss Experience53, 73
Deposits55, 75
Borrowings56
Liquidity, Commitments, and Contingencies57, 77
Capital Resources and Shareholders’ Equity58, 79
Off-Balance Sheet Arrangements and Derivative Financial Instruments59
Return on Assets and Equity60, 78
Interest Rate Risk (Including Quantitative and Qualitative Disclosures about Market Risk)60, 76
Inflation62
Current Accounting Matters62
Item 7A62
59
81
78
82
79
83
80
84
81
85

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82

Begins on
Page(s)
86
83
141
Selected Consolidated Financial Data63
Quarterly Financial Summary80
Item 9144
140
144
140
145
140
PART III
145
141
145
141
145
141
146
141
146
141
PART IV
146
142
Item 16
144
SIGNATURES149

*
SIGNATURES
Information called for by Part III (Items 10 through 14) is incorporated herein by reference to the Registrant’s definitive Proxy Statement for the 2019 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2019.
145

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*    Information called for by Part III (Items 10 through 14) is incorporated herein by reference to the Registrant’s definitive Proxy Statement for the 2021 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission on or before April 30, 2021.
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Table of Contents

FORWARD-LOOKING STATEMENTS

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 judgmentjudgments 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” section in Item 1A of this report.

PART I

Item 1. Business

General Description

First Bancorp (the “Company”) is the fourthfifth largest bank holding company headquartered in North Carolina.  At December 31, 2018,2020, the Company had total consolidated assets of $5.9$7.3 billion, total loans of $4.2$4.7 billion, total deposits of $4.7$6.3 billion, and shareholders’ equity of $0.8$0.9 billion.  Our principal activity is the ownership and operation of First Bank (the “Bank”), a state-chartered bank with its main office in Southern Pines, North Carolina. 

The Company was incorporated in North Carolina on December 8, 1983, as Montgomery Bancorp, for the purpose of acquiring 100% of the outstanding common stock of the Bank through a stock-for-stock exchange. On December 31, 1986, the Company changed its name to First Bancorp to conform its name to the name of the Bank, which had changed its name from Bank of Montgomery to First Bank in 1985.

The Bank was organized in 1934 and began banking operations in 1935 as the Bank of Montgomery, named for the county in which it operated. Until September 2013, the Bank’s main office was in Troy, North Carolina, located in the center of Montgomery County. In September 2013, the Company and the Bank moved their main offices approximately 45 miles to Southern Pines, North Carolina, in Moore County. As of December 31, 2018,2020, we conducted business from 101 branches covering a geographical area from Florence, South Carolina to the south, to Wilmington, North Carolina to the east, to Kill Devil Hills, North Carolina to the northeast, to Mayodan, North Carolina to the north, and to Asheville, North Carolina to the west. Of the Bank’s 101 branches, 95 branches are in North Carolina and six branches are in South Carolina. Ranked by assets, the Bank was the fourthfifth largest bank headquartered in North Carolina as of December 31, 20182020 and the only one of two banks with total assets between $4 billion and $35$45 billion.

As of December 31, 2018,2020, the Bank had threefour wholly owned subsidiaries, First Bank Insurance Services, Inc. (“First Bank Insurance”), SBA Complete, Inc. (“SBA Complete”), Magnolia Financial, Inc. ("Magnolia Financial"), and First Troy SPE, LLC. First Bank Insurance’s primary business activity is the placement of property and casualty insurance coverage. SBA Complete specializes in providing consulting services for financial institutions across the country related to Small Business Administration (“SBA”) loan origination and servicing. Magnolia Financial is a business financing company that offers accounts receivable financing and factoring, inventory financing, and purchase order financing throughout the southeastern United States. First Troy SPE, LLC, which was organized in December 2009, is a holding entity for certain foreclosed properties.

Our principal executive offices are located at 300 SW Broad Street, Southern Pines, North Carolina, 28387, and our telephone number is (910) 246-2500. Unless the context requires otherwise, references to the “Company,” “we,” “our,” or “us” in this annual reportAnnual Report on Form 10-K shall mean collectively First Bancorp and its consolidated subsidiaries.

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General Business

We engage in a full range of banking activities, with the acceptance of deposits and the making of loans being our most basic activities. We offer deposit products such as checking, savings, and money market accounts, as well as time deposits, including various types of certificates of deposits (“CDs”) and individual retirement accounts (“IRAs”). We provide loans for a wide range of consumer and commercial purposes, including loans for business, real estate, personal uses, home improvement and automobiles. We offer residential mortgages through our Mortgage Banking Division, and we offer SBA loans to small business owners across the nation through our SBA Lending Division. We offer accounts receivable financing and factoring, inventory financing, and purchase order financing through Magnolia Financial. We also offer credit cards, debit cards, letters of credit, safe deposit box rentals and electronic funds transfer services, including wire transfers. In addition, we offer internet banking, mobile banking, cash management and bank-by-phone capabilities to our customers, and are affiliated with ATM networks that give our customers access to thousandshave a fleet of ATMs across our branch network for the country, with no surcharge fee.convenience of our customers. We also offer a mobile check deposit feature for our mobile banking customers that allows them to securely deposit checks via their smartphone. For our business customers, we offer remote deposit capture, which provides them with a method to electronically transmit checks received from customers into their bank account without having to visit a branch. We are a member of the Certificate of Deposit Account Registry Service (“CDARS”), which gives our customers the ability to obtain Federal Deposit Insurance Corporation (“FDIC”) insurance on deposits of up to $50 million, while continuing to work directly with their local First Bank branch.

Because the majority of our customers are individuals and small to medium-sized businesses located in the markets we serve, management does not believe that the loss of a single customer or group of customers would have a material adverse impact on the Bank. There are no seasonal factors that tend to have any material effect on the Bank’s business, and we do not rely on foreign sources of funds or income. Because we operate primarily within North Carolina and northeastern South Carolina, the economic conditions of these areas could have a material impact on the Company. See additional discussion below in the section entitled “Territory Served and Competition.”

We also offer various ancillary services as part of our commitment to customer service. Through First Bank Insurance, we offer the placement of property and casualty insurance. We also offer non-FDIC insured investment and insurance products, including mutual funds, annuities, long-term care insurance, life insurance, and company retirement plans, as well as financial planning services through our investments division called FB Wealth Management Services.

First Bank also offers SBA loans to small business owners throughout the nation, which is supported by First Bank’s subsidiary, SBA Complete. SBA Complete specializes in providing consulting services for financial institutions across the country related to SBA loan origination and servicing.

The Company is also the parent to a series of statutory business trusts organized for the purpose of issuing trust preferred debt securities that qualify as regulatory capital. See additional discussion below in the section entitled “Borrowings.”

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5

Territory Served and Competition

Our headquarters are located in Southern Pines, Moore County, North Carolina, where we have a significant concentration of deposits. At the end of 2018,2020, we served regions spread across North Carolina, with additional operations in northeastern South Carolina. The following table presents, for each county where we operated as of December 31, 2018,2020, the number of bank branches operated by the Bank within the county, the approximate amount of deposits with the Bank in the county as of December 31, 2018,2020, our approximate deposit market share at June 30, 2018,2020, and the number of bank competitors located in the county at June 30, 2018.

County Number of
Branches		 Deposits
(in millions)		 Market
Share		 Number of
Competitors
Alamance, NC 1 $53   2.5%  15
Beaufort, NC 2  66   9.4%  7
Bladen, NC 1  31   10.2%  4
Brunswick, NC 4  187   8.6%  11
Buncombe, NC 8  538   10.3%  16
Cabarrus, NC 2  52   2.0%  11
Carteret, NC 2  52   3.8%  8
Chatham, NC 2  47   6.8%  9
Chesterfield, SC 1  44   10.7%  6
Columbus, NC 2  50   6.2%  5
Cumberland, NC 1  25   0.6%  14
Dare, NC 1  23   1.6%  8
Davidson, NC 2  133   5.0%  10
Dillon, SC 3  65   22.3%  4
Duplin, NC 3  171   21.1%  6
Florence, SC 2  57   2.4%  12
Forsyth, NC 4  61   0.2%  15
Guilford, NC 6  414   4.3%  17
Harnett, NC 3  130   12.8%  9
Henderson, NC 2  66   3.5%  12
Iredell, NC 3  70   2.4%  19
Lee, NC 3  209   23.4%  9
Madison, NC 1  41   41.2%  1
McDowell, NC 1  58   17.4%  5
Mecklenburg, NC 2  51   0.0%  24
Montgomery, NC 2  137   43.5%  2
Moore, NC 10  481   35.7%  9
New Hanover, NC 5  215   2.2%  19
Onslow, NC 2  100   6.8%  10
Pitt, NC 1  22   0.7%  14
Randolph, NC 3  143   9.4%  11
Richmond, NC 1  62   12.6%  5
Robeson, NC 4  204   18.8%  8
Rockingham, NC 1  24   2.4%  10
Rowan, NC 1  58   4.1%  13
Scotland, NC 1  82   22.6%  6
Stanly, NC 4  111   11.2%  6
Transylvania, NC 1  24   4.7%  6
Wake, NC 3  62   0.2%  31
Brokered Deposits —  240       
    Total 101 $4,659       
             

2020.

CountyNumber of
Branches		Deposits
(in millions)		Market
Share		Number of
Competitors
Alamance, NC1$74 2.5 %15
Beaufort, NC2114 15.7 %5
Bladen, NC172 13.5 %4
Brunswick, NC4306 9.8 %10
Buncombe, NC8702 10.2 %16
Cabarrus, NC267 2.1 %10
Carteret, NC291 5.6 %9
Chatham, NC271 8.3 %8
Chesterfield, SC154 11.7 %6
Columbus, NC288 10.4 %5
Cumberland, NC144 0.9 %14
Dare, NC137 2.7 %8
Davidson, NC2184 6.3 %9
Dillon, SC377 21.6 %4
Duplin, NC3214 20.0 %6
Florence, SC280 2.9 %13
Forsyth, NC481 0.8 %16
Guilford, NC6589 4.2 %21
Harnett, NC3159 13.0 %8
Henderson, NC2105 4.3 %10
Iredell, NC286 2.2 %19
Lee, NC3252 24.3 %9
Madison, NC148 44.2 %1
McDowell, NC184 21.8 %4
Mecklenburg, NC284 0.0 %30
Montgomery, NC2148 40.8 %2
Moore, NC10674 32.0 %9
New Hanover, NC5340 2.6 %19
Onslow, NC2133 8.7 %10
Pitt, NC152 1.6 %14
Randolph, NC3221 10.4 %10
Richmond, NC170 13.9 %5
Robeson, NC4253 19.7 %8
Rockingham, NC132 2.5 %9
Rowan, NC186 4.0 %12
Scotland, NC1125 28.6 %5
Stanly, NC4166 13.6 %6
Transylvania, NC132 4.5 %5
Wake, NC4159 0.5 %32
Brokered Deposits—20 
Total101$6,274 
Historically, our branches and facilities have been primarily located in small to medium-sized communities, whose economies are based primarily on a variety of industries, including services and manufacturing. Leading producers of lumber and rugs are located in Montgomery County, North Carolina. The Pinehurst area within Moore County, North Carolina, is a widely known golf resort and retirement area. The High Point, North Carolina area is widely
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known for its furniture market. New Hanover and Brunswick Counties, located in the southeastern coastal region of North Carolina, are popular with tourists and have significant retirement populations. Buncombe County, located in the western region of North Carolina, is a highly diverse area with industries in manufacturing, service, and tourism. Additionally, several of the communities served by the Bank are “bedroom” communities of large cities like Charlotte, Raleigh and Greensboro, while several branches are located in medium-sized cities such as Albemarle, Asheboro, Fayetteville, Greenville, Jacksonville, High Point, Southern Pines, and Sanford.

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Table of Contents

In recent years, we have implemented a branch strategy of expansion into larger, higher growth markets. In 2016, this expansion continued with additional investments in Charlotte, Raleigh and the Triad region of North Carolina. Several seasoned bankers joined the Bank and have led our expansion efforts in these markets. We opened our first full service branch in Charlotte in August 2016, after opening a loan production office there in 2015. In Raleigh, we opened a loan production office early in 2016 and upgraded that location to a full service branch in April 2017. Additionally, in recent years, we opened two new branches in cities just outside of Raleigh and now have four branches in Wake County. In the Triad region, experienced bankers joined us in early 2016 as we opened our first loan production office in Greensboro. Our expansion into higher growth markets was significantly enhanced by three strategic transactions that we implementedoccurred in 2016 and 2017. See discussion below in the section entitled “Mergers and Acquisitions.”

We have three counties that hold significant shares of our deposit base. Buncombe County, the former headquarters of one of our 2017 acquisitions (Asheville Savings Bank), holds 12%11% of our total deposit base. Moore County, the headquarters of the Company, also has total deposits comprising approximately 10%11% of our deposit base, while Guilford County, the former headquarters of another 2017 acquisition (Carolina Bank), also holds 10%9% of our deposit base. Accordingly, material changes in competition, the economy or the population of these counties could materially impact the Company. No other county comprises more than 10% of our deposit base.

We compete in our various market areas with, among others, several large interstate bank holding companies. These large competitors have substantially greater resources than our Company, including broader geographic markets, higher lending limits and the ability to make greater use of large-scale advertising and promotions. A significant number of interstate banking acquisitions have taken place in the past few years, thus further increasing the size and financial resources of some of our competitors, some of which are among the largest bank holding companies in the nation. In many of our markets, we also compete against smaller, local banks. With banks of all sizes attempting to maximize yields on earning assets, especially in the current low interest rate environment, the competition for high-quality loans remains intense. Accordingly, loan rates in our markets continue to be under competitive pressure. Also, with the continued interest rate increases initiated by the Board of Governors of the Federal Reserve System (“Federal Reserve”), the competitive pressure on increasing rates on deposits has intensified. Many of the markets we operate in are particularly competitive markets, with at least ten other financial institutions having a physical presence within those markets.

We compete not only against banking organizations, but also against a wide range of financial service providers, including federally and state-chartered thrift institutions, credit unions, investment and brokerage firms and small-loan or consumer finance companies. One of the credit unions in our market area is among the largest in the nation. Competition among financial institutions of all types is virtually unlimited with respect to legal ability and authority to provide most financial services. We also experience competition from internet loan providers, especially for mortgage loans, and from internet banks, particularly in the area of time deposits.

Despite the competitive market, we believe we have certain advantages over our competition in the areas we serve. WeCompared to the smaller banks we compete against, we are large enough to be able to more easily absorb higher costs being experienced in the banking industry, particularly regulatory costs and technology costs, than the smaller banks with which we compete.costs. We are also able to originate significantly larger loans than many of our smaller bank competitors. At the same time,In our competition with larger banks, we attempt to maintain a banking culture commonly associated with smaller banks – a culture that has a personal and local flavor that appeals to many retail and small business customers. Specifically, we seek to maintain a distinct local identity in each of the communities we serve, and we actively sponsor and participate in local civic affairs. Most lending and other customer-related business decisions can be made without the delays often associated with larger institutions. Additionally, employment of local managers and personnel in various offices and low turnover of personnel enable us to establish and maintain long-term relationships with individual and corporate customers. Also, due to acquisitions of other banks headquartered in North Carolina and South Carolina, we are the only bankone of two banks headquartered in North Carolina with total assets between $4 billion and $35 billion and the only bank headquartered in either state with total assets between $4 billion and $14$45 billion. We believe that enhances several of our competitive advantages discussed above, as well as provides scarcity value from an investor viewpoint.

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7

Lending Policy and Procedures

Conservative lending policies and procedures and appropriate underwriting standards are high priorities of the Bank. Loans are approved under our written loan policy, which provides that lending officers, principally branch managers, have authority to approve loans of various amounts up to $350,000 with lending limits varying depending upon the experience of the lending officer and whether the loan is secured or unsecured. We have seven senior lending officers who have authority to approve secured loans up to $500,000 and each of our fivethree Regional Presidents has authority to approve secured loans up to $1,000,000. Loans up to $5,000,000$8,000,000 are approved by the Bank’s Regional Credit Officers through our Credit Administration Department. The Bank’s President and Chief Credit Officer have authority to approve loans up to $10,000,000,$15,000,000, while the President and the Chief Credit Officer have joint authority to approve loans up to $25,000,000.$50,000,000. The Bank’s Board of Directors maintains loan authority in excess of the Bank’s in-house limit, currently $25,000,000,$50,000,000, and generally approves loans through its Executive Loan Committee. Our legal lending limit to any one borrower is approximately $110 million. All lending authorities are based on the borrower’s Total Credit Exposure (“TCE”), which is an aggregate of the Bank’s lending relationship to the borrower. TCE is based on the borrower’s total credit exposure with the Bank either directly or indirectly through loan guarantees or other borrowing entities related to the borrower through control or ownership.

The Executive Loan Committee reviews and approves loans that exceed the Bank’s in-house limit, loans to executive officers, directors, and their affiliates and, in certain instances, other types of loans. New credit extensions are reviewed daily by our senior management and the Credit Administration Department.

We continually monitor our loan portfolio to identify areas of concern and to enable us to take corrective action. Lending and credit administration officers and the board of directors meet periodically to review past due loans and portfolio quality, while assuring that the Bank is appropriately meeting the credit needs of the communities it serves. Individual lending officers are responsible for monitoring any changes in the financial status of borrowers and pursuing collection of early-stage past due amounts. For certain types of loans that exceed our established parameters of past due status, the Bank’s Asset Resolution Group assumes the management of the loan, and in some cases we engage a third-party firm to assist in collection efforts.

The Bank has an internal Loan Review Department that conducts on-going and targeted reviews of the Bank’s loan portfolio and assesses the Bank’s adherence to loan policies, risk grading and accrual policies. Reports are generated for management based on these activities and findings are used to adjust risk grades as deemed appropriate. In addition, these reports are shared with the Bank’s Board of Directors. The Loan Review Department also provides training assistance to the Bank’s Training and Credit Administration departments.

To further assess the Bank’s loan portfolio and as a secondary review of the Bank’s Loan Review Department, we also contract with an independent consulting firm to review new loan originations meeting certain criteria, as well as to assignreview risk grades to existing credits meeting certain thresholds. The consulting firm’s observations, comments, and risk grades, including variances with the Bank’s risk grades, are shared with the audit committee of the Company’s board of directors and are considered by management in setting Bank policy, as well as in evaluating the adequacy of our allowance for loan losses. For additional information, see “Allowance for Loan Losses and Loan Loss Experience” under Item 7 below.

Investment Policy and Procedures

We have adopted an investment policy designed to maximize our income from funds not needed to meet loan demand, in a manner consistent with appropriate liquidity and risk objectives. Pursuant to this policy, we may invest in U.S. government and government-sponsored enterprises, mortgage-backed securities, collateralized mortgage obligations, commercial mortgage-backed securities, state and municipal obligations, public housing authority bonds, and, to a limited extent, corporate bonds. We may also invest up to $60 million in time deposits with other financial institutions. Time deposit purchases from any one financial institution exceeding FDIC insurance coverage limits are evaluated as a corporate bond and are subject to the same due diligence requirements as corporate bonds (described below).

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Table of Contents

In making investment decisions, we do not solely rely on credit ratings to determine the credit-worthiness of an issuer of securities, but we use credit ratings in conjunction with other information when performing due diligence prior to the purchase of a security. Securities that are not rated investment grade will not be purchased. Securities rated below Moody’s BAA or Standard and Poor’s BBB generally will not be purchased. Securities rated below A are periodically reviewed for credit-worthiness. We may purchase non-rated municipal bonds only if such bonds are in our general market area and we determine these bonds have a credit risk no greater than the minimum ratings

8
referred to above. We are also authorized by our Board of Directors to invest a portion of our securities portfolio in high quality corporate bonds, with the amount of such bonds not to exceed 15% of the entire securities portfolio. Prior to purchasing a corporate bond, the Company’s management performs due diligence on the issuer of the bond, and the purchase is not made unless we believe that the purchase of the bond bears no more risk to the Company than would an unsecured loan to the same company. On a quarterly basis, we review the financial statements for the corporate bond issuers that we own for any signs of deterioration so that we can take timely action if deemed necessary.

Our Chief Investment Officer implements the investment policy, monitors the investment portfolio, recommends portfolio strategies and reports to the Company’s Investment Committee. The Investment Committee generally meets on a quarterly basis to review investment activity and to assess the overall position of the securities portfolio. The Investment Committee compares our securities portfolio with portfolios of other companies of comparable size. In addition, reports of all purchases, sales, issuer calls, net profits or losses and market appreciation or depreciation of the securities portfolio are reviewed by our Board of Directors. Once a quarter, our interest rate risk exposure is evaluated by our Board of Directors. Each year, the written investment policy is approved by the board of directors.

Mergers and Acquisitions

As part of our operations, we have pursued an acquisition strategy over the years to augment our organic growth. We regularly evaluate the potential acquisition of various financial institutions. Our acquisitions have generally fallen into one of three categories: 1) an acquisition of a financial institution or branch thereof within a market in which we operate, 2) an acquisition of a financial institution or branch thereof in a market contiguous or nearly contiguous to a market in which we operate, or 3) an acquisition of a company that has products or services that we do not currently offer. Historically, we have paid for our acquisitions with cash and/or common stock and any operating income or loss has been fully borne by the Company beginning on the closing date of the acquisition.

Since becoming a public company in 1987, we have completed numerous acquisitions in each of the three categories described above. We have completed several whole-bank traditional acquisitions in our existing and contiguous markets; we have purchased a number of bank branches from other banks (both in existing market areas and in contiguous/nearly contiguous markets); and we have acquired several insurance agencies, which has provided us with the ability to offer property and casualty insurance coverage.

Also, as discussed below, we acquired companies that specialize in SBA loans and business financing, which brought new products and services to the Company.

In 2009, FDIC-assisted acquisitions began to occur frequently as banking regulators closed problem banks. In FDIC-assisted transactions, the acquiring bank often does not pay any consideration for the failed bank, and in some cases receives cash from the FDIC as part of the transaction. In addition, the acquiring bank usually enters into one or more loss share agreements with the FDIC, which affords the acquiring bank significant loss protection. In both 2009 and 2011 we acquired the operations of failed banks in FDIC-assisted transactions. See the Company’s Annual Reports on Form 10-K for those years for more information on these acquisitions.

The following paragraphs describe the other acquisitions that we have completed in recent years. See the past three years.

respective Company’s Annual Reports on Form 10-K for more information on the acquisitions discussed below.

In January 2016, we acquired Bankingport, Inc., an insurance agency based in Sanford, North Carolina. Although not material to the Company’s consolidated operations, the acquisition provided us with the opportunity to enhance our product offerings, as well as expand our insurance agency operations into a significant banking market for our Company. Also, this acquisition providesprovided us a larger platform for leveraging insurance services throughout our bank branch network.

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In May 2016, we completed the acquisition of SBA Complete. SBA Complete specializes in consulting with financial institutions across the country related to SBA loan origination and servicing. Many community banks do not have the in-house capability to comprehensively originate and service those types of loans, so they contract with SBA Complete for assistance. To learn more about this subsidiary of the Bank, please visit www.sbacomplete.com. Information included on our Internet site is not incorporated by reference into this annual report.

Soon after the acquisition of SBA Complete, we leveraged its capabilities by launching our own SBA Lending Division. Through a network of specialized First Bank loan officers, this Division offers SBA loans to small business owners throughout the United States. We typically sell the portion of each loan that is guaranteed by the SBA at a premium and record the non-guaranteed portion to our balance sheet. To learn more about our SBA Lending
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Division, please visit www.firstbanksba.com. Information included on our Internet site is not incorporated by reference into this annual report.

In March 2016, we announced an agreement to exchange our seven Virginia branches, with approximately $151 million in loans and $134 million in deposits, for six North Carolina branches of a community bank with a large Virginia presence that included approximately $152 million in loans and $111 million in deposits. Four of the six branches we assumed were in Winston-Salem, with the other two branches located in the Charlotte-metro markets of Mooresville and Huntersville. The Winston-Salem branches we assumed improved the Triad expansion initiative, while the Mooresville and Huntersville branches increased our Charlotte market expansion. This transaction, which was completed in July 2016, resulted in our exit from western Virginia. The opportunity to assume what is essentially a banking franchise in markets where we had recently invested in human capital was the primary factor we considered in entering into the exchange agreement.

In March 2017, we acquired Carolina Bank Holdings, Inc. (“Carolina Bank”), the parent company of Carolina Bank. Carolina Bank was a community bank headquartered in Greensboro with $682 million in assets, with eight branches located in Greensboro, Winston-Salem, Burlington and Asheboro. This acquisition built on the Winston-Salem expansion previously discussed and significantly accelerated our recent expansion initiative in the Greensboro market.

In September 2017, we acquired Bear Insurance Services, an insurance agency based in Albemarle, North Carolina. This acquisition provided us a larger platform for leveraging insurance services throughout our bank branch network and more than doubled our insurance agency revenue.

In October 2017, we acquired ASB Bancorp, Inc. (“Asheville Savings Bank”), the parent company of Asheville Savings Bank, SSB. Asheville Savings Bank operated in the attractive and high-growth market of Asheville, North Carolina, with $798 million in assets and 13 branches located throughout the Asheville market area.

On September 1, 2020, we completed the acquisition of Magnolia Financial, Inc., a business financing company headquartered in Spartanburg, South Carolina, that makes loans throughout the southeastern United States. Magnolia Financial held $14.6 million in loans at the date of acquisition. Although not material to our Company’s consolidated operations, the acquisition provides us with the opportunity to enhance our product offerings, such as accounts receivable financing and factoring, inventory financing, and purchase order financing.
There are many factors that we consider when evaluating how much to offer for potential acquisition candidates, with a few of the more significant factors being projected impact on earnings per share, projected impact on capital, and projected impact on book value and tangible book value. Significant assumptions that affect this analysis include the estimated future earnings stream of the acquisition candidate, estimated credit and other losses to be incurred, the amount of cost efficiencies that can be realized, and the interest rate earned/lost on the cash received/paid. In addition to these primary factors, we also consider other factors including (but not limited to) marketplace acquisition statistics, location of the candidate in relation to our expansion strategy, market growth potential, management of the candidate, potential integration issues (including corporate culture), and the size of the acquisition candidate.

We plan to continue to evaluate acquisition opportunities that could potentially benefit the Company and its shareholders. These opportunities may include acquisitions that do not fit the categories discussed above.

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Table of ContentsHuman Capital Resources

Employees

As of December 31, 2018,2020, we had 1,0541,071 full-time and 4447 part-time employees. We are not a party to any collective bargaining agreements, and we consider our employee relations to be good.

Oversight of our corporate culture is an important element of our Board of Director’s oversight of risk because our people are critical to the success of our corporate strategy. Our board sets the “tone at the top,” and holds senior management accountable for embodying, maintaining, and communicating our culture to employees. Our culture is guided by a philosophy we call Our Promise to Service Excellence. The principles of Our Promise to Service Excellence are: Safety & Soundness, Knowledge and Accuracy, Courteous Service, and Convenience and Ease.

We have developed specialized training that all new associates receive, and we hold regular team meetings and training that promote our Service Excellence principals. By emphasizing a consistent set of principles that all employees follow, we believe that our employees work experience is more satisfying, and they are better able to serve their customers consistently and at a high level. We have a Service Excellence Committee that on an annual
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basis selects Service Excellence Champions, who have been nominated for the award throughout the year by fellow employees, based on their demonstrated commitment to Our Promise to Service Excellence.
Our employees are key to our success as an organization. We are committed to attracting, retaining and promoting top quality talent regardless of sex, sexual orientation, gender identity, race, color, national origin, age, religion and physical ability. We strive to identify and select the best candidates for all open positions based on qualifying factors for each job. We are dedicated to providing a workplace for our employees that is inclusive, supportive, and free of any form of discrimination or harassment; rewarding and recognizing our employees based on their individual results and performance; and recognizing and respecting all of the characteristics and differences that make each of our employees unique. In 2020, we formed a Diversity Council, which is chaired by our Chief Executive Officer and meets regularly. The Diversity Council is focused on recommending actions for the improvement related to three key objectives, and for identifying barriers that impede progress in the following areas:

•Create a work environment that demonstrates all views are respected and provides equal access to opportunities for growth and advancement.
•Ensure all open positions have a diverse pool of candidates, and our job requirements align with the markets we serve.
•Create internal organizational learning opportunities in which associates may voluntarily participate to deepen and develop personal understanding of diversity, equity and inclusion.

In October 2020, we encouraged our employees to participate in "Global Diversity Awareness Month." Team activity guides promoting diversity and learning about other cultures were distributed to promote this initiative.
We also seek to design careers with our company that are fulfilling ones, with competitive compensation and benefits alongside a positive work-life balance. We dedicate resources to fostering professional and personal growth with continuing education, on-the-job training and development programs.
We have worked closely with our employees during the pandemic to ensure their safety and their ability to take care of their family. Health safety protocols were established, remote work arrangements were facilitated and considerations were provided for family needs, such as child care, all without any employee layoffs or furloughs.
Supervision and Regulation

As a bank holding company, we are subject to supervision, examination and regulation by the Federal Reserve and the North Carolina Office of the Commissioner of Banks (the “Commissioner”). The Bank is also subject to supervision and examination by the Federal Reserve and the Commissioner. For additional information, see Note 1615 to the consolidated financial statements.

Supervision and Regulation of the Company

The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended.amended and is regulated by the Federal Reserve. The Company is also regulated by the Commissioner under the North Carolina banking laws.

A bank holding company is required to file quarterly reports and other information regarding its business operations and those of its subsidiaries with the Federal Reserve. It is also subject to examination by the Federal Reserve and is required to obtain Federal Reserve approval prior to making certain acquisitions of other institutions or voting securities. The Federal Reserve requires the Company to maintain certain levels of capital - see “Capital Resources and Shareholders’ Equity” under Item 7 below. The Federal Reserve also has the authority to take enforcement action against any bank holding company that commits any unsafe or unsound practice, or violates certain laws, regulations or conditions imposed in writing by the Federal Reserve. The Federal Reserve generally prohibits a bank holding company from declaring or paying a cash dividend that would impose undue pressure on the capital of subsidiary banks or would be funded only through borrowing or other arrangements which might adversely affect a bank holding company’s financial position. Under the Federal Reserve policy, a bank holding company is not permitted to continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition.

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The Commissioner is empowered to regulate certain acquisitions of North Carolina banks and bank holding companies, issue cease and desist orders for violations of North Carolina banking laws, and promulgate rules necessary to effectuate the purposes of those banking laws.

Regulatory authorities have cease and desist powers over bank holding companies and their nonbank subsidiaries where their actions would constitute a serious threat to the safety, soundness or stability of a subsidiary bank. Those authorities may compel holding companies to invest additional capital into banking subsidiaries upon acquisitions or in the event of significant loan losses or rapid growth of loans or deposits.

The U.S. Congress and the North Carolina General Assembly have periodically considered and adopted legislation that has impacted the Company.

Supervision and Regulation of the Bank

The Bank is a state-chartered bank and is a member of the Federal Reserve.
Federal banking regulations applicable to all depository financial institutions, among other things: (i) provide federal bank regulatory agencies with powers to prevent unsafe and unsound banking practices; (ii) restrict preferential loans by banks to “insiders” of banks; (iii) require banks to keep information on loans to major shareholders and executive officers; and (iv) bar certain director and officer interlocks between financial institutions.

As a state-chartered bank, the Bank is subject to the provisions of the North Carolina banking statutes and to regulation by the Commissioner. The Commissioner has a wide range of regulatory authority over the activities and operations of the Bank, and the Commissioner’s staff conducts periodic examinations of the Bank and its affiliates to ensure compliance with state banking laws and regulations and to assess the safety and soundness of the Bank. Among other things, the Commissioner regulates the merger of state-chartered banks, the payment of dividends, loans to officers and directors, recordkeeping, types and amounts of loans and investments, and the establishment of branches. The Commissioner also has cease and desist powers over state-chartered banks for violations of state banking laws or regulations and for unsafe or unsound conduct that is likely to jeopardize the interest of depositors.

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The dividends that may be paid by the Bank to the Company are subject to legal limitations under North Carolina law. In addition, under Federal Reserve regulations, a dividend cannot be paid by the Bank if it would be less than well-capitalized after the dividend. The Federal Reserve may also prevent the payment of a dividend by the Bank if it determines that the payment would be an unsafe and unsound banking practice. The ability of the Company to pay dividends to its shareholders is largely dependent on the dividends paid to the Company by the Bank.

The Federal Reserve is authorized to approve conversions, mergers, and assumptions of deposit liability transactions between insured banks and uninsured banks or institutions, and to prevent capital or surplus diminution in such transactions if the resulting, continuing, or assumed bank is an insured member bank. First Bank is a member of the Federal Reserve System, and accordingly the Federal Reserve also conducts periodic examinations of the Bank to assess its safety and soundness and its compliance with banking laws and regulations, and it has the power to implement changes to, or restrictions on, the Bank’s operations if it finds that a violation is occurring or is threatened. In addition, the Federal Reserve monitors the Bank’s compliance with several banking statutes, such as the Depository Institution Management Interlocks Act and the Community Reinvestment Act of 1977.

FDIC Insurance

As a member of thean FDIC insured depository institution, our deposits are insured up to applicable limits by the FDIC, and such insurance is backed by the full faith and credit of the United States Government. The basic deposit insurance level is generally $250,000, as specified in FDIC regulations. For this protection, each insured bank pays a quarterly statutory assessment and is subject to the rules and regulations of the FDIC.

The FDIC insurance premium is based on an institution’s total assets minus its Tier 1 capital. An institution’s premiums are determined based on its capital, supervisory ratings and other factors. Premium rates generally may increase if the FDIC deposit insurance fund is strained due to the cost of bank failures and the number of troubled banks. In addition, if the Bank experiences financial distress or operates in an unsafe or unsound manner, its deposit premiums may increase.

We recognized approximately $2.3$1.7 million, $2.4$0.3 million, and $2.0$2.3 million in FDIC insurance expense in 2018, 2017,2020, 2019, and 2016,2018, respectively. In November 2018, the FDIC announced that the Deposit Insurance Fund (“DIF”) reserve ratio exceeded the statutory minimum of 1.35% as of September 30, 2018. Among other things, this resulted in the
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FDIC awarding assessment credits for banks with less than $10 billion in total assets that had contributed to the DIF in prior years. We were notified in January 2019 that we had received $1.35 million in credits that couldwould be usedavailable to offset deposit insurance assessments in the future. Whenonce the DIF reachesreached 1.38%,. The DIF reached 1.38% as of June 30, 2019 and therefore, the FDIC will beginbegan to apply the Bank’s credits againstto our quarterly deposit insurance assessments. The DIF was 1.36% at December 31, 2018.

assessments beginning with the second quarter of 2019. Our credits became fully utilized during the first quarter of 2020, and thus our FDIC insurance expense increased in 2020 compared to 2019. We expect our FDIC insurance expense to increase in 2021 due to a full year of expense and increases in total assets during 2020.

The FDIC may conduct examinations of and require reporting by FDIC-insured institutions. It may also prohibit an institution from engaging in any activity that it determines by regulation or order to pose a serious risk to the deposit insurance fund and may terminate the Bank’s deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

Legislative and Regulatory Guidance and Developments

In addition to the regulations that are described above, new legislation is introduced from time to time in the U.S. Congress that may affect our operations. In addition, the regulations governing the Company and the Bank may be amended from time to time by the Federal Reserve, the Commissioner, the FDIC, the Securities and Exchange Commission (the “SEC”), or other agencies, as appropriate. Any legislative or regulatory changes, or changes to accounting standards, in the future could adversely affect our operations and financial condition.

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Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

On July 21, 2010, the Dodd-Frank Act became law. The Dodd-Frank Act has had and will continue to have a broad impact on the financial services industry, including significant regulatory and compliance changes including, among other things,

·enhanced authority over troubled and failing banks and their holding companies;
·increased capital and liquidity requirements;
·increased regulatory examination fees; and
·specific provisions designed to improve supervision and safety and soundness by imposing restrictions and limitations on the scope and type of banking and financial activities.

While much of the original provisions of the Dodd-Frank Act were not directly applicable to us due to size thresholds, many of the requirements of the Dodd-Frank Act remain subject to implementation over the course of several years. While we do not currently expect the final requirements of the Dodd-Frank Act to have a material adverse impact on the Company, we do expect them to negatively impact our profitability, require changes to certain of our business practices, including limitations on fee income opportunities, and impose more stringent capital, liquidity and leverage requirements upon the Company. These changes may also require us to invest significant management attention and resources to evaluate and make any changes necessary to comply with the new statutory and regulatory requirements.

In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Economic Growth Act”), was enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act. While the Economic Growth Act maintains most of the regulatory structure established by the Dodd-Frank Act, it amends certain aspects of the regulatory framework for small depository institutions with assets less than $10 billion and for large banks with assets of more than $50 billion. Many of these changes could result in meaningful regulatory changes for banks and their holding companies.

The Economic Growth Act, among other matters, expands the definition of qualified mortgages which may be held by a financial institution and provides for an alternative capital rule for financial institutions and their holding companies with total consolidated assets of less than $10 billion. The Economic Growth Act instructed the federal banking regulators to establish a single “Community Bank Leverage Ratio” of between 8% and 10%, which has been proposed to be 9% by the federal regulators. The Community Bank Leverage Ratio provides for a simpler calculation of a bank’s capital ratio than the Basel III provisions currently in place (see below). Any qualifying depository institution or its holding company that exceeds the Community Bank Leverage Ratio will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and any qualifying depository institution that exceeds the new ratio will be considered to be “well capitalized” under the prompt corrective action rules. In addition, the Economic Growth Act includes regulatory relief for community banks of certain sizes regarding regulatory examination cycles, call reports, the Volcker Rule (proprietary trading prohibitions), mortgage disclosures and risk weights for certain high-risk commercial real estate loans. We continue to evaluate the impact that the rules issued thus far under the Economic Growth Act will have on the bank, but we currently do not believe that it will be significant. At this time, we do not expect to opt-in to the ability to utilize the Community Bank Leverage Ratio and will instead continue to use the Basel III standards.

It is difficult at this time to predict when or how any new standards under the Economic Growth Act will ultimately be applied to, or what specific impact the Economic Growth Act and the yet-to-be-written implementing rules and regulations will have on us.

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Regulatory Capital Requirement under Basel III

Effective January 1, 2015, the

The Company and the Bank becameare subject to new regulatory capital rules agreed to by the Basel Committee on Banking Supervision in the accord referred to as “Basel III.” Under the Basel III Capital Rules, the following were the initial minimum capital ratios applicable to the Company and the Bank as of January 1, 2015:

·4.5% CET1 to risk-weighted assets;
·6.0% Tier I capital (that is, CET1 plus Additional Tier I capital) to risk-weighted assets;
·8.0% total capital (that is, Tier I capital plus Tier II capital) to risk-weighted assets; and
·4.0% Tier I leverage ratio (that is Tier I capital) to quarterly average total assets.

•4.5% CET1 to risk-weighted assets;
•6.0% Tier I capital (that is, CET1 plus Additional Tier I capital) to risk-weighted assets;
•8.0% total capital (that is, Tier I capital plus Tier II capital) to risk-weighted assets; and
•4.0% Tier I leverage ratio (that is Tier I capital) to quarterly average total assets.
Common Equity Tier I capital (“CET1”) 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 I capital is comprised of CET1 capital plus Additional Tier I capital, which for the Company includes non-cumulative perpetual preferred stock and trust preferred securities. Total capital is comprised of Tier I capital plus certain adjustments, the largest of which for the Company and the Bank is the allowance for loan losses. Risk-weighted assets refer to the on- and off-balance sheet exposures of the Company and the Bank, adjusted for their related risk levels using formulas set forth in Federal Reserve regulations

The Basel III Capital Rules include a “capital conservation buffer,” composed entirely of CET1, on top of these minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and is beingwas phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reachesreached 2.5% on January 1, 2019). Thus, effective as of January 1, 2019, the Company and the Bank arewere required to maintain this additional capital conservation buffer of 2.5% of CET1, resulting in the following minimum capital ratios:

·4.5% CET1 to risk-weighted assets, plus the capital conservation buffer, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7%;
·6.0% Tier I capital to risk-weighted assets, plus the capital conservation buffer, effectively resulting in a minimum Tier I capital ratio of at least 8.5%;
·8.0% total capital to risk-weighted assets, plus the capital conservation buffer, effectively resulting in a minimum total capital ratio of at least 10.5%; and
·4.0% Tier I leverage ratio

•4.5% CET1 to risk-weighted assets, plus the capital conservation buffer, effectively resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7%;
•6.0% Tier I capital to risk-weighted assets, plus the capital conservation buffer, effectively resulting in a minimum Tier I capital ratio of at least 8.5%;
•8.0% total capital to risk-weighted assets, plus the capital conservation buffer, effectively resulting in a minimum total capital ratio of at least 10.5%; and
•4.0% Tier I leverage ratio
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In addition to the minimum capital requirements described above, the regulatory framework for prompt corrective action also contains specific capital guidelines for a bank’s classification as “well capitalized.” The current specific guidelines are as follows:

·CET1 Capital Ratio of at least 6.50%;
·Tier I Capital Ratio of at least 8.00%;
·Total Capital Ratio of at least 10.00%; and a
·Leverage Ratio of at least 5.00%.

•CET1 Capital Ratio of at least 6.50%;
•Tier I Capital Ratio of at least 8.00%;
•Total Capital Ratio of at least 10.00%; and a
•Leverage Ratio of at least 5.00%.
If a bank falls below “well capitalized” status in any of these threefour ratios, it must ask for FDIC permission to originate or renew brokered deposits. First Bank is well-capitalized under all capital guidelines.

Current Expected Credit Loss Accounting Standard


The Financial Accounting Standards Board (“FASB”) has adopted a new accounting standard that will be effectiverelated to reserving for the Company on January 1, 2020.credit losses. This standard, referred to as Current Expected Credit Loss (or “CECL”), requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets. The CECL covers a broader range of assets than the current method of recognizing credit losses and generally resultsframework is expected to result in earlier recognition of credit losses. Upon adoptionlosses and is expected to be significantly influenced by the composition, characteristics and quality of the Company's loan portfolio, as well as the prevailing economic conditions and forecasts. As originally contemplated by CECL, we would have adopted this new standard on January 1, 2020. However, the CARES Act and subsequent legislation provided companies with the option to delay the implementation of CECL until as late as January 1, 2022. We expect to adopt CECL as of January 1, 2021. The Company will initially apply the impact of the new guidance through a banking organization must record a one-timecumulative-effect adjustment to retained earnings. Future adjustments to credit loss expectations will be recorded through the income statement as charges or credits to earnings. At this time, the Company expects its allowance for loancredit losses as of the beginning of the fiscal year ofwill increase by approximately $12-14 million upon adoption equal to the difference, if any, between the amount of credit loss allowances under the current methodology and the amount required under CECL. For a banking organization, implementation of CECL is generally likely to reduce retained earnings, and to affect other items, in a manner that reduces its regulatory capital. We continue our ongoing analysis on the impact of this guidance on our consolidated financial statements.

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reserve for unfunded commitments will increase by $6-$7 million.

The Federal Reserve and the FDIC have adopted a rule that provides a banking organization the option to phase-in over a three-year period the effects of CECL on its regulatory capital upon the adoption of the standard.

Due to the expected insignificant impact to the Company's overall capital levels at adoption, the Company does not expect to exercise the phase-in option.

Liquidity Requirements

Historically, the regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter, without required formulaic measures. Liquidity risk management has become increasingly important since the financial crisis. The Basel III liquidity framework requires banks and bank holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward would be required by regulation. One test, referred to as the liquidity coverage ratio (“LCR”), is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon (or, if greater, 25% of its expected total cash outflow) under an acute liquidity stress scenario. The other test, referred to as the net stable funding ratio (“NSFR”), is designed to promote more medium- and long-term funding of the assets and activities of banking entities over a one-year time horizon. These requirements will incent banking entities to increase their holdings of Treasury securities and other sovereign debt as a component of assets and increase the use of long-term debt as a funding source.

In September 2014, the federal bank regulators approved final rules implementing the LCR for advanced approaches banking organizations (i.e., banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in total on-balance sheet foreign exposure) and a modified version of the LCR for bank holding companies with at least $50 billion in total consolidated assets that are not advanced approach banking organizations, neither of which would apply to the Company or the Bank. The federal bank regulators have not yet proposed rules to implement the NSFR or addressed the scope of bank organizations to which it will apply.

Following the enactment of the Economic Growth Act in May 2018, the Federal Reserve stated that it would no longer require bank holding companies with less than $100 billion in total consolidated assets to comply with the modified version of the LCR. In addition, in October 2018, the federal bank regulators proposed to revise their liquidity requirements so that banking organizations that are not global systematically important banks and have less than $250 billion in total consolidated assets and less than $75 billion in each of off-balance sheet exposure, nonbank assets, cross-jurisdictional activity and short-term wholesale funding would not be subject to any LCR or NSFR requirements.

Accordingly, these regulations do not currently apply to the Company or the Bank.

Financial Privacy and Cybersecurity

The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted
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through diversified financial companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.

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In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. The Company has multiple Information Security Programs that reflect the requirements of this guidance. If, however, we fail to observe the regulatory guidance in the future, we could be subject to various regulatory sanctions, including financial penalties.

In October 2016, the federal banking regulators jointly issued an advance notice of proposed rulemaking on enhanced cyber risk management standards that are intended to increase the operational resilience of large and interconnected entities under their supervision. If established, the enhanced cyber risk management standards would be designed to help reduce the potential impact of a cyber-attack or other cyber-related failure on the financial system. The advance notice of proposed rulemaking addresses five categories of cyber standards: (i) cyber risk governance; (ii) cyber risk management; (iii) internal dependency management; (iv) external dependency management; and (v) incident response, cyber resilience, and situational awareness. In May 2019, the Federal Reserve announced that it would revisit the Advance Notice of Proposed Rulemaking ("ANPR") in the future. In December 2020, the federal banking agencies issued a Notice of Proposed Rulemaking that would require banking organizations to notify their primary regulator within 36 hours of becoming aware of a “computer-security incident” or a “notification incident.” The Notice of Proposed Rulemaking also would require specific and immediate notifications by bank service providers that become aware of similar incidents.
In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date we have not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, our systems and those of our customers and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers. See Item 1A. Risk Factors for a further discussion of risks related to cybersecurity.

Anti-Money Laundering and the USA Patriot Act

A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing. The USA PATRIOT Act of 2001 (the “USA"USA Patriot Act”Act""), substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations on financial institutions, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States.

On May 11, 2016, the Financial Crimes Enforcement Network (“FinCEN”) issued new anti-money laundering (“AML”) rules governing corporate entities doing business with banksinstitutions are also prohibited from entering into specified financial transactions and other financial institutions that are subject to the requirements of the USA Patriot Act. The AML rules impose significantaccount relationships and must use enhanced due diligence obligations on financialprocedures in their dealings with certain types of high-risk customers and implement a written customer identification program. Financial institutions with respectmust take certain steps to openingassist government agencies in detecting and preventing money laundering

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and the monitoringreport certain types of existing accounts. Under the AML rules, a financial institution must identify persons owning or controlling 25% or more of a “legal entity,” whenever the legal entity opens a new account at the bank. The financial institution must also identify an individual who has substantial management authority at the legal entity, such as a CEO, CFO, or managing partner. These new AML rules became effective in May 2018.

The AML rules codify within the FinCEN regulations the “pillars” that must be included in a financial institutions AML compliance program. Regulators previously communicated their expectations with respect to four of these pillars: (1) the development of internal policies, procedures, and control; (2) the designation of a compliance officer; (3) the establishment of an ongoing employee training program; and (4) the implementation of an independent audit function to test programs. The new beneficial ownership requirement establishes a fifth pillar. Among other things, this new pillar includes the necessity to monitor and update the beneficial ownership of a legal entity, including the need to subject corporate borrowers to due diligence requests fromsuspicious transactions. Regulatory authorities routinely examine financial institutions for certificationscompliance with respect to their beneficial owners. Failurethese obligations, and failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious financial, legal and reputational consequences for the institution, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.

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Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.
TableThe Anti-Money Laundering Act of Contents2020 (“AMLA”), which amends the Bank Secrecy Act of 1970 (“BSA”), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.

Office of Foreign Assets Control Regulation

The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others which are administered by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”). Failure to comply with these sanctions could have serious legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.

Community Reinvestment Act

The Community Reinvestment Act of 1977 (“CRA”) requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate- income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. In order for a financial holding company to commence any new activity permitted by the BHC Act, or to acquire any company engaged in any new activity permitted by the BHC Act, each insured depository institution subsidiary of the financial holding company must have received a rating of at least “satisfactory” in its most recent examination under the CRA. Furthermore, banking regulators take into account CRA ratings when considering a request for an approval of a proposed transaction. First Bank received a rating of “satisfactory” in its most recent CRA examination.
In April 2018,December 2019, the U.S. DepartmentFDIC and the Office of Treasurythe Comptroller of the Currency (“OCC”) jointly proposed rules that would significantly change existing CRA regulations. The proposed rules are intended to increase bank activity in low- and moderate-income communities where there is significant need for credit, more responsible lending, greater access to banking services, and improvements to critical infrastructure. The proposals change four key areas: (i) clarifying what activities qualify for CRA credit; (ii) updating where activities count for CRA credit; (iii) providing a more transparent and objective method for measuring CRA performance; and (iv) revising CRA-related data collection, record keeping, and reporting. However, the Federal Reserve Board did not join in that proposed rulemaking. In May 2020, the OCC issued a memorandumits final CRA rule, effective October 1, 2020. The FDIC has not finalized the revisions to its CRA regulations. In September 2020, the federalFederal Reserve issued an ANPR that invites public comment on an approach to modernize the regulations that implement the CRA by strengthening, clarifying, and tailoring them to reflect the current banking regulators with recommended changeslandscape and better meet the core purpose of the CRA. The ANPR seeks feedback on ways to evaluate how banks meet the CRA’s implementing regulations to reduce their complexityneeds of low- and associated burden on banks. Wemoderate-income communities and address inequities in credit access. As such, we will continue to evaluate the impact of any changes to the regulations implementing the CRA.

CRA and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.

Federal Securities Laws

The common stock of the Company is registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Therefore, the Company is subject to the reporting, information disclosure, proxy solicitation, insider trading limits and other requirements imposed on public companies by the SEC under the Exchange Act. This includes limits on sales of stock by certain insiders and the filing of insider ownership reports with the SEC. The SEC and Nasdaq have adopted regulations under the Sarbanes-Oxley Act of 2002 and the Dodd
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Frank Act that apply to the Company as a Nasdaq-traded, public company, which seek to improve corporate governance, provide enhanced penalties for financial reporting improprieties and improve the reliability of disclosures in SEC filings.

Tax Cuts and Jobs Act

U.S. tax reform legislation was signed into law on December 22, 2017 and made broad and complex changes to the U.S. Internal Revenue Code, including reducing the U.S. statutory tax rate from 35% to 21% beginning on January 1, 2018. With the adoption of this tax reform, our deferred tax balances were reduced as of December 31, 2017 to reflect the new 21% statutory tax rate.

Beginning January 1, 2018, we applied the federal tax rate of 21% to our taxable earnings. Other provisions of U.S. tax reform that we adopted on January 1, 2018, include, but are not limited to: 1) provisions reducing the dividends received deduction; 2) essentially eliminating U.S. federal income taxes on dividends from foreign subsidiaries; 3) retaining an element of current inclusion of certain earnings of controlled foreign corporations; 4) eliminating the corporate alternative minimum tax ("AMT") and 5) changing how existing AMT credits will be realized.

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Available Information

We maintain a corporate Internet site at www.LocalFirstBank.com, which contains a link within the “Investor Relations” section of the site to each of our filings with the SEC, including our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These filings are available, free of charge, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. These filings can also be accessed at the SEC’s website located at www.sec.gov. Information included on our Internet site is not incorporated by reference into this annual report.

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Item 1A. Risk Factors

An investment in our common stock involves certain risks. Before you invest in our common stock, you should be aware that there are various risks, including those described below, which could affect the value of your investment in the future. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. The risk factors described in this section, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that could have a material adverse effect on our business, including our operating results and financial condition. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may materially or adversely affect our business, financial condition, and results of operations. The value or market price of our common stock could decline due to any of these identified or other unidentified risks.

Risks Related to Our Business

The COVID-19 pandemic has impacted the local economies in the communities we serve and our business, and the extent and severity of the impact on our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted.

The COVID-19 pandemic has negatively impacted the local, national, and global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels. The duration of the COVID-19 pandemic and its effects cannot be determined with certainty, but the effects could be present for an extended period of time.

Since the onset of the pandemic, the majority of state and local jurisdictions have imposed, and others in the future may impose, varying levels of restrictions, including “shelter-in-place” orders, quarantines, executive orders and similar government orders to control the spread of COVID-19.

The COVID-19 pandemic and the institution of social distancing and sheltering-in-place requirements resulted in temporary closures of, or operating restrictions, on many businesses. While many of the closed businesses reopened at varying levels of capacity, a resurgence of the pandemic may result in future restrictions or closures. As a result, the demand for our products and services may be significantly impacted. Furthermore, the COVID-19 pandemic has influenced and may continue to influence the recognition of credit losses in our loan portfolios and our allowance for credit losses, particularly as some businesses remain closed and as more customers are expected to draw on their lines of credit or seek additional loans to help finance their businesses. Our operations may also be disrupted if significant portions of our workforce are unable to work effectively, including due to illness, quarantines, government actions, or other restrictions in connection with the COVID-19 pandemic.

The extent to which the COVID-19 pandemic has a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.
Unfavorable economic conditions could adversely affect our business.

Our business is subject to periodic fluctuations based on national, regional and local economic conditions. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on our operations
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and financial condition. Our banking operations are primarily locally oriented and community-based. Our retail and commercial banking activities are primarily concentrated within the same geographic footprint. Our markets include most of North Carolina and parts ofnortheastern South Carolina. Worsening economic conditions within our markets could have a material adverse effect on our financial condition, results of operations and cash flows. Accordingly, we expect to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets we serve. Unfavorable changes in unemployment, real estate values, interest rates and other factors could weaken the economies of the communities we serve. In recent years,While economic growth and business activity across a wide range of industries has been slow and uneven andgenerally favorable in our market area in recent years, there can be no assurance that economic conditions will continue to improve,persist, and these conditions could worsen. In addition, oil price volatility, the level of U.S. debt andunfavorable global economic conditions, including the 2020 outbreak of COVID-19, have had a destabilizing effectnegative impact on financial markets.markets and could adversely impact our customers, which in turn could lead to lower business activity and higher loan delinquencies. Weakness in any of our market areas could have an adverse impact on our earnings, and consequently our financial condition and capital adequacy.

Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.

Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology (IT) systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company and/or its third party service providers. While we have experienced, and expect to continue to experience, these types of threats and incidents, none of them to date have been material to the Company. Although we employ comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, employee training, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations.

Our allowance for loan losses may not be adequate to cover actual losses; under CECL we may need to materially increase our allowance for loan losses under CECL.

and our provisions for credit losses may increase significantly and the provisions for credit losses may be more volatile than in the past.

Like all financial institutions, we maintain an allowance for loan losses to provide for probable losses caused by customer loan defaults. The allowance for loan losses may not be adequate to cover actual loan losses, and in this case additional and larger provisions for loan losses would be required to replenish the allowance. Provisions for loan losses are a direct charge against income.

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We establish the amount of the allowance for loan losses based on historical loss rates, as well as estimates and assumptions about future events.the ultimate amount of incurred losses that will be realized. Because of the extensive use of estimates and assumptions, our actual loan losses could differ, possibly significantly, from our estimate. We believe that our allowance for loan losses at December 31, 2020 is adequate to provide for probable losses, but it is possible that the allowance for loan losses will need to be increased for credit reasons or that regulators will require us to increase this allowance. Either of these occurrences could materially and adversely affect our earnings and profitability.

In addition, the measure of our allowance for loan losses is dependent on the adoption of new accounting standards. The FASB issued an Accounting Standards Update related to CECL, the new credit impairment model, which will become effective onwe expect to adopt as of January 1, 2020 for the Company.2021. This new model requires financial institutions to estimate and develop a provision for credit losses at origination for the lifetime of the loan, as opposed to reserving for probable incurred losses up to the balance sheet date. Under the CECL model, credit deterioration will be reflected in the income statement in the period of origination or acquisition of the loan, with changes in expected credit losses due to further credit deterioration or improvement reflected in the periods in which the expectation changes. Accordingly,
The CECL framework is expected to result in earlier recognition of credit losses and is expected to be significantly influenced by the CECL modelcomposition, characteristics and quality of the Company's loan portfolio, as well as the prevailing economic conditions and forecasts. The Company will likely require financial institutions likeinitially apply the impact of the new guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. At this time, as a
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result of the adoption, the Company expects its allowance for credit losses will increase by approximately $12-$14 million and that its reserve for unfunded commitments will increase by $6-$7 million.
The CECL standard provides significant flexibility and requires a high degree of judgment with regards to increase theirpooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses. Providing for losses over the life of our loan portfolio is a change to the previous method of providing allowances for loan losses. Moreover, the CECL model will likely create more volatility inlosses that are probable and incurred. This change may require us to increase our level of allowance for loan losses rapidly in future periods, and greatly increases the periods after adoption.

types of data we need to collect and review to determine the appropriate level of the allowance for loan losses. It may also result in even small changes to future forecasts having a significant impact on the allowance, which could make the allowance more volatile, and regulators may impose additional capital buffers to absorb this volatility.

We are subject to extensive regulation, which could have an adverse effect on our operations.

We are subject to extensive regulation and supervision from the Commissioner and the Federal Reserve. This regulation and supervision is intended primarily to enhance the safe and sound operation of the Bank and for the protection of the FDIC insurance fund and our depositors and borrowers, rather than for holders of our equity securities. In the past, our business has been materially affected by these regulations. This trend is likely to continue in the future.

Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on operations, the classification of our assets and the determination of the level of allowance for loan losses. Changes in the regulations that apply to us, or changes in our compliance with regulations, could have a material impact on our operations.

We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

regulations and related enforcement actions.

The federal Bank Secrecy Act,BSA, the USA Patriot Act and other laws and regulations require financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file suspicious activity and currency transaction reports as appropriate. The FINCEN, established by the Treasury to administer the Bank Secrecy Act,BSA, is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. There is also increased scrutiny of compliance with the rules enforced by the OFAC. Federal and state bank regulators also have begun to focus on compliance with Bank Secrecy ActBSA and AML regulations. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that we have already acquired or may acquire in the future are deficient, we would be subject to liability, including fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans, which would negatively impact our business, financial condition and results of operations. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us.

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Consumers may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

Negative public opinion regarding our Company and the financial services industry in general, could damage our reputation and adversely impact our earnings.

Reputation risk, or the risk to our business, earnings and capital from negative public opinion regarding our Company and the financial services industry in general, is inherent in our business. Negative public opinion can result from actual or alleged conduct in any number of activities, including lending practices, corporate governance
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and acquisitions, and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to keep and attract clients and employees and can expose us to litigation and regulatory action. Although we have taken steps to minimize reputation risk in dealing with our clients and communities, this risk will always be present given the nature of our business.

We may make future acquisitions, which could dilute current shareholders’ stock ownership and expose us to additional risks.

In accordance with our strategic plan, we evaluate opportunities to acquire other banks, and branch locations and companies that provide products and services related to our banking activities to expand the Company. As a result, we may engage in acquisitions and other transactions that could have a material effect on our operating results and financial condition, including short and long-term liquidity. Our acquisition activities could require us to issue a significant number of shares of common stock or other securities and/or to use a substantial amount of cash, other liquid assets, and/or incur debt. In addition, if goodwill recorded in connection with our potential future acquisitions were determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely affect our results of operations during the period in which the impairment was recognized.

Our acquisition activities could involve a number of additional risks, some of which are described in more detail elsewhere in this report and include:

·the possibility that expected benefits may not materialize in the timeframe expected or at all, or may be more costly to achieve;
·incurring the time and expense associated with identifying and evaluating potential acquisitions and merger partners and negotiating potential transactions, resulting in management’s attention being diverted from the operation of our existing business;
·using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or assets;
·incurring the time and expense required to integrate the operations and personnel of the combined businesses;
·the possibility that we will be unable to successfully implement integration strategies, due to challenges associated with integrating complex systems, technology, banking centers, and other assets of the acquired bank in a manner that minimizes any adverse effect on customers, suppliers, employees, and other constituencies;

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Table•the possibility that expected benefits may not materialize in the timeframe expected or at all, or may be more costly to achieve;
•incurring the time and expense associated with identifying and evaluating potential acquisitions and merger partners and negotiating potential transactions, resulting in management’s attention being diverted from the operation of Contentsour existing business;

·the possibility of regulatory approval for the acquisition being delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues surrounding the Company, the target institution or the proposed combined entity as a result of, among other things, issues related to AML and Bank Secrecy Act compliance, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations, or CRA requirements, and the possibility that any such issues associated with the target institution, which we may or may not be aware of at the time of the acquisition, could impact the combined entity after completion of the acquisition;
·the possibility that the acquisition may not be timely completed, if at all;
·creating an adverse short-term effect on our results of operations; and
·losing key employees and customers as a result of an acquisition that is poorly received.

•using inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or assets;
•incurring the time and expense required to integrate the operations and personnel of the combined businesses;
•the possibility that we will be unable to successfully implement integration strategies, due to challenges associated with integrating complex systems, technology, banking centers, and other assets of the acquired bank in a manner that minimizes any adverse effect on customers, suppliers, employees, and other constituencies;
•the possibility of regulatory approval for the acquisition being delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues surrounding the Company, the target institution or the proposed combined entity as a result of, among other things, issues related to AML and BSA compliance, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations, or CRA requirements, and the possibility that any such issues associated with the target institution, which we may or may not be aware of at the time of the acquisition, could impact the combined entity after completion of the acquisition;
•the possibility that the acquisition may not be timely completed, if at all;
•creating an adverse short-term effect on our results of operations; and
•losing key employees and customers as a result of an acquisition that is poorly received.
If we do not successfully manage these risks, our acquisition activities could have a material adverse effect on our operating results and financial condition, including short- and long-term liquidity.

The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties, and
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we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, and investment banks. Defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. We can make no assurance that any such losses would not materially and adversely affect our business, financial condition or results of operations.

We are subject to interest rate risk, which could negatively impact earnings.

Net interest income is the most significant component of our earnings. Our net interest income results from the difference between the yields we earn on our interest-earning assets, primarily loans and investments, and the rates that we pay on our interest-bearing liabilities, primarily deposits and borrowings. When interest rates change, the yields we earn on our interest-earning assets and the rates we pay on our interest-bearing liabilities do not necessarily move in tandem with each other because of the difference between their maturities and repricing characteristics. This mismatch can negatively impact net interest income if the margin between yields earned and rates paid narrows. Interest rate environment changes can occur at any time and are affected by many factors that are outside our control, including inflation, recession, unemployment trends, the Federal Reserve’s monetary policy, domestic and international disorder and instability in domestic and foreign financial markets.

In the normal course of business, we process large volumes of transactions involving millions of dollars. If our internal controls fail to work as expected, if our systems are used in an unauthorized manner, or if our employees subvert our internal controls, we could experience significant losses.

We process large volumes of transactions on a daily basis involving millions of dollars and are exposed to numerous types of operational risk. Operational risk includes the risk of fraud by persons inside or outside the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems and breaches of the internal control system and compliance requirements. This risk also includes potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards.

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We establish and maintain systems of internal operational controls that provide us with timely and accurate information about our level of operational risk. Although not foolproof, these systems have been designed to manage operational risk at appropriate, cost-effective levels. Procedures exist that are designed to ensure that policies relating to conduct, ethics, and business practices are followed. From time to time, losses from operational risk may occur, including the effects of operational errors. We continually monitor and improve our internal controls, data processing systems, and corporate-wide processes and procedures, but there can be no assurance that future losses will not occur.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business. We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans and other sources could have a substantial negative effect on our liquidity.

Our access to funding sources in amounts adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action against us or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent turmoil faced by banking organizations or deterioration in credit markets.

If our goodwill becomes impaired, we may be required to record a significant charge to earnings.

We have goodwill recorded on our balance sheet as an asset with a carrying value as of December 31, 20182020 of $234.4$239.3 million. Under generally accepted accounting principles, goodwill is required to be tested for impairment at least annually and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.amount - see Note 6 to the consolidated financial statements for discussion of interim testing during 2020 that we performed.  The test for goodwill impairment
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involves comparing the fair value of a company’s reporting units to their respective carrying values.  We have three reporting units – 1) First Bank with $222.7$227.6 million in goodwill, 2) First Bank Insurance with $7.4 million in goodwill, and 3) SBA activities, including SBA Complete and our SBA Lending Division, with $4.3 million in goodwill. The price of our common stock is one of several factors available for estimating the fair value of our reporting units and is most closely associated with our First Bank reporting unit. Subject to the results of other valuation techniques, if the price of our common stock falls below book value, it could indicate that a portion of our goodwill is impaired.  Accordingly, for this reason or other reasons that indicate that the goodwill at any of our reporting units is impaired, we may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill is determined, which could have a negative impact on our results of operations.

We might be required to raise additional capital in the future, but that capital may not be available or may not be available on terms acceptable to us when it is needed.

We are required to maintain adequate capital levels to support our operations. In the future, we might need to raise additional capital to support growth, absorb loan losses, or meet more stringent capital requirements. Our ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot be certain of our ability to raise additional capital in the future if needed or on terms acceptable to us. If we cannot raise additional capital when needed, our ability to conduct our business could be materially impaired.

We may issue additional shares of stock or equity derivative securities that will dilute the percentage ownership interest of existing shareholders and may dilute the book value per share of our common stock and adversely affect the terms on which we may obtain additional capital.

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Our authorized capital includes 40,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of December 31, 2018,2020, we had 29,724,87428,579,335 shares of common stock outstanding and had reserved for issuance 9,000 shares underlying options that are or may become exercisable at an average price of $14.35 per share.outstanding. In addition, as of December 31, 2018,2020, we had the ability to issue 750,707549,876 shares of common stock pursuant to options and restricted stock under our existing equity compensation plans and 53,496 contingently issuable shares that are tied to performance goals associated with a corporate acquisition.

plan.

Subject to applicable NASDAQ rules, our board generally has the authority, without action by or vote of the shareholders, to issue all or part of any authorized but unissued shares of stock for any corporate purpose. Such corporate purposes could include, among other things, issuances of equity-based incentives under or outside of our equity compensation plans, issuances of equity in business combination transactions, and issuances of equity to raise additional capital to support growth or to otherwise strengthen our balance sheet. Any issuance of additional shares of stock or equity derivative securities will dilute the percentage ownership interest of our shareholders and may dilute the book value per share of our common stock. Shares we issue in connection with any such offering will increase the total number of outstanding shares and may dilute the economic and voting ownership interest of our existing shareholders.

We may be adversely impacted by the transition from LIBOR as a reference rate.

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). This announcement indicated that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Consequently, at this time, it is not possible to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR. Similarly, it is not possible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments.

We have a significant number of loans and borrowings with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and additional risk. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.

Future acquisitions may be delayed, impeded, or prohibited due to regulatory issues.

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Future acquisitions by the Company, particularly those of financial institutions, are subject to approval by a variety of federal and state regulatory agencies. The process for obtaining these required regulatory approvals has become substantially more difficult in recent years. Regulatory approvals could be delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues we have, or may have, with regulatory agencies, including, without limitation, issues related to AML and Bank Secrecy ActBSA compliance, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations, CRA issues, and other similar laws and regulations. We may fail to pursue, evaluate or complete strategic and competitively significant acquisition opportunities as a result of our inability, or perceived or anticipated inability, to obtain regulatory approvals in a timely manner, under reasonable conditions or at all. Difficulties associated with potential acquisitions that may result from these factors could have a material adverse effect on our business, and, in turn, our financial condition and results of operations.

We may be exposed to difficulties in combining the operations of acquired businesses into our own operations, which may prevent us from achieving the expected benefits from our acquisition activities.

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We may not be able to fully achieve the strategic objectives and operating efficiencies that we anticipate in our acquisition activities. Inherent uncertainties exist in integrating the operations of an acquired business. In addition, the markets and industries in which the Company and our potential acquisition targets operate are highly competitive. We may lose customers or the customers of acquired entities as a result of an acquisition. We also may lose key personnel from the acquired entity as a result of an acquisition. We may not discover all known and unknown factors when examining a company for acquisition during the due diligence period. These factors could produce unintended and unexpected consequences for us. Undiscovered factors as a result of acquisition, pursued by non-related third party entities, could bring civil, criminal, and financial liabilities against us, our management, and the management of those entities acquired. These factors could contribute to the Company not achieving the expected benefits from its acquisitions within desired time frames.

We are subject to federal and state fair lending laws, and failure to comply with these laws could lead to material penalties.

Federal and state fair lending laws and regulations, such as the Equal Credit Opportunity Act and the Fair Housing Act, impose nondiscriminatory lending requirements on financial institutions. The Department of Justice, the Consumer Finance Protection Bureau and other federal and state agencies are responsible for enforcing these laws and regulations. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. A successful challenge to our performance under the fair lending laws and regulations could adversely impact our CRA rating and result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on or delays in approving merger and acquisition activity and restrictions on expansion activity, which could negatively impact our reputation, business, financial condition and results of operations.

We could experience losses due to competition with other financial institutions.

We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many of which are larger and may have more financial resources. Such competitors primarily include national, regional and internet banks within the various markets in which we operate. We also face competition from many other types of financial institutions, including, without limitation, thrifts, credit unions, finance companies, brokerage firms, insurance companies and other financial intermediaries, such as online lenders and banks. The financial services industry could become even more competitive as a result of legislative and regulatory changes and continued consolidation. In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can.

Our ability to compete successfully depends on a number of factors, including, among other things:

·the ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets;
·the ability to expand our market position;
·the scope, relevance, and pricing of products and services offered to meet customer needs and demands;
·the rate at which we introduce new products and services relative to our competitors;
·customer satisfaction with our level of service; and
·industry and general economic trends.

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•the ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets;
•the ability to expand our market position;
•the scope, relevance, and pricing of products and services offered to meet customer needs and demands;
•the rate at which we introduce new products and services relative to our competitors;
•customer satisfaction with our level of service; and
•industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.

Failure to keep pace with technological change could adversely affect our business.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

New lines of business or new products and services may subject us to additional risk.

From time to time, we may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business and/or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business and/or new products or services could have a material adverse effect on our business and, in turn, our financial condition and results of operations.

In May 2016, we completed the acquisition of SBA Complete. SBA Complete specializes in consulting with financial institutions across the country related to SBA loan origination and servicing. We leveraged the expertise assumed in the acquisition of SBA Complete to launch our own SBA Lending Division in the third quarter of 2016. These are both relatively new lines of business for the Bank with unique operational, control and accounting risks, which if not properly managed, could result in losses for our Company.

In September 2020, we completed the acquisition of Magnolia Financial, which offers accounts receivable financing and factoring, inventory financing and purchase-order financing. This line of business is new for the Bank and has unique operational, control and accounting risks, which if not properly managed, could result in losses for our Company.
Our reported financial results are impacted by management’s selection of accounting methods and certain assumptions and estimates.

Our accounting policies and methods are fundamental to the way we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with generally accepted accounting principles and reflect management’s judgment of the most appropriate manner to report our financial condition and results. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in reporting materially different results than would have been reported under a different alternative.

24
Certain accounting policies are critical to presenting our financial condition and results. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. These critical accounting policies include: the allowance for loan losses; intangible assets; and the fair value and discount accretion of acquired loans.

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Table of Contents

Changes in accounting standards could materially impact our financial statements.

From time to time accounting standards setters change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results or a cumulative charge to retained earnings. See Note 1(v)1 – Recent Accounting Pronouncements in the notes to consolidated financial statements included in Item 8. Financial Statements.

Our business continuity plans or data security systems could prove to be inadequate, resulting in a material interruption in, or disruption to, our business and a negative impact on our results of operations.

We rely heavily on communications and information systems to conduct our business. Our daily operations depend on the operational effectiveness of our technology. We rely on our systems to accurately track and record our assets and liabilities. Any failure, interruption or breach in security of our computer systems or outside technology, whether due to severe weather, natural disasters, acts of war or terrorism, criminal activity, cyber attacks or other factors, could result in failures or disruptions in general ledger, deposit, loan, customer relationship management, and other systems leading to inaccurate financial records. This could materially affect our business operations and financial condition. While we have disaster recovery and other policies and procedures designed to prevent or limit the effect of any failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our results of operations.

In addition, the Bank provides its customers the ability to bank online and through mobile banking. The secure transmission of confidential information over the Internet is a critical element of online and mobile banking. While we use qualified third party vendors to test and audit our network, our network could become vulnerable to unauthorized access, computer viruses, phishing schemes and other security issues. The Bank may be required to spend significant capital and other resources to alleviate problems caused by security breaches or computer viruses. To the extent that the Bank’s activities or the activities of its customers involve the storage and transmission of confidential information, security breaches and viruses could expose the Bank to claims, litigation, and other potential liabilities. Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in the Bank’s systems and could adversely affect its reputation and its ability to generate deposits.

Additionally, we outsource the processing of our core data system, as well as other systems such as online banking, to third party vendors. Prior to establishing an outsourcing relationship, and on an ongoing basis thereafter, management monitors key vendor controls and procedures related to information technology, which includes reviewing reports of service auditor’s examinations. If our third party provider encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations.

We rely on certain external vendors.

We are reliant upon certain external vendors to provide products and services necessary to maintain our day-to-day operations. Accordingly, our operations are exposed to risk that these vendors will not perform in accordance with applicable contractual arrangements or service level agreements. We maintain a system of policies and procedures designed to monitor vendor risks including, among other things, (i) changes in the vendor’s organizational structure, (ii) changes in the vendor’s financial condition and (iii) changes in the vendor’s support for existing products and services. While we believe these policies and procedures help to mitigate risk, and our vendors are not the sole source of service, the failure of an external vendor to perform in accordance with applicable contractual
25
arrangements or the service level agreements could be disruptive to our operations, which could have a material adverse impact on our business and its financial condition and results of operations.

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We are subject to losses due to errors, omissions or fraudulent behavior by our employees, clients, counterparties or other third parties.

We are exposed to many types of operational risk, including the risk of fraud by employees and third parties, clerical recordkeeping errors and transactional errors. Our business is dependent on our employees as well as third-party service providers to process a large number of increasingly complex transactions. We could be materially and adversely affected if employees, clients, counterparties or other third parties caused an operational breakdown or failure, either as a result of human error, fraudulent manipulation or purposeful damage to any of our operations or systems.

In deciding whether to extend credit or to enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients and counterparties, including financial statements and other financial information, which we do not independently verify. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a client, we may assume that the client’s audited financial statements conform with U.S. Generally Accepted Accounting Principles (“GAAP”)GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the client. Our financial condition and results of operations could be negatively affected to the extent we rely on financial statements that do not comply with GAAP or are materially misleading, any of which could be caused by errors, omissions, or fraudulent behavior by our employees, clients, counterparties, or other third parties.

Risks Related to the Company’s Common Stock

There can be no assurance that we will continue to pay cash dividends.

Although we have historically paid cash dividends, there is no assurance that we will continue to pay cash dividends. Future payment of cash dividends, if any, will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements, economic conditions, and such other factors as the board may deem relevant.

Future sales of our stock by our shareholders or the perception that those sales could occur may cause our stock price to decline.

Although our common stock is listed for trading in The NASDAQ Global Select Market under the symbol “FBNC”, the trading volume in our common stock is lower than that of other larger financial services companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the relatively low trading volume of our common stock, significant sales of our common stock in the public market, or the perception that those sales may occur, could cause the trading price of our common stock to decline or to be lower than it otherwise might be in the absence of those sales or perceptions.

Our stock price can be volatile.

Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. Our stock price can fluctuate significantly in response to a variety of factors including the risk factors discussed elsewhere in this report that are outside of our control and which may occur regardless of our operating results.

An investment in the Company’s common stock is not an insured deposit.

The Company’s common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in the Company’s common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire the Company’s common stock, you could lose some or all of your investment.

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Item 1B. Unresolved Staff Comments

None

Item 2. Properties

The main offices of the Company and the Bank are located in a three-story building in the central business district of Southern Pines, North Carolina and is owned by the Bank. The building houses administrative facilities. The Bank’s Operations Division, including customer accounting functions, offices for information technology operations, and offices for loan operations, are primarily housed in two one-story steel frame buildings in Troy, North Carolina. Both of these buildingsCarolina and Greensboro, North Carolina, which are owned by the Bank. At December 31, 2018,2020, the Company operated 101 bank branches. The Company owned all of its bank branch premises except eightnine branch offices for which the land and buildings are leased and nineeight branch offices for which the land is leased but the building is owned. The Bank also leases one loan production office and fiveseveral other office locations for administrative functions. The BankWe also leases 10lease several locations for our SBA related activities and leases three properties for our insurance subsidiary. There are no options to purchase or lease additional properties. The Company considers its facilities adequate to meet current needs and believes that lease renewals or replacement properties can be acquired as necessary to meet future needs.

Item 3. Legal Proceedings

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

Item 4. Mine Safety Disclosure

Not applicable.

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PART II

Item 5. Market for the Registrant’s Common Stock, Related Shareholder Matters, and Issuer Purchases of Equity Securities

Our common stock trades on The NASDAQ Global Select Market under the trading symbol “FBNC”. Tables 1 and 2221 included in “Management’s Discussion and Analysis” below provide historic information on the market price for the Company’s common stock. As of December 31, 2018,2020, there were approximately 1,700 2,300 shareholders of record and another 7,1008,350 shareholders whose stock is held in “street name.”

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TableTables 1 and 21 include information regarding cash dividends declared per share of Contentscommon stock for the periods presented. For each quarter in 2020, we declared a cash dividend of $0.18 per common share. For the foreseeable future, it is our current intention to continue to pay regular cash dividends on a quarterly basis. However, our ability to pay future cash dividends can be restricted or eliminated by regulatory authorities. See Note 15 to the Consolidated Financial Statements and "Capital Resources and Shareholders' Equity" section in Item 7 for additional discussion.

Performance Graph

The performance graph shown below compares the Company’s cumulative total return to shareholders for the five-year period commencing December 31, 20132015 and ending December 31, 2018,2020, with the cumulative total return of the Russell 2000 Index (reflecting overall stock market performance of small-capitalization companies), an index of banks with between $1 billion and $5 billion in assets, and an index of banks with between $5 billion and $10 billion in assets, both as constructed by SNL Securities, LP (reflecting changes in banking industry stocks). In 2017, the Company’s total assets increased above $5 billion due to acquisition transactions. The graph and table assume that $100 was invested on December 31, 20132015 in each of the Company’s common stock, the Russell 2000 Index, and the SNL Bank Indexes,Index, and that all dividends were reinvested.

27

First Bancorp

Comparison of Five-Year Total Return Performances (1)

Five Years Ending December 31, 2018

  Total Return Index Values (1)
December 31,		 
  2013  2014  2015  2016  2017  2018 
First Bancorp $100.00   113.12   116.87   171.94   225.92   211.23 
Russell 2000  100.00   104.89   100.26   121.63   139.44   124.09 
SNL Index-Banks between $1 billion and $5 billion  100.00   104.56   117.04   168.38   179.51   157.27 
SNL Index-Banks between $5 billion and $10 billion  100.00   103.01   117.34   168.11   167.48   151.57 

_____________

(1)Total return indices were provided from an independent source, SNL Securities LP, Charlottesville, Virginia, and assume initial investment of $100 on December 31, 2013, reinvestment of dividends, and changes in market values. Total return index numerical values used in this example are for illustrative purposes only.

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2020

fbnc-20201231_g1.jpg
 Total Return Index Values (1)
December 31,
 201520162017201820192020
First Bancorp$100.00 147.11 193.30 180.73 224.09 195.60 
Russell 2000100.00 121.31 139.08 123.76 155.35 186.36 
SNL Index-Banks between $5 billion and $10 billion100.00 143.27 142.73 129.17 160.06 145.37 
_____________
(1)Total return indices were provided from an independent source, SNL Securities LP, Charlottesville, Virginia, and assume initial investment of $100 on December 31, 2015, reinvestment of dividends, and changes in market values. Total return index numerical values used in this example are for illustrative purposes only.
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Issuer Purchases of Equity Securities

Pursuant to authorizations by the Company’s Board of Directors, the Company has from time to time repurchased shares of common stock in private transactions and in open-market purchases.
Issuer Purchases of Equity Securities
PeriodTotal Number of Shares
Purchased		Average Price
Paid Per Share		Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs (1)		Maximum Number of Shares (or Approximate Dollar Value)
That May Yet Be Purchased
Under the Plans or Programs
(1)
Month #1 (October 1, 2020 to October 31, 2020)57,774 $23.69 57,774 $9,929,958 
Month #2 (November 1, 2020 to November 30, 2020)73,639 $24.42 73,639 $8,131,572 
Month #3 (December 1, 2020 to December 31, 2020)— $— — $8,131,572 
Total131,413 $24.10 131,413 $8,131,572 
___________________
(1)All shares available for repurchase are pursuant to publicly announced share repurchase authorizations. The Company did notshare repurchase any shares of its common stock duringauthorization for the quarter ended2020 repurchases expired on December 31, 2018.

Issuer Purchases of Equity Securities
PeriodTotal 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)
Month #1 (October 1, 2018 to October 31, 2018)—$——214,241
Month #2 (November 1, 2018 to November 30, 2018)———214,241
Month #3 (December 1, 2018 to December 31, 2018)———214,241
Total—$——214,241

___________________

(1)All shares available for repurchase are pursuant to publicly announced share repurchase authorizations. As of December 31, 2018, the Company had the authorization to repurchase up to 375,000 shares of the Company’s stock (per July 30, 2004 authorization). On February 5, 2019, the Company announced that its Board of Directors had approved the authorization to repurchase up to $25,000,000 of the Company’s common stock, which replaces the share authorization noted above. The repurchase authorization has an expiration date of December 31, 2019.

(2)The table above does not include shares that were used by option holders to satisfy the exercise price of the options issued by the Company to its employees and directors pursuant to the Company’s stock option plans. There were no such transactions in the three months ended December 31, 2018.

2020. On January 27, 2021, the Company reported the authorization of a new $20 million repurchase program with an expiration date of December 31, 2021.

Also see “Additional Information Regarding the Registrant’s Equity Compensation Plans” in Item 12.

Item 6. Selected Consolidated Financial Data

Table 1 on page 6360 of this report sets forth the selected consolidated financial data for the Company.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis is intended to assist readers in understanding our results of operations and changes in financial position for the past three years. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes beginning on page 8178 of this report and the supplemental financial data contained in Tables 1 through 2221 beginning on page 6860 of this report. This discussion may contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in forward-looking statements as a result of various factors. The following discussion is intended to assist in understanding the financial condition and results of operations of the Company.

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Overview - 20182020 Compared to 2017

2019

We reported net income per diluted common share of $3.01$2.81 in 2018,2020, a 65.4% increase9.4% decrease compared to 2017.

Financial Highlights         
  ($ in thousands except per share data) 2018  2017  Change 
          
Earnings            
   Net interest income $207,430   164,711   25.9% 
   Provision (reversal) for loan losses  (3,589)  723   n/m 
   Noninterest income  61,834   48,908   26.4% 
   Noninterest expenses  159,375   145,157   9.8% 
   Income before income taxes  113,478   67,739   67.5% 
   Income tax expense  24,189   21,767   11.1% 
   Net income available to common shareholders $89,289   45,972   94.2% 
             
Net income per common share            
   Basic $3.02   1.82   65.9% 
   Diluted  3.01   1.82   65.4% 
             
Balances At Year End            
   Assets $5,864,116   5,547,037   5.7% 
   Loans  4,249,064   4,042,369   5.1% 
   Deposits  4,659,339   4,406,955   5.7% 
             
Ratios            
   Return on average assets  1.57%   1.00%     
   Return on average common equity  12.27%   8.62%     
   Net interest margin (taxable-equivalent)  4.12%   4.08%     
             
n/m – not meaningful            

2019. Our outstanding loan balances increased by 6.2% and our total deposits increased 27.2%.

Financial Highlights
($ in thousands except per share data)20202019Change
Earnings
Net interest income$218,122 216,204 0.9 %
Provision for loan losses35,039 2,263 1,448.3 %
Noninterest income81,346 59,529 36.6 %
Noninterest expenses161,298 157,194 2.6 %
Income before income taxes103,131 116,276 (11.3)%
Income tax expense21,654 24,230 (10.6)%
Net income$81,477 92,046 (11.5)%
Net income per common share
Basic$2.81 3.10 (9.4)%
Diluted2.81 3.10 (9.4)%
Balances At Year End
Assets$7,289,751 6,143,639 18.7 %
Loans4,731,315 4,453,466 6.2 %
Deposits6,273,596 4,931,355 27.2 %
Ratios
Return on average assets1.20 %1.53 %
Return on average common equity9.32 %11.32 %
Net interest margin (taxable-equivalent)3.56 %4.00 %
For the year ended December 31, 2018, we2020, the Company recorded net income available to common shareholders of $89.3$81.5 million, or $3.01$2.81 per diluted common share an increase of 65.4% in earnings per share from the $46.0compared to $92.0 million, or $1.82$3.10 per diluted common share, for 2017. The2019. Earnings for 2020 were impacted by a higher earnings in 2018 were primarily dueprovision for loan losses related to the acquisitions of Carolina Bank on March 3, 2017 and Asheville Savings Bank on October 1, 2017. The assets, liabilities and earnings for the acquisitions were recorded beginning on their respective acquisition dates. Therefore, the year 2018 includes twelve months of earningsestimated losses arising from the acquisition compared to only a partial year in 2017. Earnings and earnings per shareeconomic impact of COVID-19. The impact of the higher provisions for 2018 also benefitted from operational efficiencies thatloan losses were partially offset by higher noninterest income realized in the integration of the acquisitions that became fully realized in the final three quarters of 2018.

2020.


Net interest income for the year ended December 31, 20182020 amounted to $207.4$218.1 million, a 25.9%0.9% increase from the $164.7$216.2 million recorded in 2017.2019. The increase in net interest income in 2020 was primarily due to growth in average interest-earning assets, which increased by approximately 13.1% during the year as a result of funds received from our high deposit growth, and which offset a lower net interest margin. Also, see the section entitled "Net Interest Income" for additional information.

Our net interest margin (a non-GAAP measure calculated by dividing tax-equivalent net interest income by average earning assets) was 3.56% compared to 4.00% for 2019. The lower 2020 margin was primarily due to the impact of lower interest rates and the lower incremental reinvestment rates realized from the funds received from our high deposit growth.

We recorded a provision for loan losses of $35.0 million compared to $2.3 million for 2019. The increase in 2020 was primarily related to estimated probable losses arising from the economic impact of COVID-19.

For the years ended December 31, 2020 and 2019, total noninterest income was $81.3 million and $59.5 million, respectively. The increase primarily related to 1) increased fees from presold mortgages due to higher mortgage origination activity, 2) gains on sales of securities, and 3) higher SBA consulting fees associated with the Paycheck Protection Program ("PPP") loan program. See the section entitled "Noninterest Income" for additional information.

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Noninterest expenses for the years ended December 31, 2020 and 2019, amounted to $161.3 million and $157.2 million, respectively, an increase of 2.6% in 2020. The increase was primarily due to higher mortgage commission expense resulting from increases in mortgage loan volume in 2020. See the section entitled "Noninterest Expense" for additional information.

Total assets at December 31, 2020 amounted to $7.3 billion, a 18.7% increase from a year earlier. The growth was driven by an increase in deposits of $1.3 billion, or 27.2% during 2020. In addition to deposits arising from PPP loans, we believe this high deposit growth was due to a combination of stimulus funds, changes in customer behaviors during the pandemic, and a flight to quality to FDIC-insured banks, as well as our ongoing deposit growth initiatives. Loan growth for 2020 was $278 million, or 6.2%, which included $241 million in PPP loans. Loan growth in 2020 was negatively impacted by a number of large commercial loan payoffs, as well as high levels of refinanced mortgage loans.

With the excess liquidity resulting from the high deposit growth, during 2020 we paid down our borrowings by $239 million, or 79.4%, and reduced our level of brokered deposits by $66 million, or 76.5%. We also purchased investment securities, with total investment securities amounting to $1.6 billion at December 31, 2020, an increase of $731 million, or 82.1%, compared to a year earlier.

During 2020, we repurchased 1,117,208 shares of the Company's common stock at an average stock price of $28.53, which totaled $31.9 million.
Overview - 2019 Compared to 2018
We reported net income per diluted common share of $3.10 in 2019, a 3.0% increase compared to 2018. Our outstanding loan balances increased by 4.8% and total deposits increased 5.8%.
Financial Highlights
($ in thousands except per share data)20192018Change
Earnings
Net interest income$216,204 207,430 4.2 %
Provision (reversal) for loan losses2,263 (3,589)n/m
Noninterest income59,529 58,942 1.0 %
Noninterest expenses157,194 156,483 0.5 %
Income before income taxes116,276 113,478 2.5 %
Income tax expense24,230 24,189 0.2 %
Net income$92,046 89,289 3.1 %
Net income per common share
Basic$3.10 3.02 2.6 %
Diluted3.10 3.01 3.0 %
Balances At Year End
Assets$6,143,639 5,864,116 4.8 %
Loans4,453,466 4,249,064 4.8 %
Deposits4,931,355 4,659,339 5.8 %
Ratios
Return on average assets1.53 %1.57 %
Return on average common equity11.32 %12.27 %
Net interest margin (taxable-equivalent)4.00 %4.09 %
n/m – not meaningful
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For the year ended December 31, 2019, we recorded net income of $92.0 million, or $3.10 per diluted common share, an increase of 3% in earnings per share from the $89.3 million, or $3.01 per diluted common share, for 2018. The higher earnings in 2019 were primarily related to higher net interest income associated with our growth.
Net interest income for the year ended December 31, 2019 amounted to $216.2 million, a 4.2% increase from the $207.4 million recorded in 2018. The increase in net interest income was primarily due to a higher net interest margin realized in 2018 as well growth in interest-earning assets, which for the twelve month period was impacted by assets acquired in the Carolina Bank and Asheville Savings Bank acquisitions.assets. Also, see the section entitled “Net Interest Income” for additional information.

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Our net interest margin (tax-equivalent net interest income divided by average earning assets) was 4.12%4.00% for 20182019 compared to 4.08%4.09% for 2017.2018. The increasedecrease in the net interest margin realized in 2018 were2019 was primarily due to a resultcombination of asset yields increasing slightlylower loan discount accretion and funding costs that rose by more than liability costs. Interest incomeasset yields.

We recorded a provision for the year ended December 31, 2018 was also positively impacted by approximately $0.8loan losses of $2.3 million in interest recoveries received in the first quarter, which primarily related2019 compared to the same loans that experienced significant allowance for loan loss recoveries discussed below in “Provisions for Loan Losses and Asset Quality.”

We recorded a negative provision for loan losses of $3.6 million (reduction of the allowance for loan losses) in 2018 compared to a provision for loan losses of $0.7 million in 2017.2018. The negative provision for 2018 was due primarily to several large loan recoveries realized in the first quarter of 2018 totaling $3.7 million. Generally, our provisions for loan losses have been low over the past several years due to strong asset quality, including low loan charge-offs.

For the year ended December 31, 2018,2019, noninterest income amounted to $61.8$59.5 million compared to $48.9$58.9 million for 2017. The primary reasons for the2018, an increase of 1.0%. Increases were experienced in core noninteresti) service charges on deposit accounts due to strong deposit growth, ii) interchange income due to increased credit and debit card usage, and iii) in 2018fees from presold mortgages due to higher mortgage origination activity. Those increases were the previously discussed bank acquisitions and an insurance agency acquisition completed late in 2017, as well as higher income derived from the Company’s SBA consulting fees andsubstantially offset by lower SBA loan sale gains.gains and lower SBA consulting fees. See the section entitled “Noninterest Income” for additional information.

Noninterest expenses for the year ended December 31, 20182019 amounted to $159.4$157.2 million compared to $145.2$156.5 million in 2017. Most categories2018, an increase of noninterest0.5%. A 5.4% increase in salaries expense experienced generalassociated with wage increases in 2018 due to our growth, primarily due toand the previously noted acquisitions. Also impacting expenses were other growth initiatives, including continued growth of SBA Completethe Company was substantially offset by lower merger and the SBA Lending Division.acquisition expenses and lower intangibles amortization expense. See the section entitled “Noninterest Expense” for additional information.

For the years ended December 31, 2018 and 2017, our effective tax rates were 21.3% and 32.1%, respectively. The lower effective tax rate in 2018 was due to the 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 December 31, 20182019 amounted to $5.9$6.1 billion, a 5.7%4.8% increase from a year earlier. Loan growth for the year ended December 31, 20182019 amounted to $207$204.4 million, or 5.1%4.8%, and deposit growth amounted to $252.4$272.0 million, or 5.7%5.8%.

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Table of Contents

Overview - 2017 Compared to 2016

We reported net income per diluted common share of $1.82 Within deposits, our retail deposits (excludes brokered deposits and internet time deposits) grew 9.7% during 2019, with 14.8% growth in 2017,noninterest-bearing checking accounts. As a 36.8% increase compared to 2016. The increased earnings were primarily due to the Company’s acquisitions of Carolina Bank and Asheville Savings Bank, with loans increasing 49.1% and deposits increasing 49.5% year over year.

Financial Highlights         
  ($ in thousands except per share data) 2017  2016  Change 
          
Earnings            
   Net interest income $164,711   123,380   33.5% 
   Provision for loan losses - non-covered  723   (23)  n/m 
   Noninterest income  48,908   25,551   91.4% 
   Noninterest expenses  145,157   106,821   35.9% 
   Income before income taxes  67,739   42,133   60.8% 
   Income tax expense  21,767   14,624   48.8% 
   Net income  45,972   27,509   67.1% 
   Preferred stock dividends  —   (175)    
   Net income available to common shareholders $45,972   27,334   68.2% 
             
Net income per common share            
   Basic $1.82   1.37   32.8% 
   Diluted  1.82   1.33   36.8% 
             
Balances At Year End            
   Assets $5,547,037   3,614,862   53.5% 
   Loans  4,042,369   2,710,712   49.1% 
   Deposits  4,406,955   2,947,353   49.5% 
             
Ratios            
   Return on average assets  1.00%   0.80%     
   Return on average common equity  8.62%   7.73%     
   Net interest margin (taxable-equivalent)  4.08%   4.03%     
             
n/m – not meaningful            

For the year ended December 31, 2017, we reported net income available to common shareholders of $46.0 million, or $1.82 per diluted common share, an increase of 36.8% in earnings per share from the $27.3 million, or $1.33 per diluted common share, in 2016. The higher earnings in 2017 were primarily the result of the strong retail deposit growth, we reduced our level of brokered deposits by $153.7 million, or 64.1%, from $239.9 million at December 31, 2018 to $86.1 million at December 31, 2019. Internet time deposits decreased from $3.4 million at December 31, 2018 to $0.7 million at December 31, 2019. Additionally, we paid down borrowings by $106 million, or 26.0%, during 2019.

During 2019, we repurchased 281,593 shares of the Company,Company's common stock at an average price of $35.51, which totaled $10 million.

Recent Developments Related to COVID-19

Overview. Our business has been, and continues to be, impacted by COVID-19. In March 2020, COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the President of the United States. Efforts to limit the spread of COVID-19 have included shelter-in-place orders, the closure of non-essential businesses, travel restrictions, supply chain disruptions and prohibitions on public gatherings, among other things, throughout many parts of the United States and, in particular, the markets in which we operate. As the current pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including, two acquisitions completed in 2017,among other things, its severity; the duration of the outbreak; the impact to our customers, employees and vendors; the impact to the financial services and banking industry; and the impact to the economy as a whole as well as other initiativesthe effect of actions taken, or that increased profitability.

On March 3, 2017, we acquired Carolina Bank, which operated eight branchesmay yet be taken, or inaction by governmental authorities to contain the outbreak or to mitigate its impact (both economic and three mortgage loan offices, primarily inhealth-related). COVID-19 has negatively affected, and is expected to continue to negatively affect, our business, financial position and operating results. In light of the Triad regionuncertainties and continuing developments discussed herein, the ultimate adverse impact of COVID-19 cannot be reliably estimated at this time, but could be increasingly material.


Impact on our Operations. In the State of North Carolina. AsCarolina, many jurisdictions declared health emergencies. The resulting closures and/or limited operations of the acquisition date, Carolina Bank had total assets of $682 million, including $497 million in loansnon-essential businesses and $585 million in deposits.

On October 1, 2017, we acquired Asheville Savings Bank, which operated through 13 branches in the Asheville area. As of the acquisition date, Asheville Savings Bank reported total assets of approximately $798 million, including $606 million in loans and $679 million in deposits.

Net interest income for the year ended December 31, 2017 amounted to $164.7 million, a 33.5% increase from the $123.4 million recorded in 2016. The increase in net interest income was primarily due to the acquisitions of Carolina Bank and Asheville Savings Bank,related economic disruption have impacted our operations as well as higher amountsthe operations of loans outstandingour customers. Financial services have been identified as a Critical Infrastructure Sector by the Department of Homeland Security. Accordingly, our business remains open. To address the issues arising as a result of organic growth. Also, seeCOVID-19, and in order to facilitate the section entitled “Net Interest Income” for additional information.

Our net interest margin was 4.08% for 2017 compared to 4.03% for 2016. Asset yields increased primarily as a resultcontinued delivery of three Federal Reserve interest rate increases in 2017. Funding costs also increased in 2017, but to a slightly lesser degree.

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essential
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We recorded

services while maintaining a provisionhigh level of safety for loan lossesour customers as well as our employees, we have implemented our Business Continuity Plans. Among other things, significant actions taken under these plans include:

•Implemented our communications plans to ensure our employees, customers and critical vendors are kept abreast of $0.7 milliondevelopments affecting our operations.
•After temporarily closing all of our financial center lobbies and other corporate facilities to non-employees, except for certain limited cases by appointment only, we reopened our financial center lobbies in 2017 comparedlate May 2020. Those facilities remain open, with limited exceptions.
•Expanded remote-access availability so that a significant portion of our workforce has the capability to work from home or other remote locations. All activities are performed in accordance with our compliance and information security policies designed to ensure customer data and other information is properly safeguarded.
•Instituted mandatory social distancing policies and mask protocols for those employees not working remotely. Members of certain operations teams have been split into two teams that rotate their work location between work and home.

Notwithstanding the foregoing actions, the COVID-19 outbreak could still, among other things, greatly affect our routine and essential operations due to staff absenteeism, particularly among key personnel; further limit access to or result in further closures of our branch facilities and other physical offices; exacerbate operational, technical or security-related risks arising from a negative provisionremote workforce; and result in adverse government or regulatory agency orders. The business and operations of our third-party service providers, many of whom perform critical services for loan losses (reductionour business, could also be significantly impacted, which in turn could impact us. As a result, we are currently unable to fully assess or predict the extent of the allowance foreffects of COVID-19 on our operations as the ultimate impact will depend on factors that are currently unknown and/or beyond our control.

Impact on our Financial Position and Results of Operations. Our financial position and results of operations are particularly susceptible to the ability of our loan losses)customers to meet loan obligations, the availability of $23,000our workforce, the availability of our vendors and the decline in 2016.the value of assets held by us. While its effects continue to materialize, the COVID-19 pandemic has resulted in a decrease in commercial activity throughout our market area, as well as nationally. This decrease in commercial activity has increased the risk that certain customers (including businesses and individuals), vendors and counterparties will be unable to meet existing payment or other obligations to us. The low levelnational public health crisis arising from the COVID-19 pandemic (and public expectations about it), could further destabilize the financial markets and geographies in which we operate. Due to the expectation of higher borrower defaults, we recorded an elevated provision for loan losses in both2020. See further information related to the risk exposure of our loan portfolio under the sections captioned "Provision for Loan Losses," “Loans,” and “Allowance for Loan Losses” elsewhere in this discussion.

In addition, the economic pressures and uncertainties arising from the COVID-19 pandemic have resulted in and may continue to result in specific changes in consumer and business spending and borrowing and saving habits, affecting the demand for loans and other products and services we offer. Consumers affected by COVID-19 may continue to demonstrate changed behavior even after the crisis is over. For example, consumers may decrease discretionary spending on a permanent or long-term basis and certain industries may take longer to recover (particularly those that rely on travel or large gatherings) as consumers may be hesitant to return to full social interaction. We lend to customers operating in such industries including retail/strip centers, hotels/lodging, restaurants, entertainment and commercial real estate, among others, that have been significantly impacted by COVID-19 and we are continuing to monitor these customers closely. To help mitigate the adverse effects of COVID-19, loan customers may apply for a deferral of payments, or portions thereof, for up to 90 days. After 90 days, customers may apply for an additional deferral. Additionally, the temporary closures of bank branches and the safety precautions implemented at re-opened branches could result in consumers becoming more comfortable with technology and devaluing face-to-face interaction. Our business is relationship driven and such changes could necessitate changes to our business practices to accommodate changing consumer behaviors. The potential changes in behaviors driven by COVID-19 also present heightened liquidity risks, for example, arising from increased demand for our products and services (such as unusually high draws on credit facilities) or decreased demand for our products and services.

Legislative and Regulatory Developments. Recent actions taken by the federal government and the Federal Reserve and other bank regulatory agencies to mitigate the economic effects of COVID-19 will also have an impact on our financial position and results of operations. These actions are further discussed below.

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In an emergency measure aimed at blunting the economic impact of COVID-19, the Federal Reserve lowered the target for the federal funds rate to a range of between zero to 0.25% effective in March 2020. Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds. Our earnings can be adversely affected by decreases in market interest rates if the interest rates received on loans and other investments fall more quickly and to a larger degree than the interest rates paid on deposits and other borrowings. The decline in interest rates has already led to new all-time low yields across the US Treasury maturity curve. In September 2020, the Federal Reserve indicated that it expects to maintain the targeted federal funds rate at current levels until such time that labor market conditions have reached levels consistent with the Federal Open Market Committee's assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time, with the majority of the members of the Federal Reserve Open Market Committee expecting short-term interest rates to be near zero through 2023.

Other actions taken by the Federal Reserve in an effort to provide monetary stimulus to counteract the economic disruption caused by COVID-19 include:

•Expanded reverse repo operations, adding liquidity to the banking system.
•Restarted quantitative easing.
•Lowered the interest rate on the discount window by 1.50% to 0.25%.
•Reduced reserve requirement ratios to zero percent.
•Encouraged banks to use their capital and liquidity buffers to lend.
•Introduced and expanded several new programs that will operate on a temporary basis to help preserve market liquidity.

The U.S. government has also enacted certain fiscal stimulus measures in several phases to counteract the economic disruption caused by the COVID-19. The Phase 1 legislation, the Coronavirus Preparedness and Response Supplemental Appropriations Act ("CARES Act"), was enacted on March 6, 2020 and, among other things, authorized funding for research and development of vaccines and allocated money to state and local governments to aid containment and response measures. The Phase 2 legislation, the Families First Coronavirus Response Act, was enacted on March 18, 2020 and provides for paid sick/medical leave, establishes no-cost coverage for coronavirus testing, expands unemployment benefits, expands food assistance, and provides additional funding to states for the ongoing economic consequences of the pandemic, among other provisions. Phase 3 legislation of the CARES Act was enacted on March 27, 2020. Among other provisions, the CARES Act (i) authorized the Secretary of the Treasury to make loans, loan guarantees and other investments, up to $500 billion, for assistance to eligible businesses, states and municipalities with limited, targeted relief for passenger air carriers, cargo air carriers, and businesses critical to maintaining national security, (ii) created a $349 billion loan program called the Paycheck Protection Program (“PPP”) for loans to small businesses for, among other things, payroll, group health care benefit costs and qualifying mortgage, rent and utility payments, (iii) provided certain credits against the 2020 personal income tax for eligible individuals and their dependents, (iv) expanded eligibility for unemployment insurance and provides eligible recipients with an additional $600 per week on top of the unemployment amount determined by each State and (v) expanded tele-health services in Medicare. The Phase 3.5 legislation, the Paycheck Protection Program and Healthcare Enhancement Act of 2020 (the “PPPHE Act”), was enacted on April 24, 2020. Among other things, the PPPHE Act provided an additional $310 billion of funding for the PPP of which, $30 billion is specifically allocated for use by banks and other insured depository institutions that have assets between $10 billion and $50 billion.

The Paycheck Protection Program Flexibility Act of 2020” (“PPPF Act”) was enacted in June 2020 and modified the PPP as follows: (i) established a minimum maturity of five years was primarilyfor all loans made after the enactment of the PPPF Act and permits an extension of the maturity of existing loans to five years if the borrower and lender agree; (ii) extended the “covered period” of the CARES Act from June 30, 2020, to December 31, 2020; (iii) extended the eight-week “covered period” for expenditures that qualify for forgiveness to the earlier of 24 weeks following loan origination or December 31, 2020; (iv) extended the deferral period for payment of principal, interest and fees to the date on which the forgiveness amount is remitted to the lender by the SBA; (v) changed requirements such that the borrower must use at least 60% (down from 75%) of the proceeds of the loan for payroll costs, and up to 40% (up from 25%), for other permitted purposes, as a condition to obtaining forgiveness of the loan; (vi) delayed from June 30, 2020 to December 31, 2020 the date by which employees must be rehired to avoid a reduction in the amount of forgiveness of a loan, and creates a “rehiring safe harbor” that allows businesses to remain eligible for loan forgiveness if they make a good faith attempt to rehire employees or hire similarly qualified employees, but are
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unable to do so, or are able to document an inability to return to pre-COVID-19 levels of business activity due to stablecompliance with social distancing measures; and improving(vii) allows borrowers to receive both loan quality. Our nonperforming assetsforgiveness under the PPP and the payroll tax deferral permitted under the CARES Act, rather than having to total assets ratiochoose which of the two would be more advantageous.

In July 2020, the CARES Act was 0.96% atamended to extend, through August 8, 2020, the SBA’s authority to make commitments under the PPP. The SBA’s existing authority had previously expired on June 30, 2020. In August 2020, President Trump signed four executive actions to provide additional COVID-19 relief. The first action authorized the Lost Wages Assistance Program (“LWAP”), which provides for a $400-per-week payment to those currently receiving more than $100 a week in unemployment benefits due to disruptions caused by COVID-19. The LWAP per-week payment was retroactive to the week ending August 1, 2020. The second executive action extended the moratorium on payments and interest accrual on student loans held by the government until the end of 2020. The moratorium was previously set to expire September 30, 2020. The third action instructed the Department of the Treasury and the Department of Housing and Urban Development to help provide temporary assistance to renters and homeowners and promote their ability to avoid eviction or foreclosure, including forbearance of monthly mortgage payments for up to 180 days. The fourth executive action allows employers to defer, for the period from September 1, 2020 through December 31, 2017 compared2020, the employee portion of Social Security payroll taxes for certain individuals earning less than approximately $104 thousand per year.

In December 2020, the Bipartisan-Bicameral Omnibus COVID Relief Deal, included as a component of appropriations legislation, and the Economic Aid Act were enacted to 1.64% atprovide economic stimulus to individuals and businesses in further response to the economic distress caused by the COVID-19 pandemic. Among other things, the legislation includes (i) payments of $600 for individuals making up to $75,000 per year, (ii) extension of the Federal Pandemic Unemployment Compensation program to include a $300 weekly enhancement in unemployment benefits beginning after December 26, 2020 up to March 14, 2021, (iii) a temporary and targeted rental assistance program, and extends the eviction moratorium through January 31, 2021, (iv) targeted funding related to transportation, education, agriculture, nutrition and other public health measures and (v) approximately $325 billion for small business relief, including approximately $284 billion for a second round of PPP loans and a new simplified forgiveness procedure for PPP loans of $150,000 or less. We are continuing to monitor the potential development of additional legislation and further actions taken by the U.S. government.

The Federal Reserve created various additional lending facilities and expanded existing facilities to help provide financing in response to the financial disruptions caused by COVID-19. The programs include, among others, the Paycheck Protection Program Liquidity Facility (“PPP Facility”), which is intended to extend loans to banks making PPP loans. The Federal Reserve announced extensions through March 31, 2021 for several of its lending facilities, including the PPP Facility, that were generally scheduled to expire on or around December 31, 2016.2020. As more fully discussed in the section captioned “Loans” elsewhere in this document, we are currently participating in the PPP as a lender. We experienced net loan charge-offshave not participated in the PPP Facility.

Banks and bank holding companies have been particularly impacted by the COVID-19 pandemic as a result of $1.2 milliondisruption and volatility in 2017, comparedthe global capital markets. This disruption has impacted our cost of capital and may adversely affect our ability to $3.7 millionaccess the capital markets if we need or desire to do so and, although the ultimate impact cannot be reliably estimated at this time in 2016. Annualized net charge-offslight of the uncertainties and ongoing developments noted herein, such impacts could be material. Furthermore, bank regulatory agencies have been (and are expected to average loans for the year ended December 31, 2017 amountedcontinue to 0.04%, comparedbe) proactive in responding to 0.14% for 2016.

For the year ended December 31, 2017, noninterest income amounted to $48.9 million compared to $25.6 million for 2016. The primary reasons for the increase in core noninterest income in 2017 were the acquisitions of Carolina Bankboth market and Asheville Savings Bank, as well as income derivedsupervisory concerns arising from the Company’s SBA consulting fees and SBA loan sale gains, which began during the middle of 2016. See the section entitled “Noninterest Income” for additional information.

Noninterest expenses for the year ended December 31, 2017 amounted to $145.2 million compared to $106.8 million in 2016. The increase in noninterest expenses in 2017 related primarily to the Company’s acquisition of Carolina Bank and Asheville Savings Bank. Also impacting expenses were other growth initiatives, including continued growth of SBA Complete and the SBA Lending Division,COVID-19 pandemic as well as the acquisitionpotential impact on customers, especially borrowers. As shown during and following the financial crisis of an insurance agency during2007-2008, periods of economic and financial disruption and stress have, in the third quarterpast, resulted in increased scrutiny of 2017. Seebanking organizations. We are closely monitoring the section entitled “Noninterest Expense”potential for additional information.

Our effective tax rate for 2017 was 32.1% compared to 34.7% in 2016. The lower effective tax rate was due to the 2017 Tax Cutsnew laws and Jobs Act, which was signed into law in December 2017,regulations impacting lending and requiredfunding practices as well as capital and liquidity standards. Such changes could require us to revaluemaintain significantly more capital, with common equity as a more predominant component, or manage the composition of our deferred tax assets and liabilities atto comply with formulaic liquidity requirements.

Outlook for 2021
Due to the new rate. TheCOVID-19 pandemic, our outlook for 2021 is uncertain. We believe our local economies and business conditions will continue to be negatively impacted by the pandemic. While the U.S. Government continues to implement measures to help offset the negative financial impact of revaluingthe pandemic, we expect the negative impact to continue through at least the first half of 2021. If the COVID-19 vaccination is effective and becomes more widely available and pandemic conditions improve, we expect our net deferred tax liability wascustomer behaviors will return to reduce income tax expensemore normal conditions
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and commercial activity to improve. Under that scenario, we expect an increase in traditional loan demand (non-PPP) and that deposits will decline as customer cash balances return to more normal levels. We expect that the growth from traditional loan demand will be substantially offset in our aggregate loan portfolio by approximately $1.3forgiveness of the $241 million in the fourth quarter of 2017.

Total assetsPPP loans that were outstanding at December 31, 2017 amounted to $5.5 billion, a 53.5% increase from a year earlier. Total loans at December 31, 2017 amounted to $4.0 billion, a 49.1% increase from a year earlier, and total deposits amounted to $4.4 billion at December 31, 2017, a 49.5% increase from a year earlier.

In addition to the growth realized from the acquisitions of Carolina Bank and Asheville Savings Bank, the Company experienced strong organic loan and deposit growth during 2017. For 2017, organic loan growth (i.e. excluding loan balances assumed from Carolina Bank and Asheville Savings Bank) amounted to $228.0 million, or 8.4%. For 2017, organic deposit growth amounted to $195.1 million, or 6.6%. The strong growth was a result of ongoing internal initiatives to enhance loan and deposit growth, including the Company’s recent expansion into higher growth markets. The organic loan growth noted above was driven by Bank’s entrance into the North Carolina markets of Charlotte, Raleigh, and the Triad.

Outlook for 2019

We generally believe that the outlook for 2019 is favorable.2020. We expect the national economy, as well as our local economies, to continue to be strong, with unemployment rates remaining at low levels.

The Federal Reserve has increased short-termthat interest rates by 225 basis points since late 2015. While long-term interest rates have also increased, they have increased less than short-term interest rates. Generally,will remain very low and that our interest-earning assets have longer terms than our funding costs, and therefore this is potentially an unfavorable rate scenario for our company because it may result in our asset yields increasing less than our funding costs. Thus far, we have been able to control the rise in our deposit costs and therefore our net interest margin has been stable, and even expanded slightly. But due to competitive pressures, this may not be possible in the future, and we expect that maintaining our recently realized net interest margin will be challenging.

With several consecutive yearspressured down as a result of the maturity of securities and loans that were originated in periods of higher interest rates. Our ability to further reduce funding costs is limited by their already low levels of nonperforming assets and low loan charge-offs, we’ve recorded minimal provisions for loan losses over the past four years and our allowance for loan loss level has trended downward to a low level by historical standards. While we do not currently anticipate a significant rise in delinquencies or loan losses, we believe it is likely that we will need to record higher levels of provisions for loan losses than recent years to provide for loan growth and more normal levels of losses. Any credit deterioration would result in further increases.

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levels.

We experienced solid organic loan and deposit growth in 2018. Our local economies are strong, and we continue to experience positive results from our expansion into the larger and higher growth markets in North Carolina. With our positioning in high growth markets and other strategic initiatives, we expect to experience continued loan and deposit growth in 2019.

Critical Accounting Policies

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.

Allowance for Loan Losses

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.

data such. In 2020, we have included environmental factors related to the COVID-19 pandemic. See additional discussion the "Summary of Loan Loss Experience."

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.”

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Table of Contents

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
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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“Allowance for Loan Losses and Provision for Loan Losses” below.
We had originally expected to adopt CECL on January 1, 2020. However, congressional legislation passed in March 2020 and December 2020 resulted in the option to delay CECL until as late as January 1, 2022. We expect to adopt CECL on January 1, 2021. See Note 1 to the Consolidated Financial Statements for additional discussion of Loan Loss Experience” below.

this matter.

Intangible Assets

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 SBA Complete, the consulting firm we acquired in 2016, the identifiable intangible asset related to the customer list was determined to have a life of approximately seven years, with amortization occurring on a straight-line basis.

Subsequent to the initial recording of the identifiable intangible assets and goodwill,

At December 31, 2020, 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 havehad three reporting units – 1) First Bank with $222.7$227.6 million in goodwill, 2) First Bank Insurance with $7.4 million in goodwill, and 3) SBA activities, including SBA Complete and our SBA Lending Division, with $4.3 million in goodwill. If the carrying value of a reporting unit were ever to exceed its fair value, we 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.

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TableSubsequent to the initial recording of Contents

the identifiable intangible assets and goodwill, we amortize the identifiable intangible assets over their estimated average lives, as discussed above. In our 2018 goodwill impairment evaluation,addition, we concluded that thetest goodwill for eachimpairment annually on October 31 or on an interim basis if an event triggering impairment may have occurred, by comparing the fair value of our reporting units to their related carrying value, including goodwill. The economic turmoil and market volatility resulting from the COVID-19 crisis resulted in a substantial decrease in the Company's

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stock price and market capitalization. We believed such decreases were a triggering indicator requiring an interim goodwill impairment quantitative analysis. Accordingly, during each quarter of 2020, we reviewed our goodwill for impairment. For the first and third quarters of 2020, we performed an interim step-one goodwill impairment quantitative analysis. In performing the quantitative goodwill impairment analysis, we used a combination of market and income approaches for First Bank, the market approach for First Bank Insurance and the income approach for SBA activities. All inputs used in these approaches were evaluated by management at the evaluation date. For the second quarter of 2020 and the annual fourth quarter 2020 review, management reviewed its goodwill for impairment primarily qualitatively by reviewing the factors and assumptions used in the analysis for the preceding quarter. The conclusion of each review was notthat none of our goodwill was impaired.

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

Fair Value and Discount Accretion of Acquired Loans

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.

Merger and Acquisition Activity

As previously discussed, in January 2016, we acquired an insurance agency in Sanford, North Carolina, and in May 2016, we acquired SBA Complete, a firm specializing in origination and servicing of SBA loans. In July 2016, we exchanged our seven bank branches located in Virginia to another community bank in return for six of their North Carolina branches. In 2017, we completed two full-bank acquisitions – Carolina Bank and Asheville Savings Bank. Also in 2017, we completed the acquisition of another insurance agency headquartered in Albemarle, North Carolina.

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See Note 2 to the consolidated financial statements for additional information regarding these acquisitions.

information.


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FDIC Indemnification Asset

As previously discussed, in 2009 and 2011, we acquired substantially allTable of the assets and liabilities of two failed banks in FDIC-assisted transactions. For each transaction, we entered into two loss share agreements with the FDIC, which provided the Bank significant loss protection from losses experienced on the loans and foreclosed real estate. One of these loss share agreements expired in July 2014 and one agreement expired in April 2016. On September 22, 2016, we reached a mutual agreement with the FDIC to terminate all loss share agreements, with all future losses and recoveries associated with these failed bank assets being fully borne by the Bank. We recorded a write-off of the remaining indemnification asset of $5.7 million upon the termination of the loss share agreements in the third quarter of 2016.

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ANALYSIS OF RESULTS OF OPERATIONS

Net interest income, the “spread” between earnings on interest-earning assets and the interest paid on interest-bearing liabilities, constitutes the largest source of our earnings. Other factors that significantly affect operating results are the provision for loan losses, noninterest income such as service fees and noninterest expenses such as salaries, occupancy expense, equipment expense and other overhead costs, as well as the effects of income taxes.

Net Interest Income

Net interest income on a reported basis amounted to $218.1 million in 2020, $216.2 million in 2019, and $207.4 million in 2018, $164.7 million in 2017, and $123.4 million in 2016.2018. For internal purposes and in the discussion that follows, we evaluate our net interest income on a tax-equivalent basis by adding the tax benefit realized from tax-exempt loans and securities to reported interest income. Net interest income on a tax-equivalent basis amounted to $219.6 million in 2020, $217.8 million in 2019, and $209.0 million in 2018, $167.3 million in 2017, and $125.4 million in 2016.2018. Management believes that analysis of net interest income on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest 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. The following is a reconciliation of reported net interest income to tax-equivalent net interest income.

  Year ended December 31, 
($ in thousands) 2018  2017  2016 
Net interest income, as reported $207,430   164,711   123,380 
Tax-equivalent adjustment  1,594   2,590   2,054 
Net interest income, tax-equivalent $209,024   167,301   125,434 

($ in thousands)Year ended December 31,
202020192018
Net interest income, as reported$218,122 216,204 207,430 
Tax-equivalent adjustment1,468 1,641 1,594 
Net interest income, tax-equivalent$219,590 217,845 209,024 
Table 2 analyzes our net interest income on a tax-equivalent basis.income. Our net interest income on a tax-equivalent basis increased by 24.9%0.8% in 20182020 and increased by 33.4%4.2% in 2017.2019. 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. “Net interest margin” is a ratio we use to measure the spread between the yield on our earning assets and the cost of our funding and is calculated by dividing tax-equivalent net interest income by average earning assets.

The increase in net interest income in 20182020 compared to 20172019 was primarily due to the incremental earnings associated with the growth in our levels of interest-earning assets. For 2020, average interest-earning assets increased $711.7 million, or 13.1%, including growth of $356.4 million in average loans and $250.4 million in average securities. The growth in interest-earning assets was driven by funds provided from growth in deposits.
The impact on earnings of the interest-earning asset growth was substantially offset by a decrease in our net interest margin, which declined from 4.00% in 2019 to 3.56% in 2020. The lower net interest margin was a result of excess liquidity, as well as the impact of lower interest rates. During 2020, our level of average securities and other short-term investments increased by $705.7 million, or 93.9%. The investment yields realized with the new funds in those asset classes was low, generally less than 1.50%, and thus negatively impacted the net interest margin. Additionally, from August 2019 to March 2020, the Federal Reserve cut interest rates by 225 basis points, which resulted in our loan yields declining by more than our cost of funds. In 2020, loan yields decreased by 55 basis points, from 5.08% in 2019 to 4.53% in 2020, while average funding costs decreased by only 32 basis points in 2020, from 0.66% in 2019 to 0.34% in 2020.
During 2020, our average balance of PPP loans was $167.3 million. Those loans carry a 1% coupon rate and we also amortize fees that we received from the SBA when we originated the loans. That amortization amounted to $4.1 million in 2020 and when combined with the 1% note rate resulted in a 3.56% yield for those loans, and thus did not significantly impact overall loan yields. At December 31, 2020, we had $6.0 million in remaining deferred PPP origination fees that will be recognized over the lives of the loans, with accelerated amortization expected to result from the loan forgiveness process, substantially all of which we expect will occur over the first half of 2021. Also see the section "Paycheck Protection Program (PPP) Loans" below for additional discussion.
The increase in net interest income in 2019 compared to 2018 was primarily due to growth in our loans outstanding, with a four basis point increase in our net interest margin also contributing to the increase.

interest-earning assets. For 2018,2019, average loansinterest-earning assets increased $740.9$336.0 million, or 21.7%6.6%, while average deposits increased by $820.1including growth of $184.5 million or 22.2%. Most of increases in average loans and deposits were due to the acquisitions of Asheville Savings Bank and Carolina Bank during 2017.

$281.3 million in average securities. The growth in interest-earning assets was driven by funds provided from growth in deposits. Our net interest margin increaseddecreased from 4.08%4.09% in 20172018 to 4.12%4.00% in 2018. Asset2019, which partially offset the positive impact on net interest income of the growth of our interest-earning assets. The lower net interest margin was a result of our funding costs increasing by more than our asset yields, largely as

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a result of competitive pressures in deposit pricing. In 2019, asset yields increased by 23seven basis points, from 4.32%4.52% in 2018 to 4.55% during 2018,4.59% in 2019, primarily as a result of four Federal Reserve interest rate increases during the year. Funding costs also increased, but to a lesser degree, with thesecond half of 2018, while average funding cost increasingcosts increased by only 1618 basis points in 2018,2019, from 0.32% in 2017 to 0.48% in 2018. Interest recoveries totaling $750,000 received2018 to 0.66% in the first quarter of 2018 also contributed slightly to the higher net interest margin.

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2019.
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The increase in net interest income in 2017 compared to 2016 was also primarily due to growth in our loans outstanding, with most of the growth coming from our Carolina Bank and Asheville Savings Bank acquisitions. For 2017, average loans increased $817.6 million, or 31.4%, while average deposits increased by $869.2 million, or 30.7%.

Our net interest margin increased from 4.03% in 2016 to 4.08% in 2017. Asset yields increased by 11 basis points, from 4.21% to 4.32% during 2017, primarily as a result of three Federal Reserve interest rate increases during the year. Funding costs also increased, but to a lesser degree, with the average funding cost increasing by only 7 basis points in 2017, from 0.25% in 2016 to 0.32% in 2017.

The net interest margin for all periods benefited, by varying amounts, from the net accretion ofincome, primarily associated with purchase accounting premiums/discounts associated with acquisitions. As can be seen in the table below, we recorded $6.2 million in 2020, $6.0 million in 2019, and $7.1 million in 2018 $7.1 million in 2017, and $4.5 million in 2016 in net accretion of purchase accounting premiums/discounts that increased net interest income.

($ in thousands) Year Ended
December 31,
2018		  Year Ended
December 31,
2017		  Year Ended
December 31,
2016		 
          
Interest income – increased by accretion of loan discount on acquired loans $6,951   6,842   4,447 
Interest expense – reduced by premium amortization of deposits  372   384   77 
Interest expense – increased by discount accretion of borrowings  (181)  (148)  — 
     Impact on net interest income $7,142   7,078   4,524 

($ in thousands)Year Ended
December 31,
2020		Year Ended
December 31,
2019		Year Ended
December 31,
2018
Interest income – increased by accretion of loan discount on acquired loans$3,817 4,588 6,090 
Interest income - increased by accretion of loan discount on retained SBA loans2,511 1,386 861 
Interest expense – reduced by premium amortization of deposits100 190 372 
Interest expense – increased by discount accretion of borrowings(181)(181)(181)
Impact on net interest income$6,247 5,983 7,142 
The biggest component of the purchase accounting adjustments in each year was loan discount accretion on purchased loans, which amounted to $7.0$3.8 million in 2018, $6.82020, $4.6 million in 2017,2019, and $4.4$6.1 million in 2016. In 2018 and 2017, the increase in2018. Most of this loan discount accretion was primarily duerelates to the loan discounts recorded in theour 2017 acquisitions of Carolina Bank and Asheville Savings Bank. During 2017, we recorded an additional $20.7 millionBank, with the declines in loan discounts relatedaccretion being due to these acquisitions. Unaccreted loan discount on acquired loans declined from $24.3 million at December 31, 2017 to $17.3 million at December 31, 2018. We expect loan discount accretion on acquired loans to decreasethe natural paydowns in 2019 as a result of the expected, normal pay downs on loans within thethose acquired loan portfolios.portfolios, which is expected to continue. In addition to the loan discount accretion recorded on acquired loans, we recorded loan discount accretion of $2.5 million, $1.4 million, and $0.9 million $0.2 millionin 2020, 2019, and $0 in 2018, 2017, and 2016, respectively, on the discounts associated with the retained unguaranteed portions of SBA loans sold in the secondary market.  We entered that line of business in late 2016 and the higher discount accretion on those loans is associated with the continued growth in that business.
At December 31, 2018, 2017,2020, 2019, and 2016,2018, unaccreted loan discount on thesepurchased loans amounted to $8.9 million, $12.7 million, and $17.3 million, respectively. At December 31, 2020, 2019, and 2018, unaccreted loan discount on SBA loans amounted to $7.3 million, $7.1 million, and $5.7 million, $2.6 million, and $0.6 million, respectively. See Note 1(i) to the Consolidated Financial Statements for additional information.

Table 3 presents additional detail regarding the estimated impact that changes in loan and deposit volumes and changes in the interest rates we earned/paid had on our net interest income in 20172019 and 2018. In 2017, we acquired Carolina Bank and Asheville Savings Bank, which significantly increased our average volumes for loans and deposits in 2017 and 2018.2020. For 2018,2020, higher loan volume positively impacted interest income by $36.3$17.1 million, and higher loanlower interest rates positivelyon loans negatively impacted interest income by $8.6$24.8 million, with the combined effect driving the increasewhich resulted in totala decline in loan interest income of $53.8$7.7 million. Higher volumes andof total securities balances resulted in $6.1 million in additional interest income in 2020, which was almost completely offset by the impact of lower interest rates earned on those securities. Lower interest rates on short-term investments (primarily overnight funds) in 2020 resulted in $6.7 million in lower interest income, which was partially offset by higher volume. Lower interest rates paid on deposits drove an increase of $6.9a $8.7 million decrease in deposit interest expense. Slightly higherexpense in 2020. Lower levels of borrowings and higherlower interest rates paid on those borrowings resulted in 2018 also contributed to the $11.1a decrease in borrowings interest expense of $5.6 million increase in total interest expense.2020. Overall, as Table 3 indicates, net interest income grew $42.7$1.9 million in 2018,2020, with higher volumes comprising $37.6 million of the increase and higher interest rates resulting in $5.2 million of the increase.

For 2017, higher loan volume positively impacted interest income by $38.6 million, and higher loan interest rates positively impacted interest income by $3.8 million, with the combined effect driving the increase in total interest income of $46.4 million. Higherearning asset volumes and higher rates paid on deposits drove an increase of $2.4 million in interest expense. A higher level oflower borrowings and higher rates paid on those borrowings in 2017 also contributed to the $5.1volumes driving a $27.9 million increase in total interest expense. The higher level of borrowingsincome, which was necessary in 2017 in order to fund our organic loan growth, which outpaced deposit growth. Overall, aspartially offset by a net $26.0 million negative impact associated with lower interest rates.

For 2019, Table 3 indicates,shows the higher amounts of loans and deposits outstanding drove a net increase of $14.3 million in net interest income, grew $41.3while the impact of higher deposit costs resulted in a $5.6 million decrease in 2017,total net interest income.

If our nonaccrual and restructured loans as of December 31, 2020, 2019 and 2018 had been current in accordance with higher volumes comprising $38.2 milliontheir original terms and had been outstanding throughout the period (or since origination if held for part of the increaseperiod), gross interest income in the amounts of approximately $3,038,000 $1,763,000, and higher interest rates causing $3.1 million of the increase.

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$1,616,000, for nonaccrual loans and $645,000, $662,000, and $974,000, for restructured loans would have been recorded for 2020, 2019, and 2018, respectively. Interest income on such loans that was actually collected and included in net income in 2020, 2019 and 2018 amounted to approximately $652,000, $759,000, and $765,000, for nonaccrual
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loans (prior to their being placed on nonaccrual status), and $483,000, $528,000, and $763,000, for restructured loans, respectively. At December 31, 2020 and 2019, there were no commitments to lend additional funds to debtors whose loans were nonperforming.
See additional information regarding net interest income in the section entitled “Interest Rate Risk.”

Provision for Loan Losses

The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance considered appropriate to absorb probable losses inherent in our loan portfolio. Management’s determination of the adequacy of the allowance is based on our level of loan growth, an evaluation of the loan portfolio, current economic conditions, historical loan loss experience and other risk factors.

For 2018, we recorded total negative provisions for loan losses (reduction of allowance for loan losses) of $3,589,000. For 2017, we recorded total provision for loan losses of $723,000. In 2016, we recorded total negative provisions for loan losses (reduction of allowance for loan losses) of $23,000.

For periods prior to the third quarter 2016 termination of our loss share agreements, we computed and presented the provision for loan losses related to covered loans separately from that of our non-covered loans. Generally, we recorded provisions for loan losses on non-covered loans as a result of net charge-offs and loan growth, while significant recoveries in our previously covered loan portfolios resulted in negative provisions for loan losses. Upon the termination of the loss share agreements, all loans became classified as non-covered and the allowance for loan losses balances were combined into a single amount and no longer presented separately.

For the years ended December 31, 2018, 2017,2020, 2019, and 2016, as it relates to non-covered loans,2018, we recorded a provision for loan losses of $35.0 million, $2.3 million, and a negative provision for loan losses of $3.6 million, respectively. The increase in 2020 was primarily related to estimated probable losses arising from the economic impact of COVID-19, as discussed below.
In March 2020, the COVID-19 pandemic began to impact our nation. The subsequent closures of, or restrictions on, many businesses and job losses continue to result in widespread negative economic impacts. The U.S. Government took various steps to lessen the negative impacts, including stimulus payments and the SBA's relief program. Under the SBA program, the SBA made six months of principal and interest payments on most of our SBA loans. SBA loans that were greater than 30 days delinquent were not eligible for these payments. This payment program was renewed by December 2020 legislation for an additional three months or eight months, depending on the industry, beginning in February 2021. Additionally, as previously discussed, we implemented a loan deferral program that began in late March 2020 in which borrowers could apply for a deferral of the loan payments for up to 90 days and after that 90 day period, borrowers could re-apply for an additional 90 days of payment deferrals. We are uncertain as to the extent that these programs have reduced probable loan losses, and due to that uncertainty and the temporary nature of the programs, we have not relied on these programs as significant positive factors in the risk grading of loans in our portfolio.
In determining the appropriate level of allowance for loan losses at December 31, 2020, we reviewed the industry types that we believed have significantly heightened risk as a result of the pandemic, which included, among others, hospitality, retail stores, and restaurants. Based on that analysis, we assigned elevated loan loss reserve percentages for those loan types that brought the total reserve percentages to a level consistent with what we believe are the probable loss rates incurred in a stressed economic scenario. The higher loss rates were generally determined based on our historical high one year loss rates for those loan types. As a result of the analysis, approximately $24.8 million of COVID-19 related qualitative reserves are included in the Company's December 31, 2020 allowance for loan loss amount of $52.3 million at December 31, 2020.
Additionally, as a result of elevated net-charge offs and nonaccrual loans in our SBA portfolio, we assigned higher allowance reserves to our SBA portfolio in 2020, which also impacted the provision for loan losses in 2020. See the sections "Nonperforming Assets" and "Allowance for Loan Losses" for additional discussion.

As noted above, beginning late in the first quarter of $0.72020, we offered a loan payment deferral program to borrowers negatively impacted by COVID-19. At June 30, 2020, we had a total of $774 million and ain loans that were in this deferral program. Most of these borrowers resumed payments in the second half of 2020, with total deferrals amounting to $186 million at September 30, 2020, while only $16.6 million remained in deferral status at December 31, 2020.
In 2019, our provision for loan losses of $2.1 million, respectively.was higher than previous years primarily due to higher net charge-offs. The negative provision for 2018 was due primarily to several large loan recoveries realized in the first quarter of 2018 totaling $3.7 million. Although our provision for loan losses was higher in 2019, it continued a trend in recent years until 2020 of being low compared to historical levels. The generally low levels of provision for loan losses recorded in recentthose years were primarily the result of a sustained period of stable and generally improving loan quality trends, which resulted in lower amounts of provision needed to adjust our allowance for loan losses to the appropriate amount. This was becauseis driven by our allowance for loan loss model, which utilizes the net charge-offs experienced in the most recent years as a significant component of estimating the current allowance for loan losses that is necessary. Thus, older years (and parts thereof) systematically age out and are excluded from the analysis as time goes on. For the last threeIn recent years, the new periods being added into theour model continue to have significantlyhad generally lower levels of net charge-offs/recoveriescharge-offs than the older periods rolling out of the model. This has resulted in a lower required amount of allowancemodel, and thus mostly offset provisions for loan losses in our modeling.that would normally be
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required to reflect new loan growth and the net charge-offs experienced. Thus, the low level of net-charge offsnet charge-offs (or net recoveries) experienced over the past threein recent years has been the primary reason for the low (or negative) provisions for loan losses recorded.

As it relates to covered loans, we recorded a negative provision for loan losses (reduction of allowance for loan losses) of $2.1 million in 2016. The negative provision in 2016 resulted from improved asset quality and net loan recoveries (recoveries, net of charge-offs) that totaled $1.7 million in 2016.

among the years presented until 2020.

As shown in Table 14, total net charge-offs (recoveries) for the years ended December 31, 2020, 2019, and 2018, 2017,were $4.0 million, $1.9 million, and 2016, were ($1.3 million), $1.2respectively. In 2020, the higher net charge-offs were driven by $3.2 million of net charge-offs in our SBA portfolio, and $3.7 million, respectively. was concentrated in the "commercial, financial, and agricultural" category.
The declining amount of non-covered net-charge offshigher net charge-offs in recent years is reflective of improving economic conditions and2019 resulted from lower levels of our highest-risk loans.

loan recoveries in comparison to 2018.

In 2018, we completed a loan sale of approximately $5.2 million in smaller balance nonperforming loans that resulted in loan charge-offs of $2.2 million. However, this was more than offset by full payoffs on four loans received in the first quarter of 2018 that resulted in recoveries to the allowance for loan losses of $3.3 million

million.

See “Nonperforming Assets” below for further discussion of our asset quality, which impacts our provisions for loan losses.

See the section entitled “Allowance for Loan Losses and Loan Loss Experience” below for a more detailed discussion of the allowance for loan losses.

The allowance is monitored and analyzed regularly in conjunction with our loan analysis and grading program, and adjustments are made to maintain an adequate allowance for loan losses.

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See the section entitled “Allowance for Loan Losses and Loan Loss Experience” below for a more detailed discussion of the allowance for loan losses, including discussion of a change in the way that we expect to reserve for credit losses beginning in 2021 that may increase the levels and volatility of our provision for loan losses.

Noninterest Income

Our noninterest income amounted to $61.8$81.3 million in 2018, $48.92020, $59.5 million in 2017,2019, and $25.6$58.9 million in 2016.

Management evaluates noninterest income on a core and non-core basis. As shown in Table 4, core noninterest income excludes gains from acquisitions, foreclosed property write-downs and losses, indemnification asset income (expense), securities gains or losses, and other miscellaneous gains and losses. Core noninterest income amounted to $61.7 million in 2018, a 25.1% increase from the $49.3 million recorded in 2017. The 2017 core noninterest income of $49.3 million was a 40.9% increase from the $35.0 million recorded in 2016.

2018.

See Table 4 and the following discussion for an understanding of the components of noninterest income.

For most categories

Management evaluates noninterest income on a non-GAAP basis that excludes items such as securities gains and losses and other miscellaneous gains and losses because management believes excluding those items results in a more meaningful reflection of noninterest income our 2017 acquisitionsfrom recurring sources. We refer to this as "adjusted noninterest income" - see Table 4 for a reconciliation of Carolina Bank and Asheville Savings Bank had the effect of increasingreported noninterest income to "adjusted noninterest income." Adjusted noninterest income amounted to $73.4 million in 20172020, a 23.1% increase from the $59.6 million recorded in comparison to 2016 and2019, The 2019 adjusted noninterest income of $59.6 million was a 2.4% increase from the $58.2 million recorded in 2018 in comparison to 2017, due to the impact of a full year of income being realized.

2018.

Service charges on deposit accounts amounted to $11.1 million, $13.0 million, and $12.7 million, $11.9 million,in 2020, 2019, and $10.6 million2018, respectively. The decrease in 2018, 2017, and 2016, respectively. In 2018 and 2017, the increase is2020 was primarily due to fewer instances of overdraft fees that we believe is likely associated with the aforementioned acquisitions.

Othergenerally higher levels of deposits maintained by our customers during 2020. We believe the increase in 2019 was primarily due to growth in our number of checking accounts, which we have been promoting with new product offerings.

Total "Other service charges, commissions and feesfees" amounted to $19.9$20.1 million in 2018,2020, a 36.5%3.2% increase from the $14.6$19.5 million in 2017.2019. The 20172019 amount of $14.6$19.5 million was 22.6% higher thanan 18.2% increase from the $11.9$16.5 million earned in 2016.2018. This category of noninterest income includes items such as electronic payment processing revenue (which includes fees related to credit card transactions by merchants and customers and fees earned from debit card transactions),interchange income, ATM charges, safety deposit box rentals, fees from sales of personalized checks, and check cashing fees. The increases in this line item in 20182019 and 20172020 were primarily due to a combination of the Carolina Bank and Asheville Savings Bank acquisitions, as well as growth in credit and debit card interchange fees fromthat we earn when our customers use their debit and credit cards. In both 2018 and 2017, increased debit and credit card usagecards issued by our customers increased thisbank. Net interchange income component, as we earn a small fee each time our customers make a card transaction.amounted to $14.1 million in 2020, $13.8 million in 2019 and $12.0 million in 2018. We believe the growth in card usage by our customers is due to customer payment preferences, as well as a result of the continuedongoing promotion of these products.

General growth of our bank also contributed to the increase in this line item in 2019 and 2020.

Fees from presold mortgages amounted to $14.2 million in 2020, $3.9 million in 2019, and $2.7 million in 2018, $5.7 million2018. The increase in 2017, and $2.0 million in 2016. In 2018, the declines were2020 was primarily due to: i) overall lowerto higher mortgage loan origination volume arising from historically low mortgage loan interest rates. The increase in 2019 was also due to increased volumes in the mortgage industry ii) our Mortgage Loan Divsision originating a higher percentage of loans with construction components that are held in our loan portfolio and not sold, and iii) mortgage origination employees who left the Company in 2018. In 2017, the higher fees were primarily due to declining interest rates, as well as the acquisitionhiring of Carolina Bank in March 2017, which had a significant mortgageadditional loan operation.

originators.

Commissions from sales of insurance and financial products amounted to $8.8 million in 2020, $8.5 million in 2019, and $8.7 million in 2018, $5.3 million in 2017, and $3.8 million in 2016.2018. This line item includes commissions we receive from two primary sources – 1)
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commissions from the sales of investment, annuity, and long term care insurance products, and 2) commissions from the sale of property and casualty insurance. The following table presents the contribution of each source to the total amount recognized in this line item:

  For the year ended December 31, 
($ in thousands) 2018  2017  2016 
Commissions earned from:            
Sales of investments, annuities, and long term care insurance $2,693   2,152   2,027 
Sales of property and casualty insurance  6,038   3,148   1,763 
          Total $8,731   5,300   3,790 

($ in thousands)For the year ended December 31,
Commissions earned from:202020192018
Sales of investments, annuities, and long term care insurance$3,495 3,206 2,693 
Sales of property and casualty insurance5,353 5,289 6,038 
Total$8,848 8,495 8,731 
As can be seen in the above table, sales of property and casualty insurance increased significantly in 2017 and again in 2018, which was due to our September 1, 2017 acquisition of Bear Insurance Services (see Note 2 to the consolidated financial statements for additional information). Sales of investments, annuities and long term care insurance increased in 2018both 2019 and 2020, which was due to the acquisitionsincreased growth and promotion of Asheville Savings Bankthis line of business. Sales of property and Carolina Bank, eachcasualty insurance also increased slightly in 2020 due to increased growth and promotion. The decline in this line item in 2019 was primarily due to lower contingent commissions compared to 2018, which can vary significantly and are impacted by the claims experience of which had wealth management divisions.

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the insurance carriers used by the Company.
TableWe began offering SBA consulting services in 2016 with our May 2016 acquisition of Contents

Another primary reason forSBA Complete. In this line of business, SBA Complete assists community banks throughout the increases in core noninterest income in 2018nation with SBA origination and 2017 was the addition ofservicing activities. SBA consulting fees amounted to $8.6 million in 2020, $3.9 million in 2019, and $4.7 million in 2018. The increases in 2020 were due to fees earned by our SBA loan sale gainssubsidiary, SBA Complete, related to assisting its third-party client banks with the PPP, which amounted to $4.6 million. SBA Complete also had $1.4 million in deferred revenue outstanding at December 31, 2020 that we beganwill be recorded as income upon the forgiveness portion of the PPP, which is expected to realizeoccur in the lastfirst half of 2016. As previously discussed,2021. The decline in 2016, we completedthese fees from 2018 to 2019 was associated with lower origination activity of our client banks.

Shortly after the acquisition of SBA Complete, a firm that specializes in consulting with financial institutions across the country related to SBA loan origination and servicing (see Note 2 to the consolidated financial statements for additional information). We recorded $3.2 million in SBA consulting fees related to this business from the date of the acquisition through December 31, 2016. For the full year of 2017, we recorded $4.0 million in SBA consulting fees, and this amount grew to $4.7 million in 2018.

Additionally, in the third quarter of 2016, we leveraged the expertise we gained from personnel assumed in the SBA Complete acquisition and launched ourbegan a SBA Lending Division, which offersoriginates SBA loans to small business owners throughout the United States. Ournation and sells the SBA Lending Division originated $24.8 millionguaranteed portion of those loans, which results in loan sale gains. Loan sale volume can be volatile based on origination activity and the timing of the funding of loans in 2016the pipeline. SBA loan sale gains amounted to $8.0 million, $8.3 million and earned $1.4 million from gains on the sales of the guaranteed portions of these loans for 2016. In 2017, we originated $95.4 million in loans and recorded $5.5 million in gains from sales. And in 2018, this division originated $196.8 million in SBA loans and recorded $10.4 million in gains2020, 2019, and 2018, respectively. Origination of SBA loans generally declined in 2020 due to the economic impact of COVID-19. The decline from sales.

2018 to 2019 was due to the natural volatility discussed above, as well as lower loan sale premium percentages.

Table 4 shows earnings from bank-owned life insurance income were stable with $2.5 million in 2018, $2.32020, $2.6 million in 2017,2019, and $2.1$2.5 million in 2016. In 2017,2018.
During 2020, we acquiredsold approximately $23$220 million in bank-owned life insurance from Carolina Bankmortgage-backed and Asheville Savings Bank, increasing our income for this line item in 2017 and 2018.

Noninterest income not consideredcommercial mortgage-backed securities at a gain of $8.0 million. The securities sold were believed to be “core” resultedfavorably impacted by historically low interest rates and Federal Reserve stimulus measures. Securities gains or losses were not significant in net increases (reductions) to total noninterest income of $0.2 million in2019 or 2018, ($0.4 million) in 2017, and ($9.4 million) in 2016. The components of non-core noninterest income are shown in Table 4 and the significant components thereof are discussed below.

We recorded net losses on foreclosed properties of $0.6 million in 2018, $0.5 million in 2017, and $0.6 million in 2016.

For the year ended December 31, 2016, FDIC indemnification asset expense amounted to $10.3 million, which included the write-off of the remaining indemnification asset of $5.7 million when we terminated the FDIC loss share agreements.

In 2016, the Company recordedwith 2019 having a net gain of $1.5$0.1 million, as a result of a branch exchange transaction with another community bank (see Note 2 of the consolidated financial statements for additional discussion).

and 2018 having no gains or losses.

“Other gains (losses), net” amounted to a net loss of $0.1 million for the 2018, 2017,2020, a net loss of $0.2 million for 2019, and 2016 periods representa net gain of $0.7 million in 2018. This line item represents the net effects of miscellaneous gains and losses that are non-routine in nature. In 2018, we recorded other gainsThe net gain of $0.7 million whichin 2018 primarily related to a gain on the sale of a previously closed branch building.

Noninterest Expenses

Total noninterest expenses totaled $159.4$161.3 million, $145.2$157.2 million, and $106.8$156.5 million, for 2018, 20172020, 2019 and 2016,2018, respectively. Table 5 presents the components of our noninterest expense during the past three years. The primary reason for the increase in noninterest expense in 2018 and 2017 was associated with our growth initiatives, including several acquisitions, including Carolina Bank and Asheville Savings Bank, and market expansion. Line items with the largest fluctuations are further discussed below.

Total personnel expense increased from $82.1$96.0 million in 20172019 to $92.0$101.0 million in 2018,2020, an increase of $9.9$5.0 million, or 12.0%5.2%. Within personnel expense, salaries expense increased by $8.3$5.8 million, in 2018 andor 7.3%, while employee benefits expense decreased from $16.8 million to $16.0 million. Salaries expense increased by $1.6 million in 2018. The primary reason for these increases in personnel expense isprimarily due to having a full year of$3.3 million increase in mortgage commission expense resulting from higher mortgage loan volume in 2020. Within employee benefits, health care expense, for the additional personnel assumed in the 2017 acquisitions of Carolina Bank, Asheville Savings Bank, and Bear Insurance Services. Also, approximately $1.3 million of the increase in personnel expense in 2018 can be attributed to increases in salaries expense related to our SBA lending activities. Also impacting personnel expense was an increase in the 401(k) match offered bywhich the Company is self-insured, is the single largest item and decreased in 2020 compared to employees that was effective January 1, 2018, which increased from a 100% match up2019 due to 4% of an employee’s salary contribution to a 100% match up to 6% of an employee’s salary contribution.

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lower claims activity.
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In 2017,2019, total personnel expense increased to $82.1 million from $62.8$92.0 million in 2016,2018 to $96.0 million in 2019, an increase of $19.3$4.0 million, or 30.7%4.4%. Within personnel expense, salaries expense increased by $15.5$4.0 million, in 2017 andor 5.4%, while employee benefits expense was approximately the same in 2018 and 2019 at approximately $16.9 million. Salaries expense

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increased by $3.7 million in 2017. The primary reason for these increases in personnel expense wasprimarily due to normal wage increases for our employees, as well as the additional personnel assumed in the Carolina Bank and Asheville Savings Bank acquisitions. Also, in 2017, we added personnel due to the continued growthhiring of SBA Complete and our SBA Lending Division. Additionally, salary expense for the fourth quarter of 2017 was also impacted by approximately $1.1 million related to one-time bonuses granted to a majority of the Company’s employees.

several experienced bankers.

Net occupancy expenses amounted to $11.3 million in 2020, $11.1 million in 2019, and $10.8 million in 2018, $9.7 million2018. The increase in 2017,2020 and $7.8 million in 2016. The increases in 2018 and 2017 were2019 is primarily related to increased rent expense associated with several new leases executed during the aforementioned acquisitions and expansion initiatives. years.
Equipment related expenses increased for the same reasons, amountingamounted to $4.3 million, $5.0 million, and $5.6 million, $4.5 million,in 2020, 2019, and $3.62018, respectively. In 2018, we accelerated $0.3 million in 2018, 2017,depreciation expense associated with our ATM fleet in anticipation of replacing our ATM's in early 2019. This resulted in a decline in ATM depreciation expense in 2019, as well as lower associated repairs and 2016, respectively.

maintenance costs. In 2020, the decrease in this line item related to lower machine maintenance and miscellaneous equipment purchases due to spend control efforts.

Merger and acquisition expenses amounted to $0.2 million in 2019 and $2.4 million in 2018, $8.1 million2018. There were no merger and acquisition expenses in 2017, and $1.4 million in 2016.2020. The 2018 amount was primarily comprised of severance costs and data processing conversion expenses related to the acquisition of Asheville Savings Bank. The 2017 amount was primarily comprised of professional fees and severance costs incurred in our acquisitions of Carolina Bank and Asheville Savings Bank. In 2016, the amount was comprised of professional fees incurred for our various acquisitions, including Bankingport, SBA Complete, our branch exchange, and our agreement to acquire Carolina Bank, which was announced in 2016.

Intangible amortization expense increased from $1.2amounted to $4.0 million, $4.9 million, and $5.9 million in 2016 to $4.2 million in 2017 to $6.8 million in2020, 2019 and 2018, respectively. In 2019 and 2020, intangible amortization expense declined due to the additionamortization schedules of $22.5 million in amortizablethose intangible assets recorded in connection with the 2017 acquisitions of Carolina Bank, Asheville Savings Bank, and Bear Insurance Services.

FDIC insurance expense amounted to $2.3 million in 2018, $2.4 million in 2017, and $2.0 million in 2016. As discussed previously in the section “FDIC Insurance”, in 2019, we received an assessment credit of $1.3 million that will be used to offset future FDIC insurance expense once the DIF reaches 1.38%.

Outside consultant expense amounted to $1.8 million in 2018, $2.5 million in 2017, and $1.7 million in 2016. The increase in 2017 related to various operational activities.

generally declining over time.

Data processing expenses amounteddid not vary significantly among the periods presented, amounting to $3.2 million, $2.9$3.1 million, and $2.0$3.2 million in 2020, 2019, and 2018, 2017, and 2016, respectively. The 2018 and 2017 increases were due primarily to the acquisitions of Carolina Bank and Asheville Savings Bank.

Marketing expense amounted to $2.0 million in 2020, $2.7 million in 2019, and $3.1 million in 2018. The decrease in 2020 was primarily due to lowering marketing activity as a result of the pandemic. The decrease from 2018 $2.5 million in 2017 and $2.0 million in 2016. In 2018 and 2017, we increased ourto 2019 was due to special promotional efforts primarily in our new and expanded market areas.

area during 2018.

Non-credit losses amountedremained relatively unchanged for the periods presented, amounting to $1.1 million in 2020, $1.0 million in 2018, $0.92019, and $1.0 million in 2017, and $1.2 million in 2016.2018. These losses primarily related to debit card and credit card fraud losses.

Income Taxes

Table 6 presents the components of income tax expense and the related effective tax rates. We recorded income tax expense of $21.7 million in 2020, $24.2 million in 2018, $21.82019, and $24.2 million in 2017, and $14.6 million in 2016.2018. Our effective tax rates were stable at 21.0% for 2020, 20.8% for 2019, and 21.3% for 2018, 32.1% for 2017, and 34.7% for 2016. The lower effective rates in 2017 and 2018 compared to 2016 were as a result of the Tax Cuts and Jobs Act that was signed into law on December 22, 2017, which reduced the federal statutory income tax rate from 35% to 21%. At December 31, 2017, we revalued our net deferred tax liability, which reduced income tax expense by $1.3 million for 2017, while in 2018, the new income tax rate of 21% reduced our effective tax rate.

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2018.
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Also, our effective tax rate has partially declined in recent years due lower statutory income tax rates in North Carolina. North Carolina reduced the state income tax rate for corporations from 4.0% in 2016 to 3.0% beginning in 2017. We expect our effective tax rate to be approximately 21.0% in 2019.

2021.

Stock-Based Compensation

We recorded stock-based compensation expense of $1.6$2.5 million, $1.1$2.3 million, and $0.7$1.6 million, for the years ended December 31, 2018, 2017,2020, 2019, and 2016,2018, respectively. The increases in this expense werehave been due to retention-based restricted stock grants made to certain officers during the years presented. See Note 1514 to the consolidated financial statements for more information regarding stock-based compensation.

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ANALYSIS OF FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION

Overview

At December 31, 2018,2020, our total assets amounted to $5.9$7.3 billion, a 5.7%an 18.7% increase from 2017.2019. The following table presents detailed information regarding the nature of changes in our loans and deposits in 20172019 and 2018:

($ in thousands) Balance at
beginning of
period		  Internal
growth,
net		  Growth from
Acquisitions
(1)		  Balance at
end of
period		  Total
percentage
growth		  Internal
percentage
growth (1)		 
2018                  
Loans outstanding $4,042,369   206,695   —   4,249,064   5.1%   5.1% 
                         
Deposits – Noninterest-bearing  1,196,161   123,970   —   1,320,131   10.4%   10.4% 
Deposits – Interest-bearing checking  884,254   32,120   —   916,374   3.6%   3.6% 
Deposits – Money market  982,822   52,701   —   1,035,523   5.4%   5.4% 
Deposits – Savings  454,860   (22,471)  —   432,389   -4.9%   -4.9% 
Deposits – Brokered time  239,659   216   —   239,875   0.1%   0.1% 
Deposits – Internet time  7,995   (4,567)  —   3,428   -57.1%   -57.1% 
Deposits – Time >$100,000 – retail  347,862   99,757   —   447,619   28.7%   28.7% 
Deposits – Time <$100,000 – retail  293,342   (29,342)  —   264,000   -10.0%   -10.0% 
        Total deposits $4,406,955   252,384   —   4,659,339   5.7%   5.7% 
                         
2017                        
Loans outstanding $2,710,712   227,955   1,103,702   4,042,369   49.1%   8.4% 
                         
Deposits – Noninterest-bearing  756,003   159,493   280,665   1,196,161   58.2%   21.1% 
Deposits – Interest-bearing checking  635,431   13,847   234,976   884,254   39.2%   2.2% 
Deposits – Money market  683,680   23,013   276,129   982,822   43.8%   3.4% 
Deposits – Savings  209,074   (5,174)  250,960   454,860   117.6%   -2.5% 
Deposits – Brokered time  136,466   57,554   45,639   239,659   75.6%   42.2% 
Deposits – Internet Time  —   (3,253)  11,248   7,995   n/m   n/m 
Deposits – Time >$100,000 – retail  287,939   (12,631)  72,554   347,862   20.8%   -4.4% 
Deposits – Time <$100,000 – retail  238,760   (37,765)  92,347   293,342   22.9%   -15.8% 
        Total deposits $2,947,353   195,084   1,264,518   4,406,955   49.5%   6.6% 

2020.
    
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(1)In 2017, we acquired Carolina Bank, which had $497.5 million in loans and $585.4 million in deposits, and Asheville Savings Bank, which had $606.2 million in loans and $679.1 million in deposits.

n/m – not meaningful

($ in thousands)
2020Balance at
beginning of
period		Internal
growth,
net		Growth from AcquisitionsBalance at
end of
period		Total
percentage
growth
Loans outstanding$4,453,466 263,216 14,633 4,731,315 6.2 %
Deposits – Noninterest-bearing1,515,977 694,035 — 2,210,012 45.8 %
Deposits – Interest-bearing checking912,784 259,238 — 1,172,022 28.4 %
Deposits – Money market1,173,107 408,257 — 1,581,364 34.8 %
Deposits – Savings424,415 94,851 — 519,266 22.3 %
Deposits – Brokered time86,141 (65,919)— 20,222 -76.5 %
Deposits – Internet time698 (449)— 249 -64.3 %
Deposits – Time >$100,000 – retail563,108 (19,214)— 543,894 -3.4 %
Deposits – Time <$100,000 – retail255,125 (28,558)— 226,567 -11.2 %
Total deposits$4,931,355 1,342,241 — 6,273,596 27.2 %
2019    
Loans outstanding$4,249,064 204,402 — 4,453,466 4.8 %
Deposits – Noninterest-bearing1,320,131 195,846 — 1,515,977 14.8 %
Deposits – Interest-bearing checking916,374 (3,590)— 912,784 -0.4 %
Deposits – Money market1,035,523 137,584 — 1,173,107 13.3 %
Deposits – Savings432,389 (7,974)— 424,415 -1.8 %
Deposits – Brokered time239,875 (153,734)— 86,141 -64.1 %
Deposits – Internet time3,428 (2,730)— 698 -79.6 %
Deposits – Time >$100,000 – retail447,619 115,489 — 563,108 25.8 %
Deposits – Time <$100,000 – retail264,000 (8,875)— 255,125 -3.4 %
Total deposits$4,659,339 272,016 — 4,931,355 5.8 %
As shown in the table above, in 2018,2020 and 2019, our total loans outstanding increased $206.7$277.8 million, or 5.1%. Internal loan6.2%, and $204.4 million, or 4.8%, respectively. Loan growth has beenfor 2020 was primarily driven by the origination of $244.9 million in PPP loans, of which $240.7 million was outstanding at December 31, 2020. We also assumed $14.6 million in loans with the acquisition of Magnolia Financial in 2020. Loan growth for 2019 was organic and primarily driven by our expansion in high-growth markets, hiring of experienced bankers, and our emphasis onincreases in SBA lending. We expect continuedgenerally intend to grow our loan portfolio. We have experienced lenders in our markets and attempt to provide high levels of service to achieve growth. The pandemic negatively impacted traditional (non-PPP) organic loan growth in 2020. Our ability to grow our loans outstanding in the future will be impacted by changes in the pandemic, as well as changes in PPP loan balances.
During 2020, we experienced strong growth in our loan portfolio for 2019.

In 2017, ourdeposit base, with total loans outstanding increaseddeposits increasing by $1.3 billion, or 49.1%. The loan growth27.2% from acquisitions is due to our acquisition of Carolina Bank in March 2017, which had $497.5 million in loans on the date of acquisition, and our acquisition of Asheville Savings Bank in October 2017, which had $606.2 million in loans on the date of acquisition. Carolina Bank operated through eight branches predominately in the Triad region of North Carolina, and Asheville Savings Bank operated through 13 branches in the Asheville area of North Carolina. InternalDecember 31, 2019. Deposit growth in our loan portfolio amountedtransaction accounts (checking, money market and savings), was especially strong, increasing $1.5 billion, or 29.5% from 2019. In addition to $228.0deposits arising from PPP loans, we believe this high deposit growth was due to a combination of stimulus funds, changes in customer behaviors during the pandemic, and a flight to quality to FDIC-insured banks, as well as our ongoing deposit growth initiatives. We routinely engage in activities designed to grow and retain deposits, such as (1) emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with us, (2) pricing deposits at rate levels that will attract and/or retain deposits, and (3) continually working to identify and introduce new products that will attract customers or enhance our appeal as a primary provider of financial services. The high deposit growth in 2020 allowed us to reduce our level of brokered deposits by $65.9 million, or 8.4%. Internal loan growth was primarily driven76.5% during the year. Additionally, we paid down our borrowings in 2020 by our recent expansion into high-growth markets and$239 million, or 79.4%, with the hiring of experienced bankers in these areas.

excess liquidity.

During 2018,2019, we experienced an increase in total deposits of $252.4$272.0 million, or 5.7%5.8%. WeWithin total deposits, we grew our retail deposits (non-brokered deposits) by $426 million, or 9.6%. Within our retail deposits, we experienced internal growth of $186.3$321.9 million, or 8.7%, in our core deposit accounts (checking,checking, money market and savings),savings accounts, and increaseshad growth of $70.4$106.6 million, or 15.0%, in our retail time deposits, excluding brokered and internet deposits. Total brokered and internet deposits remained consistent from the year earlier. We have generally experienced higherThe high retail deposit growth in 2019 allowed us to reduce our core transaction accounts compared to time deposits, which we believe is due customers favoring transaction accounts due to their higher liquidity and the fact that transaction accounts have not been paying materially lower interest rates compared to time deposits. However, we have recently seen somelevel of our customers with larger balances transfer funds from their money market accounts to the time deposit > $100,000 category to attain higher interest rates.

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45

During 2017,

brokered deposits by $154 million, or 64.1% during the year. Additionally, we experienced an increasewere able to pay down our borrowings in total deposits2019 by $106 million.
Primarily as a result of $1.5 billion, or 49.5%. In 2017, we acquired $585.4 million in deposits from the Carolina Bank acquisition and $679.1 million in deposits from the Asheville Savings Bank acquisition. Net internalour strong deposit growth, amounted to $195.1 million, or 6.6%. We experienced internal growth of $191.2 million in our core deposit accounts, compared to net declines of $50.4 million in our retail time deposits, excluding brokered and internet deposits. Total brokered deposits amounted to $239.7 million at December 31, 2017, which was a 75.6% increase from the $136.5 million outstanding a year earlier. We increased our reliance of brokered deposits in 2017 to assist in funding the strong organic loan growth we experienced during 2017.

Our overall liquidity levels have increased at December 31, 20182020 compared to a year earlier. Our liquid assets (cash and securities) as a percentage of our total deposits and borrowings was 21.03%31.4% at December 31, 20182020 compared to 20.0%21.4% at December 31, 2017. Brokered deposits and borrowings as a percent of overall funding remained substantially unchanged from a year earlier.

At December 31, 2018, our nonperforming assets to total assets ratio was 0.74% compared to 0.96% at December 31, 2017. The decrease is primarily due to on-going resolution of nonperforming assets and improving credit quality.

2019.

Distribution of Assets and Liabilities

Table 7 sets forth the percentage relationships of significant components of our balance sheet at December 31, 2018, 2017,2020, 2019, and 2016.

Our balance sheet mix has remained relatively stable over the past three years. 2018.

On the asset side, net loans have consistently comprisedto total assets decreased to 64% in 2020 compared to 72% for both 2019 and 2018, which was primarily due to 74%the impact of the high deposit growth on total assets. The funds provided by the high deposit growth also resulted in increased security purchases in 2020 and resulted in total securities to total assets increasing from 14% in 2019 to 22% in 2020.
On the liability side, as a result of the high deposit growth, deposits increased to 86% of total assetsliabilities and interest-earning assets have rangedshareholders' equity in 2020, up from 88%-90%. Late80% and 79% in 2019 and 2018, respectively. In 2020 and 2019, we used existing cash balances to purchase approximately $150paid down our borrowings by $239 million in available for sale securities,and $106 million, respectively, which resulted in our mix of securities available for sale increasing from 6% of total assetsborrowings decreasing to 9% of total assets at the end of 2018. Intangible assets increased from 2% of total assets in 2016 to1% and 5% as of December 31, 2017, primarily as a result of our two whole-bank acquisitions in 2017, in which we recorded a total of $155.2 million in goodwill and $18.7 million in other intangible assets.

On the liability side, deposits have consistently comprised 79% to 82% of total liabilities and shareholders’ equity.

Shareholders’shareholders' equity increased from 10% of total liabilitiesfor 2020 and shareholders’ equity at December 31, 20162019, respectively, compared to 13% at December 31, 2018 due to the common stock issued in connection with our 2017 acquisitions and an increase in retained earnings due to high levels of net income recorded.

7% for 2018.

Securities

Information regarding our securities portfolio as of December 31, 2018, 2017,2020, 2019, and 20162018 is presented in Tables 8 and 9.

The composition of the investment securities portfolio reflects our investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of income. The investment portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits. We obtain fair values for the vast majority of our investment securities from a third-party investment recordkeeper, who specializes in securities purchases and sales, recordkeeping, and valuation. This recordkeeper provides us with a third-party report that contains an evaluation of internal controls that includes testwork of securities valuation. We further test the values we receive by comparing the values for a significant sample of securities to another third-party valuation service on a quarterly basis.

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Table of Contents

Total securities amounted to $602.6 million, $461.8$1.621 billion, $890 million, and $329.0$603 million, at December 31, 2018, 2017,2020, 2019, and 2016,2018, respectively. The increase in securities in 20182020 and 2019 was primarily due to our purchase of approximately $150 million of government-sponsored enterprise securities and mortgage-backeddeploying excess cash balances into fixed rate securities that we initiated in order to deploy excess cash intorealize higher yielding assets. The increase in securities in 2017 was partially due to $49.4 million in securities acquired in the acquisition of Carolina Bank in March 2017. Also, in late 2017 we sold $95.0 million in securities that we had acquired from Asheville Savings Bank in October 2017 and then subsequently purchased $150 million in mortgage-backed securities in the fourth quarter of 2017.

yields.

The majority of our “government-sponsored enterprise” securities carry one maturity date, often with an issuer call feature. At December 31, 2018,2020, of the $82.7$70.2 million in available for sale government-sponsored enterprise securities, $70.5$40.0 million were issued by the Federal Farm Credit Bank system, and the remaining $30.2 million were issued by the Federal Home Loan Bank system and the remaining $12.2 million were issued by either Fannie Mae, Freddie Mac, or Federal Farm Credit Bank system.

Nearly all of our $437.6 million$1.338 billion in totalavailable for sale mortgage-backed securities have beenat December 31, 2020 were issued by Freddie Mac, Fannie Mae, Ginnie Mae, or the SBA, each of which is a government agency or government-sponsored corporation and guarantees the repayment of the securities. Included in the mortgage-backed securities at December 31, 2018, werethis total are commercial mortgage-backed securities of $159.6 million that were issued and are guaranteed by Ginnie Mae.$428.5 million. Mortgage-backed securities vary in their repayment in correlation with the underlying pools of mortgage loans.

Our investment policy permits us to hold up to 15% of our securities portfolio in corporate bonds. These bonds have the most credit risk of any of our securities. At December 31, 2018,2020, our $33.1$45.2 million investment in corporate bonds was comprised of the following:

($ in thousands)

 

Issuer

 Issuer
Ratings		   Maturity Date Amortized Cost  Fair Value 
Bank of America A3 (1) 1/11/2023 $7,000   6,879 
Citigroup Baa1 (1) Various  6,027   5,920 
Goldman Sachs A3 (1) 1/22/2023  5,073   4,937 
JP Morgan Chase A2 (1) 1/25/2023  5,018   4,904 
Financial Institutions, Inc. BBB- (2) 4/15/2030  4,000   4,058 
Wells Fargo A3 (1) 2/13/2023  3,092   3,001 
Eagle Bancorp, Inc. BBB (2) 9/1/2024  2,541   2,559 
First Citizens Bancorp (South Carolina) Trust Preferred Security Not Rated   6/15/2034  1,000   880 
     Total investment in corporate bonds       $33,751   33,138 

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($ in thousands)
IssuerIssuer
Ratings		 Maturity DateAmortized CostFair Value
Bank of AmericaA2(1)various$7,000 7,409 
Citigroup (senior)A3(1)3/1/20235,011 5,288 
Citigroup (subordinated)Baa2(1)7/30/20221,002 1,058 
Goldman SachsA2(1)1/22/20235,037 5,319 
JP Morgan ChaseA2(1)1/25/20235,009 5,294 
Financial Institutions, Inc.BBB-(2)4/15/20304,000 3,956 
Wells FargoA3(1)2/13/20233,084 3,261 
Eagle Bancorp, Inc.BBB(2)9/1/20242,527 2,635 
First Citizens BancSharesNot Rated3/15/203010,000 10,165 
First Citizens BancShares Trust Preferred SecurityNot Rated 6/15/20341,000 835 
Total investment in corporate bonds   $43,670 45,220 

(1)Ratings issued by Moody’s
(2)Rating issued by Kroll Bond Rating Agency.

(1)Ratings issued by Moody’s
(2)Rating issued by Kroll Bond Rating Agency          

We have concluded that any unrealized losses associated with our corporate bonds are due to interest rate considerations and not due to credit concerns.

At December 31, 2018, we held $101.2 million in securities classified as held to maturity, which had a carrying value that exceeded their fair value by $1.3 million. Approximately $52.0 million of the securities held to maturity are mortgage-backed securities that have been issued by either Freddie Mac or Fannie Mae. The remaining $49.2 million in securities held to maturity are comprised almost entirely of municipal bonds issued by state2020, 2019, and local governments throughout our market area. We have no significant concentration of bond holdings from one government entity, with the single largest exposure to any one entity being $4.7 million. Management evaluated any unrealized losses on individual securities at each year end and determined them to be of a temporary nature and caused by fluctuations in market interest rates, not by concerns about the ability of the issuers to meet their obligations.

At December 31, 2018, 2017, and 2016, net unrealized lossesgains (losses) of $12.4$20.4 million, $2.2$9.7 million, and $3.1 million,($12.4 million), respectively, were included in the carrying value of securities classified as available for sale. Management evaluated any unrealized losses on individual securities at each year end and determined them to be of a temporary nature and caused by fluctuations in market interest rates and the overall economic environment, not by concerns about the ability of the issuers to meet their obligations. Net unrealized gains and losses, net of applicable deferred income taxes, have been reportedare included as part of a separate component of shareholders’ equity (accumulated other comprehensive income) as of December 31, 2020, 2019, and 2018, 2017,respectively.

At December 31, 2020, we held $167.6 million in securities classified as held to maturity, which are carried at amortized cost. These securities had fair values that exceeded their carrying values by $3.2 million at December 31, 2020. Approximately $30.0 million of the securities held to maturity are mortgage-backed securities that have been issued by either Freddie Mac or Fannie Mae. The remaining $137.6 million in securities held to maturity are comprised almost entirely of highly-rated municipal bonds issued by state and 2016, respectively.

50 

local governments throughout the nation. We have no significant concentration of bond holdings from one government entity, with the single largest exposure to any one entity being $5.6 million. Management evaluated any unrealized losses on individual securities at each year end and determined them to be of a temporary nature and caused by fluctuations in market interest rates, not by concerns about the ability of the issuers to meet their obligations.
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The weighted average taxable-equivalent yield for the securities available for sale portfolio was 2.87%1.62% at December 31, 2018.2020. The expected weighted average life of the available for sale portfolio using the call date for above-market callable bonds, the maturity date for all other non-mortgage-backed securities, and the expected life for mortgage-backed securities, was 6.15.7 years.

The weighted average taxable-equivalent yield for the securities held to maturity portfolio was 3.17%2.11% at December 31, 2018.2020. The expected weighted average life of the held to maturity portfolio using the call date for above-market callable bonds, the expected life for mortgage-backed securities, and the maturity date for all other securities, was 2.67.9 years.

We expect the adoption of CECL to result in an insignificant amount of credit losses related to our securities portfolio.
The following table provides the names of issuers for which the Company has investment securities totaling in excess of 10% of shareholders’ equity and the fair value and amortized cost of these investments as of December 31, 2018.2020. All of these securities are issued by government sponsored corporations.

($ in thousands)         
Issuer Amortized Cost  Fair Value  % of
Shareholders’
Equity		 
Fannie Mae $191,839   186,735   25.1% 
Ginnie Mae  127,358   123,593   16.7% 
Freddie Mac  98,608   95,285   12.9% 
          Total $417,805   405,613     

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Loans

Table 10 provides a summary of the loan portfolio composition of our total loans at each of the past five year ends.

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($ in thousands)   
IssuerAmortized CostFair Value% of
Shareholders’
Equity
Fannie Mae$571,245 585,035 65.5 %
Freddie Mac549,811 552,830 61.9 %
Ginnie Mae234,780 237,159 26.5 %
Total$1,355,836 1,375,024  
Loans
The loan portfolio is the largest category of our earning assets and is comprised of commercial loans, real estate mortgage loans, real estate construction loans, and consumer loans. The majority of our loan portfolio is within our 3936 county market area, which are located in western, central and eastern North Carolina and three counties in northeastern South Carolina. We also have a portfolio of SBA loans that have been made on a nationwide basis. The diversity of the economic bases of our market areas has historically provided a stable lending environment.

In 2018,2020, loans outstanding increased $206.7$277.8 million, or 5.1%6.2%, whereas in 2019, loans outstanding increased $204.4 million, or 4.8%. The growth in 20182020 was primarily due to organic loan$240.9 million in PPP loans outstanding at December 31, 2020 (see discussion below) and $14.6 million in loans assumed from the acquisition of Magnolia Financial. The growth whichin 2019 was generated internally and was concentrated primarily within our higher growth markets and from the SBA Lending Division. In 2017, loans outstanding increased $1.33 billion, or 49.1% to $4.0 billion. The growth in 2017 can be attributed to the acquisitions of Carolina Bank and Asheville Savings Bank, as well as organic loan growth of $228.0 million.

markets.

The majority of our loan portfolio over the years has been real estate mortgage loans, with loans secured by real estate consistentlyhistorically comprising 88%approximately 87% to 91%89% of our outstanding loan balances. In 2020, our loans secured by real estate decreased to 82% of outstanding loan balances due to PPP loans, which are unsecured loans and are included in the line item "commercial, financial, and agricultural." Except for construction, land development and other land loans, the majority of our “real estate” loans are personal and commercial loans where cash flow from the borrower’s occupation or business is the primary repayment source, with the real estate pledged providing a secondary repayment source.

Table 10 presentsprovides a five-year historysummary of the loan portfolio composition of our total loans outstanding by type.

at each of the past five year ends.

Commercial, financial, and agricultural loans have increased from 7%9% at December 31, 20142016 to 11% at December 31, 2018,2019, due primarily to growth in loans made to municipalities and loans originated by our SBA Lending Division.

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This category of loans further increased in 2020 to 17% of total loans as of December 31, 2020 due primarily to the $241 million in PPP loans outstanding at year-end.
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Residential real estate loans have declined from 33%28% of total loans at December 31, 20142016 to 25%21% of total loans at December 31, 2018.2020. This decline washas been due to a combination of factors including consumers refinancing their home loans held by the Bank with long term fixed rate loans, which we typically sell in the secondary market. Additionally, the Carolina Bank loan portfolio assumedacquired during 2017 had only an 11% mix of residential real estate loans.

Commercial real estate loans as a percentage of total loans has increased steadily over the past five years and amounted to 42%43% of all loans at December 31, 2017.2020. Consistent with our community banking strategy, we have placed emphases on this type of loan growth and hired a number of experienced community bankers, who have originated a significant amount of business loans secured by real estate. Also, growth in our SBA loan portfolio has contributed to the increase in this category.

Table 11 provides a summary of scheduled loan maturities over certain time periods, with fixed rate loans and adjustable rate loans shown separately. Approximately 13%12% of our accruing loans outstanding at December 31, 20182020 mature within one year and 56%51% of total loans mature within five years, with both of those measures being consistent with recent years. As of December 31, 2018,2020, the percentages of variable rate loans and fixed rate loans as compared to total performing loans were 35%26% and 65%, respectively. We intentionally make a blend74%. In recent years, the mix of fixed and variable rate loans so as to reduce interest rate risk. The mix of fixed rate loans has generally increased over the past several years becausebeen shifting to more fixed rate loans as fixed rate loans continue to be popular with many borrowers have desiredin order to lock in a low interest rate during the historically low interest rate environment that has been in effect. Also at December 31, 2020, we held $241 million in PPP loans, which all carry a fixed rate of interest. While thisfixed rate loans presents risk to our Company if interest rates rise, we measure our interest rate risk closely and, as
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discussed in the section “Interest Rate Risk” below, we do not believe that an increase in interest rates would materially negatively impact our net interest income.

Paycheck Protection Program ("PPP") Loans
PPP loans, which we began originating in April 2020, are loans to qualified small businesses and other entities administered by the SBA under the provisions of the CARES Act and subsequent federal acts. Loans covered by the PPP may be eligible for loan forgiveness for certain costs incurred related to payroll and other eligible expenses. The remaining loan balance after forgiveness of any amounts is still fully guaranteed by the SBA. Terms of the PPP loans include the following (i) maximum amount limited to the lesser of $10 million or an amount calculated using a payroll-based formula, (ii) maximum loan term of five years, (iii) interest rate of 1.00%, (iv) no collateral or personal guarantees are required, (v) no payments are required until the date on which the forgiveness amount relating to the loan is remitted to the lender and (vi) loan forgiveness up to the full principal amount of the loan and any accrued interest, subject to certain requirements including that no more than 40% of the loan forgiveness amount may be attributable to non-payroll costs. In return for processing and booking a PPP loan, the SBA paid lenders a processing fee tiered by the size of the loan (5% for loans of not more than $350 thousand; 3% for loans of more than $350 thousand and less than $2 million; and 1% for loans of at least $2 million).
PPP loans include loans to businesses and other entities that are reported as commercial loans originated under the guidelines discussed above. During 2020, we funded approximately $244.9 million of PPP loans and through December 31, 2020, we had received $4.0 million in forgiveness payments from the SBA. At December 31, 2020, we had $240.9 million in PPP loans outstanding, which represented 30.8% of our commercial, financial, and agricultural loans and 5.1% of our total loans. We expect that the majority of our outstanding PPP loans will be forgiven in 2021. Also, we are originating new PPP loans in 2021 as a result of legislation that provided additional funds for this relief program.
During 2020, we amortized net deferred PPP fees of $4.1 million as interest income. At December 31, 2020, we have $6.0 million in remaining deferred PPP origination fees that will be recognized over the lives of the loans, with accelerated amortization expected to result from the loan forgiveness process. We expect substantially all of these fees will be recognized in the first half of 2021 as a result of the loan forgiveness process.
Nonperforming Assets

Nonperforming assets include nonaccrual loans, troubled debt restructurings, loans past due 90 or more days and still accruing interest, and foreclosed real estate.properties. As a matter of policy we place all loans that are past due 90 or more days on nonaccrual basis, and thus there were no loans at any of the past five year ends that were 90 days past due and still accruing interest.

Nonaccrual loans are loans on which interest income is no longer being recognized or accrued because management has determined that the collection of interest is doubtful. Placing loans on nonaccrual status negatively impacts earnings because (i) interest accrued but unpaid as of the date a loan is placed on nonaccrual status is reversed and deducted from interest income, (ii) future accruals of interest income are not recognized until it becomes probable that both principal and interest will be paid and (iii) principal charged-off, if appropriate, may necessitate additional provisions for loan losses that are charged against earnings. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the originally contracted terms.

Table 12 summarizes our nonperforming assets at the dates indicated. Prior to September 2016,
In the past several years, we presented nonperforming assets that were subject to the loss share agreements as “covered” and nonperforming assets that were not subject to the loss share agreements as “non-covered.” Our loss share agreements with the FDIC were terminated during 2016, and all assets became non-covered.

Since the height of the recession, we have generally benefited from improving economic conditions and alsosuccessfully implemented a combination of strategies to reduce nonperforming assets, includingassets. However, in 2020, a significant 2013portion of our SBA loan sale. As a result,portfolio was delinquent, and thus those loans did not qualify for the SBA's relief payment plan. Many of those loans defaulted for both pandemic and other reasons and were transferred to nonaccrual status. Due primarily to those SBA loans, our total nonperforming asset levels have declined steadily over the years, with nonperforming assets amounting to amounting to just 0.74% of total assetsloans increased from $33.9 million at December 31, 2018. This compares2019 to ratios of 0.96% and 1.64%$44.6 million at December 31, 2017 and 2016, respectively. In 2018, our nonperforming asset levels benefitted from a loan sale of approximately $5.22020. At December 31, 2020, we held $170 million in smaller balance nonperformingtotal SBA loans, of which $136 million were the unguaranteed portions of those loans.

Table 12a presents our nonperforming assets at December 31, 20182020 by general geographic region.

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

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($ in thousands)At December 31,
2020		At December 31,
2019
Commercial, financial, and agricultural$9,681 5,518 
Real estate – construction, land development, and other land loans643 1,067 
Real estate – mortgage – residential (1-4 family) first mortgages6,048 7,552 
Real estate – mortgage – home equity loans/lines of credit1,333 1,797 
Real estate – mortgage – commercial and other17,191 8,820 
Installment loans to individuals180 112 
Total nonaccrual loans$35,076 24,866 

($ in thousands) At December 31,
2018		  At December 31,
2017		 
Commercial, financial, and agricultural $919   1,001 
Real estate – construction, land development, and other land loans  2,265   1,822 
Real estate – mortgage – residential (1-4 family) first mortgages  10,115   12,201 
Real estate – mortgage – home equity loans/lines of credit  1,685   2,524 
Real estate – mortgage – commercial and other  7,452   3,345 
Installment loans to individuals  139   75 
   Total nonaccrual loans $22,575   20,968 

The nonaccrual table above generally indicates that almost all categories ofa net increase in nonaccrual loans remained relatively level during the year, with the “real“Commercial, financial and agricultural” and "Real estate –- mortgage –- commercial and other” categoryother" categories experiencing the largest increase.

increases. Both of the increases were primarily driven by SBA loans that were placed on nonaccrual status during 2020. At December 31, 2020, we had $18.4 million in nonaccrual SBA loans compared to $9.0 million a year earlier. The unguaranteed portions of those loans amounted to $12.1 million at December 31, 2020 and $5.2 million at December 31, 2019. As of December 31, 2020, SBA loans accounted for approximately $9.3 million of our nonaccrual loans in the "Commercial, financial and agricultural” category and $9.1 million of our nonaccrual loans in the "Real estate - mortgage - commercial and other" category.

Due to government and the Company's COVID-19 relief programs, the nonperforming asset level at December 31, 2020 does not likely reflect the full impact of COVID-19. While there are still many uncertainties associated with the pandemic and the stimulus measures taken by the United States government to address it, higher unemployment levels and business closures would generally be expected to result in higher levels of nonperforming assets in the future.
As shown in Note 4 to the consolidated financial statements, our accruing past due loans (30 or more days) amounted to $22.3 million at December 31, 2020, a decrease of $1.4 million from the $23.7 million at December 31, 2019. Due to government and the Company's COVID-19 relief programs, the past due amounts at December 31, 2020 have not been negatively impacted by the pandemic in a significant manner. As previously discussed, since the onset of the pandemic in March 2020, we worked with many of our borrowers and provided loan payment deferrals, with the Company deferring payments on approximately $774 million loans at June 30, 2020. Over the second half of 2020, most of those borrowers resumed making payments and loans on deferral status declined to $16.6 million, or 0.4% of total loans at December 31, 2020.
Management routinely monitors the status of certain large loans that, in management’s opinion, have credit weaknesses that could cause them to become nonperforming loans. In addition to the nonperforming loan amounts discussed above and economic conditions that do not significantly worsen, management believes that an estimated $1$15 to $5$20 million of loans that were performing in accordance with their contractual terms at December 31, 20182020 have the potential to develop problems in the near term depending upon the particular financial situations of the borrowers and economic conditions in general. Management has taken these potential problem loans into consideration when evaluating the adequacy of the allowance for loan losses at December 31, 20182020 (see discussion below).

Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been disclosed in the problem loan amounts and the potential problem loan amounts discussed above do not represent or result from trends or uncertainties that management reasonably expects will materially impact future operating results, liquidity, or capital resources, or represent material credits about which management is aware of any information that causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms.

We provide additional information regarding the credit quality classification status of our loans in tables contained in Note 4 to our consolidated financial statements. Those tables indicate that fromat December 31, 2017 to2019 and December 31, 20182020, our asset quality improved, with totallevel of classified and nonaccrual loans decreasingto total loans amounted to approximately 1.3% and 1.4%, respectively. We believe that government relief programs have resulted in fewer loans migrating to classified risk grades than would otherwise been the case as a result of the pandemic. Instead, certain of those loans have been moved to Special Mention status, which resulted in that risk grade of loans increasing from $79.4$50.3 million at December 31, 20172019 to $60.8$61.3 million at December 31, 2018. This is consistent with our generally improving asset quality trends.

2020.

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Foreclosed real estateproperties includes primarily foreclosed properties.real estate. Total foreclosed real estate amounted to $7.4$2.4 million, $12.6$3.9 million, and $9.5$7.4 million, at December 31, 2018, 2017,2020, 2019, and 2016,2018, respectively. Generally, we have experienced decreases in foreclosed real estate over the past several years primarily due to increased property sales activity and the improvement in our overall asset quality. In 2017, we acquired $3.1 million and $3.9 million of foreclosed real estate in the acquisitions of Carolina Bank and Asheville Savings Bank, respectively.

The following table presents the detail of our foreclosed real estate at each of the past two year ends:

$ in thousands

 

 At December 31, 2018  At December 31, 2017 
Vacant land and farmland $2,035   6,032 
1-4 family residential properties  2,311   4,229 
Commercial real estate  3,094   2,310 
   Total foreclosed real estate $7,440   12,571 

$ in thousandsAt December 31, 2020At December 31, 2019
Vacant land and farmland$753 1,752 
1-4 family residential properties517 974 
Commercial real estate1,154 1,147 
Total foreclosed real estate$2,424 3,873 
Allowance for Loan Losses and Loan Loss Experience

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 recoveriesRecoveries realized during the period are credited to this allowance. We consider our procedures for recording the amount of the allowance for loan losses and the related provision for loan losses to be a critical accounting policy. See the heading “Critical Accounting Policies” above for further discussion.

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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.

We use a loan analysis and grading program to facilitate our evaluation of probable inherent loan losses and the adequacy of our allowance for loan losses. In this program, credit risk grades are assigned by management and tested by an internal loan review department and also an independent third-party consulting firm. The testing program includes an evaluation of a sample of new loans, loans we identify as having potential credit weaknesses, loans past due 90 days or more, loans originated by new loan officers, nonaccrual loans and any other loans identified during previous regulatory and other examinations.

We strive to maintain our loan portfolio in accordance with what management believes are conservative loan underwriting policies that result in loans specifically tailored to the needs of our market areas. Every effort is made to identify and minimize the credit risks associated with such lending strategies. 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 loans captioned in the tables discussed below as “real estate” loans are personal and commercial loans where real estate provides additional security for the loan. Collateral for the majority of these loans is located within our principal market area.

The total allowance for loan losses amounted to $52.4 million at December 31, 2020 compared to $21.4 million at December 31, 2019 and $21.0 million at December 31, 2018 compared2018. Table 13 sets forth the allocation of the allowance for loan losses at the dates indicated. However, the allowance for loan losses is available to $23.3 million at December 31, 2017 and $23.8 million at December 31, 2016.

absorb losses in all categories.

Our allowance for loan losslosses is aprimarily based on mathematical model with the primary factors impacting this model being loan growth, net charge-off history, and asset quality trends.trends, as well as specific reserves we set aside on certain individual loans exhibiting signs of deterioration. Our allowance for loan loss model utilizes the net charge-offs experienced in the most recent years as a significant component of estimating the current allowance for loan losses that is necessary. Thus, older years (and parts thereof) systematically age out and are excluded from the analysis as time goes on. In recent years, the new periods have had significantlygenerally lower levels of net charge-offs (and net recoveries in some periods) than the older periods rolling out of the model. This has resulted in a lowermodel, and thus mostly offset upward adjustments to the allowance that would normally be required amount of allowance forto reflect new loan losses in our modeling. Thegrowth and the net charge-offs experienced. Thus, the low level of net-charge offsnet charge-offs (or net recoveries) experienced over the past severalin recent years hashad been the primary reason for the low (or negative) provisions for loan losses recorded.

that have been necessary until 2020 to appropriately adjust the level or our allowance for loan losses.

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In March 2020, the COVID-19 pandemic began to impact our nation. The subsequent closures of, or restrictions on, many businesses and job losses continue to result in widespread negative economic impacts. The U.S. Government has taken steps to lessen the negative impacts, including stimulus payments and the SBA's payment relief program. Under the SBA's payment relief program, the SBA made principal and interest payments on most of our SBA loans for six months in 2020. This program resumed in February 2021 with additional payments being made by the SBA for either three months or eight months, depending on the nature of the business. Additionally, as previously discussed, we implemented a loan deferral program. We are uncertain as to the extent that these programs have reduced probable loan losses, and due to that uncertainty and the temporary nature of the programs, we have not relied on these programs as significant positive factors in the risk grading of loans in our portfolio.
In determining the appropriate level of allowance for loan losses at December 31, 2020, we reviewed the industry types that we believed have significantly heightened risk as a result of the pandemic, which included, among others, hospitality, retail stores, and restaurants. At December 31, 2020, we held approximately $175 million in hotel loans and $82 million in restaurant loans, which we believe are the highest risk loans. Based on that analysis, we assigned elevated loan loss reserve percentages for certain of those loan types that brought the total reserve percentages to a level consistent with what we believe are the probable loss rates incurred in a stressed economic scenario. The higher loss rates were generally determined based on our historical high one year loss rates for those loan types. As a result of the analysis, approximately $24.8 million of COVID-19 related qualitative reserves are included in the Company's December 31, 2020 allowance for loan loss amount of $52.3 million.
Also, as discussed previously,our SBA loan portfolio accounted for a significant portion of our net-charge offs in 2020 and nonaccrual loans at December 31, 2020. Accordingly, our level of allowance for loans losses at December 31, 2020 reflects heightened reserves for our SBA loan portfolio compared to prior periods, primarily in the "Commercial, financial, and agricultural' and "Real estate - mortgage - commercial and other" categories, as reflected in Table 13.
For the years indicated, Table 14 summarizes our balances of loans outstanding, average loans outstanding, and a detailed rollforward of the allowance for loan losses.
Net loan charge-offs (recoveries) of total loans amounted to $4.0 million in 2020, $1.9 million in 2019, and ($1.3 million) in 2018. In 2020, we recorded $3.2 million of net charge-offs within our SBA loan portfolio, which was concentrated in the "commercial, financial, and agricultural" category. In 2019, the increases in the categories of "Commercial, financial, and agricultural" and "Real estate - mortgage - commercial and other" were driven by $2.1 million in net charge-offs within our SBA loan portfolio. In 2018, we received full payoffs on four loans that had been previously charged-down by approximately $3.3 million and are included in the table as recoveries, contributing significantly to the net recovery position for the year.
The ratio of our allowance to total loans was 0.50%1.11%, 0.58%0.48%, and 0.88%0.50%, at December 31, 2020, 2019, and 2018, 2017, and 2016, respectively. The decline in this ratio fromAs discussed above, the higher level of allowance for loan losses at December 31, 20172020 was primarily driven by estimated probable losses arising from the economic impact of COVID-19. Our relatively low level of allowance to December 31,total loans in 2019 and 2018 was a result of the factors discussed above thatalso significantly impacted our relatively low levels of provision for loan losses. The large decline in 2017 was primarily due toby the acquisitions of Carolina Bank and Asheville Savings Bank, which had over $1 billion in total loans. Applicable accounting guidance did not allow us to record an allowance for loan losses upon the acquisition of loans – instead the acquired loans were recorded at their discounted fair value, which included the consideration of any expected losses. No allowance for loan losses will beis recorded for the acquired loans untilunless 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 on acquired loans, which is available to absorb loan losses on those acquired loans, amounted to $17.3$8.9 million, $24.3$12.7 million, and $12.1$17.3 million, at December 31, 2018,2020, December 31, 2017,2019, and December 31, 2016,2018, respectively. The ratio of allowance for loan losses plus unaccreted discount on acquired loans amounted to 0.90%, 1.18% and 1.32% at December 31, 2018, December 31, 2017, and December 31, 2016, respectively.

Table 13 sets forth the allocation of the allowance for loan losses at the dates indicated. The allowance for loan losses is available to absorb losses in all categories.

Management considers the allowance for loan losses 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 allowance 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 amount 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.

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In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and losses on foreclosed real estate. Such agencies may require us to recognize additions to the allowance based on the examiners’ judgments about information available to them at the time of their examinations.

For

The way that we reserve for loan losses will experience a significant change in 2021, as a result of new guidance issued by the years indicated, Table 14 summarizesFASB. The Company was initially expecting to adopt this new guidance on January 1, 2020, but due to the COVID-19 pandemic and the related CARES Act and subsequent legislation, we elected to defer the implementation of CECL, and now expect to adopt it as of January 1, 2021. CECL requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit losses" and record an allowance that, when deducted from the amortized cost basis of the financial assets, presents the net amount expected to be collected on the financial assets. The CECL framework is expected to result in earlier recognition of credit losses and is expected to be significantly influenced by the composition, characteristics and quality of our balancesloan portfolio, as well as the prevailing economic conditions and forecasts. We will initially apply the impact of loans outstanding, average loans outstanding,the new guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, which we now expect to be January 1, 2021. At this time, we expect our allowance for credit losses will increase by approximately $12-14 million and that our reserve for unfunded commitments will increase by $6-$7 million.
The CECL standard provides significant flexibility and requires a detailed rollforwardhigh degree of judgment with regards to pooling financial assets with similar risk characteristics and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses. Providing for losses over the life of our loan portfolio is a change to the previous method of providing allowances for loan losses that are probable and incurred. This change may require us to increase our allowance for loan losses rapidly in future periods, and greatly increases the types of data we need to collect and review to determine the appropriate level of the allowance for loan losses.

Net loan charge-offs (recoveries) of total loans amounted It may also result in even small changes to ($1.3 million) in 2018, $1.2 million in 2017,future forecasts having a significant impact on the allowance, which could make the allowance more volatile, and $3.7 million in 2016. The trend of lower net charge-offs is associated with lower levels of nonperforming loans and credit improvements in our underlying loan portfolio. In 2018, we received full payoffs on four loans that had been previously charged-down by approximately $3.3 million and are included in the table as recoveries, contributing significantlyregulators may impose additional capital buffers to the net recovery position for the year.

absorb this volatility.

Deposits

Deposits are a critical part of our business, as they provide the primary funding source for our loans and investments. Accordingly, as discussed below, we have implemented various strategies and developed competitive products to promote growth of our deposit balances.

At December 31, 2018,2020, deposits outstanding amounted to $4.66$6.274 billion, an increase 5.7%of 27.2%, or $252.4 million,$1.342 billion, from the $4.41$4.931 billion at December 31, 2017,2019, all of which was organic growth. WeWithin our retail deposits (non-brokered), we experienced higher growth of $1.456 billion, or 29.5%, in our transaction accounts (checking,checking, money market and savings) compared to time deposits, which we believe is due customers favoring transactionsavings accounts, due to their higher liquidity and the fact that transaction accounts have not been paying materially lower interest rates compared toexperienced a decline of $114 million, or 2.3%, in our retail time deposits. However,As a result of the strong retail deposit growth in 2020, we have recently seen some ofwere able to reduce our customers with larger balances transfer funds from their money market accounts to the time deposit > $100,000 category to attain higher interest rates.

At December 31, 2017, deposits outstanding amounted to $4.41 billion, an increase of $1.46 billion from the $2.95 billion at December 31, 2016. During 2017, we acquired Carolina Bank with $585.4 million in deposits and Asheville Savings Bank with $679.1 million in deposits. We also experienced organic growth of totaling $195.1 million in 2017, with the majority of our growth occurring in noninterest-bearing checking accounts. Our higher cost retail time deposits declined by $50.4 million in 2017. Total brokered deposits amounted to $239.7 million at December 31, 2017, which was a 75.6% increase from the $136.5 million outstanding a year earlier. The increased usagelevel of brokered deposits during the year by $65.9 million, a decrease of 76.5%. In addition to deposits arising from PPP loans, our high deposit growth in 20172020 is believed to be due to a combination of stimulus funds, changes in customer behaviors during the pandemic, a flight to quality to FDIC-insured banks, as well as our ongoing deposit growth initiatives.

During 2019, we experienced an increase in total deposits of $272.0 million, or 5.8%, which was necessary because of high organic loan growth that exceededsubstantially all retail deposit growth. This imbalanceWithin our retail deposits, we experienced growth of $321.9 million, or 8.7%, in checking, money market and savings accounts, and had growth was largely associated withof $106.6 million, or 15.0%, in our growth and expansion into the larger markets of North Carolina – Charlotte, Greensboro and Raleigh. When initially entering markets such as these, our experience has been that we are able to capture loan market share faster than deposit market share.

The nature of our deposit growth is illustrated in the table on page 48. The following table reflects the mix of our deposits at each of the past three year ends:

  2018  2017  2016 
Noninterest-bearing checking accounts  28%   27%   26% 
Interest-bearing checking accounts  20%   20%   21% 
Money market deposits  22%   22%   23% 
Savings deposits  9%   10%   7% 
Time deposits - Brokered  5%   6%   5% 
Time deposits > $100,000 – retail  10%   8%   10% 
Time deposits < $100,000 – retail  6%   7%   8% 
    Total deposits  100%   100%   100% 

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Our deposit mix remains heavily concentrated in transaction and non-time deposit accounts, with time deposits only comprising approximately 20% of total deposits. This is beneficial for us, as these accounts generally carry lower interest rates compared toretail time deposits. Prior to the very low interest rate environment that we have been in for the past decade, the time deposit concentration was closer to 50%. We believe the lower mix of time deposits has been due to the relatively small gap between the interest rates that we pay on transaction accounts versus the rates we pay on time deposits. It is uncertain whether the interest rate increases over the past two years will result in a significant shift back to time deposits.

We routinely engage in activities designed to grow and retain deposits, such as (1) emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with us, (2) pricing deposits at rate levels that will attract and/or retain deposits, and (3) continually working to identify and introduce new products that will attract customers or enhance our appeal as a primary provider of financial services.

The nature of our deposit growth is illustrated in the table on page 45. The following table reflects the mix of our deposits at each of the past three year ends:
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 202020192018
Noninterest-bearing checking accounts35 %31 %28 %
Interest-bearing checking accounts19 %18 %20 %
Money market deposits25 %24 %22 %
Savings deposits8 %9 %9 %
Time deposits - Brokered— %2 %5 %
Time deposits > $100,000 – retail9 %11 %10 %
Time deposits < $100,000 – retail4 %5 %6 %
Total deposits100 %100 %100 %
Our deposit mix continues a trend of being more heavily concentrated in transaction and non-time deposit accounts, with time deposits declining from 21% of total deposits at December 31, 2018, to 18% at December 31, 2019, to 13% at December 31, 2020. This is beneficial for us, as non-time deposit accounts generally carry lower interest rates compared to time deposits. Prior to the very low interest rate environment that we have been in for the past decade, the time deposit concentration was closer to 50%. We believe the lower mix of time deposits has been due to the relatively small gap between the interest rates that we pay on transaction accounts versus the rates we pay on time deposits.
Table 15 presents the average amounts of our deposits and the average yield paid for those deposits for the years ended December 31, 2018, 2017,2020, 2019, and 2016.

2018.

As of December 31, 2018,2020, we held approximately $690.9$564.4 million in time deposits of $100,000 or more, of which $375.7 million are in denominations of $250,000 or more. Table 16 is a maturity schedule of time deposits of $100,000 or more and time deposits of $250,000 or more as of December 31, 2018.2020. This table shows that 80%88% of our time deposits greater than $100,000 and 90.0% of our time deposits greater than $250,000 mature within one year.

As of December 31, 2020, we held approximately $2.3 billion in uninsured deposits, including $283.0 million in time deposits.
At each of the past three year ends, we have no deposits issued through foreign offices, nor do we believe that we held any deposits by foreign depositors.

Borrowings

We typically utilize borrowings to provide balance sheet liquidity and to fund imbalances in our loan growth compared to our deposit growth. Our borrowings outstanding totaled $61.8 million at December 31, 2020, $300.7 million at December 31, 2019, and $406.6 million at December 31, 2018, $407.5 million at December 31, 2017, and $271.4 million at December 31, 2016.2018. Table 2 shows that average borrowings were $186.4 million in 2020, $332.6 million in 2019, and $406.9 million in 2018, $325.9 million in 2017,2018.
In both 2019 and $209.7 million in 2016.

The increase in borrowings2020, we used a portion of the excess cash generated from 2016 to 2017 was to fund organicdeposit growth that exceeded loan growth which exceeded deposit growth in 2016to pay down borrowings of $106 million and 2017. Additionally, we assumed approximately $42$239 million, of borrowings in our two whole-bank acquisitions in 2017. In 2018, borrowings remained essentially unchanged as deposit growth fully funded our loan growth for the year.

respectively.

At December 31, 2018,2020, the Company had three sources of readily available borrowing capacity – 1) an approximately $1.04$1.02 billion line of credit with the FHLB, of which $353 million and $354$8 million was outstanding at December 31, 20182020 and 2017, respectively,$247 million was outstanding at December 31, 2019, 2) a $35$100 million federal funds line of credit with a correspondent bank, of which noneNaN was outstanding at December 31, 20182020 or 2017,2019, and 3) an approximately $127$134 million line of credit through the Federal Reserve Bank of Richmond’s (“FRB”)(FRB) discount window, of which noneNaN was outstanding at December 31, 20182020 or 2017.

In addition to any outstanding borrowings from the FHLB that reduce the available borrowing capacity of the line of credit, our borrowing capacity was further reduced by $190 million and $198 million at December 31, 2018 and 2017, respectively, as a result of our pledging letters of credit backed by the FHLB for public deposits at each of those dates. Thus, our unused available line of credit with the FHLB amounted to approximately $502 million at December 31, 2018 compared to $384 million a year earlier.

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2019.
Table of Contents

Our line of credit with the FHLB can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity need, and is secured by our FHLB stock and a blanket lien on most of our real estate loan portfolio. For the year ended December 31, 2018,2020, the average amount of FHLB borrowings outstanding was approximately $353.2$132.4 million with a weighted average interest rate for the year of 1.91%1.13%. The maximum amount of short-term FHLB borrowings outstanding at any month-end during 20182020 was $353.5$348.2 million. For the year ended December 31, 2017,2019, the average amount of FHLB borrowings outstanding was approximately $273.8$278.4 million with a weighted average interest rate for the year of 1.19%2.22%. The maximum amount of short-term FHLB borrowings outstanding at any month-end during 20172019 was $354.0$352.3 million.

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Our correspondent bank relationship allows us to purchase up to $35$100 million in federal funds on an overnight, unsecured basis (federal funds purchased). We had no borrowings under this line at December 31, 20182020 or 2017.2019. There were no federal funds purchased outstanding at any month-end during 20182020 or 2017.

2019.

We also have a line of credit with the FRB discount window. This line is secured by a blanket lien on a portion of our commercial and consumer loan portfolio (excluding real estate loans). Based on the collateral that we owned as of December 31, 2018,2020, the available line of credit was approximately $127$134 million. At December 31, 20182020 and 2017,2019, we had no borrowings outstanding under this line.

In addition to the lines of credit described above, we also have of $56.7 million of trust preferred security debt outstanding at December 31, 20182020 and 2017.2019. Each of our three issuances have 30 year final maturities and were structured in a manner that allows them to qualify as Tier 1 capital for regulatory capital adequacy requirements. We may call these debt securities at par on any quarterly interest payment, but do not expect to do so. The interest rate on these debt securities adjusts on a quarterly basis at a rate of three-month LIBOR plus 2.70% for $20.6 million, three-month LIBOR plus 1.39% on $25.8 million, and LIBOR + 2.00% for $10.3 million that was assumed in the Carolina Bank acquisition.

Liquidity, Commitments, and Contingencies

Our liquidity is determined by our ability to convert assets to cash or to acquire alternative sources of funds to meet the needs of our customers who are withdrawing or borrowing funds, and our ability 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.

As noted above, in addition to internally generated liquidity sources, at December 31, 2018,2020, we had the ability to obtain borrowings from the following three sources – 1) an approximately $1$1.02 billion line of credit with the FHLB, 2) a $35$100 million federal funds line with a correspondent bank, and 3) an approximately $127$134 million line of credit through the FRB’s discount window.

Our overall liquidity increased in 2018at December 31, 2020 compared to 2017.December 31, 2019 due to significant deposit growth that outpaced our loan growth. Our liquid assets (cash and securities) as a percentage of our total deposits and borrowings amounted to 21.0%31.4% at December 31, 20182020 compared to 20.0%21.4% at December 31, 2017.

2019.

We continue to 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.

In the normal course of business we have various outstanding contractual obligations that will require future cash outflows. In addition, there are commitments and contingent liabilities, such as commitments to extend credit, that may or may not require future cash outflows.

Table 18 reflects our contractual obligations and other commercial commitments outstanding as of December 31, 2018.2020. Any of our $353$8 million in outstanding borrowings with the FHLB may be accelerated immediately by the FHLB in certain circumstances, including material adverse changes in our condition or if our qualifying collateral is less than the amount required under the terms of the borrowing agreement.

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In the normal course of business there are various outstanding commitments and contingent liabilities such as commitments to extend credit, which are not reflected in the financial statements. The following table presents a summary of our outstanding loan commitments as of December 31, 2018:

($ in millions)         
          
Type of Commitment Fixed Rate  Variable Rate  Total 
Outstanding closed-end loan commitments $210   460   670 
Unfunded commitments on revolving lines of credit, credit cards and home equity loans  150   469   619 
     Total $360   929   1,289 

2020:

($ in millions)   
Type of CommitmentFixed RateVariable RateTotal
Loan commitments$239 94 333 
Unused lines of credit188 900 1,088 
Total$427 994 1,421 
At December 31, 20182020 and 2017,2019, we also had $15.7$14.1 million and $15.2$12.0 million, respectively, in standby letters of credit outstanding. We had no carrying amount for these standby letters of credit at either of those dates. The nature of the standby letters of credit is that of a stand-alone obligation made on behalf of our customers to suppliers of the
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customers to guarantee payments owed to the supplier by the customer. The standby letters of credit are generally for terms of one year, at which time they may be renewed for another year if both parties agree. The payment of the guarantees would generally be triggered by a continued nonpayment of an obligation owed by the customer to the supplier. The maximum potential amount of future payments (undiscounted) we could be required to make under the guarantees in the event of nonperformance by the parties to whom credit or financial guarantees have been extended is represented by the contractual amount of the financial instruments discussed above. In the event that we are required to honor a standby letter of credit, a note, already executed by the customer, becomes effective providing repayment terms and any collateral. Over the past two years, we have had to honor only a few standby letters of credit, none of which resulted in any loss to the Company. We expect any draws under existing commitments to be funded through normal operations.

It has been our experience that deposit withdrawals are generally able to be replaced with new deposits when needed. Based on that assumption, management believes that it can meet its contractual cash obligations and existing commitments from normal operations.

We are not involved in any legal proceedings that, in management’s opinion, are likely to have a material effect on the consolidated financial position of the Company.

Capital Resources and Shareholders’ Equity

Shareholders’ equity at December 31, 2018 amount2020 amounted to $764.2$893.4 million compared to $693.0$852.4 million at December 31, 20172019 and $368.1$764.2 million at December 31, 2016.2018. The two basic components that typically have the largest impact on our shareholders’ equity are net income, which increases shareholders’ equity, and dividends declared, which decrease shareholders’ equity. Additionally, any stock issuances can significantly increase shareholders’ equity, including those associated with acquisitions. Although we have not repurchased any stock since 2014, we have a $25 million authorization currently in placeacquisitions, and any stock repurchases would reduce shareholders’ equity.

In 2020, the most significant factors that impacted our equity were 1) the $81.5 million net income reported for 2020, which increased equity, 2) common stock dividends declared of $20.8 million, which reduced equity, 3) other comprehensive income of $9.2 million (primarily driven by increases in unrealized gains on available securities for sale), which increased equity, and 4) stock repurchases of $31.9 million, which decreased equity. See the Consolidated Statements of Shareholders’ Equity within the consolidated financial statements for disclosure of other less significant items affecting shareholders’ equity.
In 2019, the most significant factors that impacted our equity were 1) the $92.0 million net income reported for 2019, which increased equity, 2) common stock dividends declared of $16.0 million, which reduced equity, 3) other comprehensive income of $17.1 million (primarily driven by increases in unrealized gains on available securities for sale), which increased equity, 4) stock repurchases of $10.0 million, which decreased equity, and 5) the issuance of $3.1 million in stock related to the conclusion of an earn-out period related to a 2016 acquisition, which increased equity. See the Consolidated Statements of Shareholders’ Equity within the consolidated financial statements for disclosure of other less significant items affecting shareholders’ equity.
In 2018, the most significant factors that impacted our equity were 1) the $89.3 million net income reported for 2018, which increased equity, and 2) common stock dividends declared of $11.9 million, which reduced equity. See the Consolidated Statements of Shareholders’ Equity within the consolidated financial statements for disclosure of other less significant items affecting shareholders’ equity.

In 2017, the most significant factors that impacted our equity were 1) the issuances of $284.2 million of common stock in connection with two bank acquisitions, which increased equity, 2) the $46.0 million net income reported for 2017, which increased equity, and 3) common stock dividends declared of $8.3 million, which reduced equity.

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With the acquisition of Carolina Bank in March 2017, we assumed a deferred compensation plan for certain members of Carolina Bank’s board of directors that is fully funded by Company stock, which was valued at $7.7 million on the date of acquisition. Subsequent to the acquisition in 2017, approximately $4.5$5.5 million of the deferred compensation has been paid to the plan participants. The balances of the related asset and liability were each $3.2$2.2 million at December 31, 2018,2020, both of which are presented as components of shareholders’ equity.

In 2016, the most significant factors that impacted our equity were 1) the $27.5 million net income reported for 2016, which increased equity, 2) common stock dividends declared of $6.5 million, which reduced equity, and 3) issuances of $5.5 million of common stock in connection with two acquisitions, which increased equity.

Also, on December 22, 2016, we exchanged 728,706 shares of common stock for the same number of shares of our preferred stock, which resulted in $7.3 million in shareholders’ equity shifting from preferred stock to common stock, but did not affect our total amount of equity. At December 31, 2018, 2017, and 2016, we had no shares of preferred stock outstanding.

In addition to shareholders’ equity, we have supplemented our capital in past years with trust preferred security debt issuances, which because of their structure qualify as regulatory capital. This was necessary in past years because our balance sheet growth outpaced the growth rate of our capital. Additionally, we have purchased several bank branches over the years that resulted in our recording intangible assets, which negatively impacted regulatory capital ratios.

As discussed in “Borrowings” above, we also currently have $56.7 million in trust preferred securities outstanding, all of which qualify as Tier I capital under both current and forthcoming regulatory standards.

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.

The Company and the Bank must comply with regulatory capital requirements established by the Federal Reserve and the Commissioner. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly
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additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

The primary source of funds for the payment of dividends by the Company is dividends received from its subsidiary, the Bank. The Bank, as a North Carolina banking corporation, may declare dividends so long as such dividends do not reduce its capital below its applicable required capital (typically, the level of capital required to be deemed “adequately capitalized.”) As of December 31, 2020, approximately $590,672,000 of the Company’s investment in the Bank is restricted as to transfer to the Company without obtaining prior regulatory approval.
Table 2120 presents our regulatory capital ratios as of December 31, 2018, 2017,2020, 2019, and 2016.2018. All of our capital ratios have significantly exceeded the minimum regulatory thresholds for all periods covered by this report.

In this economic environment, our goal is to maintain our capital ratios at levels at least 200 basis points higher than the “well capitalized” thresholds set for banks. At December 31, 2018,2020, our tier 1 leverage ratio was 10.47%9.88% compared to the regulatory well capitalized bank-level threshold of 5.00% and our total risk-based capital ratio was 13.97%15.37% compared to the 10.00%10.50% regulatory well capitalized threshold.

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 9.07%9.08% at December 31, 20182020 compared to 8.23%10.20% at December 31, 2017.

2019, with the decline in 2020 being due to the high asset growth that was a result of high deposit growth.

See “Supervision and Regulation” under “Business” above and Note 1615 to the consolidated financial statements for discussion of other matters that may affect our capital resources.

Off-Balance Sheet Arrangements and Derivative Financial Instruments

Off-balance sheet arrangements include transactions, agreements, or other contractual arrangements pursuant to which we have obligations or provide guarantees on behalf of an unconsolidated entity. We have no off-balance sheet arrangements of this kind other than letters of credit and repayment guarantees associated with our trust preferred securities.

Derivative financial instruments include futures, forwards, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in significant derivatives activities through December 31, 20182020 and have no current plans to do so.

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Return on Assets and Equity

Table 20 shows return on average assets (net income available to common shareholders divided by average total assets), return on average common equity (net income available to common shareholders divided by average common shareholders’ equity), dividend payout ratio (dividends per share divided by net income per common share) and shareholders’ equity to assets ratio (average total shareholders’ equity divided by average total assets) for each of the years in the three-year period ended December 31, 2018.

Interest Rate Risk (Including Quantitative and Qualitative Disclosures About Market Risk – Item 7A.)

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), even during periods of changing interest rates. Over the past five calendar years, our net interest margin has ranged from a low of 4.03%3.56% (realized in 2016)2020) to a high of 4.58%4.09% (realized in 2014)2018). From 2008 until the fourth quarter of 2015, the prime rate of interest had remained at 3.25%. Beginning in December 2015, the Federal Reserve began steadily increasing the prime rate of interest, which resulted in 5.50% rate at December 31, 2018. The consistency of the net interest margin is aided by the relatively low level of long-term interest rate exposure that we maintain. At December 31, 2018,2020, approximately 77%68% of our interest-earning assets are subject to repricing within five years (because they are either adjustable rate assets or they are fixed rate assets that mature) and substantially all of our interest-bearing liabilities reprice within five years.

Table 17 sets forth our interest rate sensitivity analysis as of December 31, 2018,2020, 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). As illustrated by Table 17, at December 31, 2018,2020, we had $1.4$2.0 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
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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 December 31, 20182020 were deposits totaling $2.4$3.3 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 twelve months), this generally results in us being asset-sensitive, meaning that our net interest income benefits from an increase in interest rates and is negatively impacted by a decrease in interest rates.rates, which is what we experienced following the March 2020 interest rate cuts. However, in the twelve-month and longer horizon, the impact of having a higher level of interest-sensitive liabilities generally lessens the short-term effects of changes in interest rates.

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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,Due to actions taken by the Federal Reserve took stepsrelated to suppress long-termshort-term interest rates in an effort to boostand the housing market, increase employment, and stimulateimpact of the global economy which resultedon longer-term interest rates, we are currently in a very low and flat interest rate curve.curve environment. A flat interest rate curve is an unfavorable interest rate environment for many banks, including the Bank, as short-term interest rates generally drive our deposit pricing and longer-term interest rates generally drive loan pricing. When these rates converge, the profit spread we realize between loan yields and deposit rates narrows, which pressures our net interest margin.

While there have been periods in the last few years that the yield curve has steepened somewhat,slightly, it currently remains very flat. This flat yield curve and the intense competition for high-quality loans in our market areas have limited our ability to charge higherresulted in lower interest rates on loans,loans.


In an effort to address concerns about the national and thus we continue to experience challenges to increasing our loan yields.

As it relates to deposits, as noted above,global economy the Federal Reserve made no changescut interest rates by 75 basis points in the second half of 2019. And in March 2020, the Federal Reserve cut interest rates by an additional 150 basis points in response to the short term interest rates it sets directly from 2008 until mid-December 2015,COVID-19 pandemic. Our interest-bearing cash balances and during that period we were able to reprice manymost of our maturing time deposits atvariable rate loans, generally reset to lower rates soon after these interest rates.rate cuts. We reduced our offering rates on most deposit products in March 2020 and our borrowing costs were also able to generally decreasereduced by lower rates and repaying a significant portion of our outstanding borrowings. Overall however, the rates we paid on other categoriesimpact of deposits as a result of declining short-termthe interest rate cuts negatively impacted our net interest margin and our earnings in 2020.


Assuming no significant changes in interest rates in the marketplace and an increase in liquidity that lessenednext twelve months, we expect continued pressure on our need to offer premiumnet interest rates. However,margin (excluding the impact of PPP - see below) as a result of the nineflat yield curve and the expectation of lower interest rates on the redeployment of cash received on maturing loans and investments that will likely not be fully offset by lower funding costs. In addition, further stimulus payments made by the government may result in additional low yielding liquidity that would likely result in incremental interest income, but negatively impact the net interest margin.

In April and early May 2020, we approved approximately $245 million in PPP loans. These loans all have an interest rate increases initiated byof 1.00%. In addition to the Federal Reserve since 2015interest rate, the SBA compensated us with an origination fee for each loan of between 1% to 5% of the loan amount, depending on the size of each loan. We received approximately $10.6 million in these fees related to these loans, which were netted against the cost to originate each loan of approximately $0.6 million and significant competitive pressures in our market area, we have had to increase deposit rates. Deposit pricing competition intensifiedare initially being amortized over the two year maturities of the loans using the effective interest method of recognition. Early repayments, including the loan forgiveness provisions contained in the secondPPP, will result in accelerated amortization. In 2020, we amortized $4.1 million of the PPP loan fees. Remaining deferred fees at December 31, 2020 amounted to $6.0 million, which we expect to substantially realize . in the first half of 2018 and we expect it to continue. However, to date, our deposit costs have risen at a slightly lower rate than the increase in asset yields, and2021, thus favorably impacting our net interest margin expanded slightly in 2017 and 2018.

margin.

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As previously discussed in the section “Net Interest Income,” our net interest income has been impacted by certain purchase accounting adjustments related to the acquired banks. The purchase accounting adjustments related to the premium amortization on loans, deposits and borrowings are based on amortization schedules and are thus systematic and predictable. The accretion of the loan discount on acquired loans amounted to $3.8 million, $4.6 million, and $7.0 million $6.8 million,in 2020, 2019, and $4.4 million in 2018, 2017, and 2016, respectively, is less predictable and could be materially different among periods. This is because of the magnitude of the discounts that are initially recorded and the fact that the accretion being recorded is dependent on both the credit quality of the acquired loans and the impact of any accelerated loan repayments, including payoffs. If the credit quality of the loans declines, some, or all, of the 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 loans amounted to $17.3$8.9 million at December 31, 20182020 compared to $24.3$12.7 million at December 31, 2017.

Based on our most recent interest rate modeling, which assumes one interest rate increase for 2019 (federal funds rate = 2.75%, prime = 5.75%), we project that our net interest margin for 2019 will continue to remain fairly stable, but we believe there is downside risk due to the loan and deposit pricing pressures discussed above.

2019.

We have no market risk sensitive instruments held for trading purposes, nor do we maintain any foreign currency positions. Table 19 presents the expected maturities of our other than trading market risk sensitive financial instruments. Table 19 also presents the estimated fair values of market risk sensitive instruments as estimated in accordance with relevant accounting guidance. Our assets and liabilities have estimated fair values that do not materially differ from their carrying amounts.

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.

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Inflation

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

Current Accounting Matters

We prepare our consolidated financial statements and related disclosures in conformity with standards established by, among others, the FASB. Because the information needed by users of financial reports is dynamic, the FASB frequently issues new rules and proposes new rules for companies to apply in reporting their activities. See Note 1(v)1 to our consolidated financial statements for a discussion of recent rule proposals and changes.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The information responsive to this Item is found in Item 7 under the caption “Interest Rate Risk.”

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Table 1 Selected Consolidated Financial Data

    
($ in thousands, except per share and nonfinancial data) Year Ended December 31, 
  2018  2017  2016  2015  2014 
Income Statement Data                    
Interest income $231,207   177,382   130,987   126,655   139,832 
Interest expense  23,777   12,671   7,607   6,908   8,223 
Net interest income  207,430   164,711   123,380   119,747   131,609 
Provision (reversal) for loan losses  (3,589)  723   (23)  (780)  10,195 
Net interest income after provision  211,019   163,988   123,403   120,527   121,414 
Noninterest income  61,834   48,908   25,551   18,764   14,368 
Noninterest expense  159,375   145,157   106,821   98,131   97,251 
Income before income taxes  113,478   67,739   42,133   41,160   38,531 
Income taxes  24,189   21,767   14,624   14,126   13,535 
Net income  89,289   45,972   27,509   27,034   24,996 
Preferred stock dividends  —   —   (175)  (603)  (868)
Net income available to common shareholders  89,289   45,972   27,334   26,431   24,128 
                     
Earnings per common share – basic  3.02   1.82   1.37   1.34   1.22 
Earnings per common share – diluted  3.01   1.82   1.33   1.30   1.19 
                     
                     
Per Share Data (Common)                    
Cash dividends declared – common $0.40   0.32   0.32   0.32   0.32 
Market Price                    
High  43.14   41.76   28.49   19.92   19.65 
Low  30.50   26.47   17.15   15.00   15.55 
Close  32.66   35.31   27.14   18.74   18.47 
Stated book value – common  25.71   23.38   17.66   16.96   16.08 
Tangible book value – common  17.12   14.69   13.85   13.56   12.63 
                     
                     
Selected Balance Sheet Data (at year end)                    
Total assets $5,864,116   5,547,037   3,614,862   3,362,065   3,218,383 
Loans – non-covered  4,249,064   4,042,369   2,710,712   2,416,285   2,268,580 
Loans – covered (1)  —   —   —   102,641   127,594 
Total loans  4,249,064   4,042,369   2,710,712   2,518,926   2,396,174 
Allowance for loan losses  21,039   23,298   23,781   28,583   40,626 
Intangible assets  255,480   257,507   79,475   67,171   67,893 
Deposits  4,659,339   4,406,955   2,947,353   2,811,285   2,695,906 
Borrowings  406,609   407,543   271,394   186,394   116,394 
Total shareholders’ equity  764,230   692,979   368,101   342,190   387,699 
                     
                     
Selected Average Balances                    
Assets $5,693,760   4,590,786   3,422,267   3,230,302   3,219,915 
Loans  4,161,838   3,420,939   2,603,327   2,434,602   2,434,331 
Earning assets  5,076,335   4,101,949   3,108,918   2,936,624   2,907,098 
Deposits  4,516,811   3,696,730   2,827,513   2,687,381   2,723,758 
Interest-bearing liabilities  3,663,077   3,025,401   2,324,823   2,218,246   2,294,330 
Shareholders’ equity  727,920   533,205   360,715   376,287   383,055 
                     
                     
Ratios                    
Return on average assets  1.57%   1.00%   0.80%   0.82%   0.75% 
Return on average common equity  12.27%   8.62%   7.73%   8.04%   7.73% 
Net interest margin (taxable-equivalent basis)  4.12%   4.08%   4.03%   4.13%   4.58% 
Tangible common equity to tangible assets  9.07%   8.23%   8.16%   8.13%   7.90% 
Loans to deposits at year end  91.19%   91.73%   91.97%   89.60%   88.88% 
Allowance for loan losses to total loans  0.50%   0.58%   0.88%   1.13%   1.70% 
Nonperforming assets to total assets at year end  0.74%   0.96%   1.64%   2.66%   3.54% 
Net charge-offs (recoveries) to average total loans  (0.03%)  0.04%   0.14%   0.46%   0.74% 
                     
Nonfinancial Data – number of branches  101   104   88   88   87 
Nonfinancial Data – number of employees (FTEs)  1,076   1,140   834   812   798 
                     

(1)Effective September 22, 2016, all FDIC loss share agreements were terminated, and accordingly, assets previously covered under those agreements became non-covered on that date.

63 

Table 1 Selected Consolidated Financial Data
($ in thousands, except per share and nonfinancial data)Year Ended December 31,
 20202019201820172016
Income Statement Data 
Interest income$237,684 250,107 231,207 177,382 130,987 
Interest expense19,562 33,903 23,777 12,671 7,607 
Net interest income218,122 216,204 207,430 164,711 123,380 
Provision (reversal) for loan losses35,039 2,263 (3,589)723 (23)
Net interest income after provision183,083 213,941 211,019 163,988 123,403 
Noninterest income81,346 59,529 58,942 49,232 26,176 
Noninterest expense161,298 157,194 156,483 145,481 107,446 
Income before income taxes103,131 116,276 113,478 67,739 42,133 
Income taxes21,654 24,230 24,189 21,767 14,624 
Net income81,477 92,046 89,289 45,972 27,509 
Preferred stock dividends— — — — (175)
Net income available to common shareholders81,477 92,046 89,289 45,972 27,334 
Earnings per common share – basic2.81 3.10 3.02 1.82 1.37 
Earnings per common share – diluted2.81 3.10 3.01 1.82 1.33 
Per Share Data (Common) 
Cash dividends declared – common$0.72 0.54 0.40 0.32 0.32 
Market Price 
High40.00 41.34 43.14 41.76 28.49 
Low17.32 31.22 30.50 26.47 17.15 
Close33.83 39.91 32.66 35.31 27.14 
Stated book value – common31.26 28.80 25.71 23.38 17.66 
Selected Balance Sheet Data (at year end) 
Total assets$7,289,751 6,143,639 5,864,116 5,547,037 3,614,862 
Loans4,731,315 4,453,466 4,249,064 4,042,369 2,710,712 
Allowance for loan losses52,388 21,398 21,039 23,298 23,781 
Intangible assets254,638 251,585 255,480 257,507 79,475 
Deposits6,273,596 4,931,355 4,659,339 4,406,955 2,947,353 
Borrowings61,829 300,671 406,609 407,543 271,394 
Total shareholders’ equity893,421 852,401 764,230 692,979 368,101 
Selected Average Balances 
Assets$6,765,998 6,027,047 5,693,760 4,590,786 3,422,267 
Loans4,702,743 4,346,331 4,161,838 3,420,939 2,603,327 
Earning assets6,160,100 5,448,400 5,112,436 4,101,949 3,108,918 
Deposits5,644,290 4,824,216 4,516,811 3,696,730 2,827,513 
Interest-bearing liabilities3,897,912 3,720,536 3,663,077 3,025,401 2,324,823 
Shareholders’ equity874,532 812,823 727,920 533,205 360,715 
Ratios 
Return on average assets1.20 %1.53 %1.57 %1.00 %0.80 %
Return on average common equity9.32 %11.32 %12.27 %8.62 %7.73 %
Net interest margin (taxable-equivalent basis)3.56 %4.00 %4.09 %4.08 %4.03 %
Loans to deposits at year end75.42 %90.31 %91.19 %91.73 %91.97 %
Allowance for loan losses to total loans1.11 %0.48 %0.50 %0.58 %0.88 %
Nonperforming assets to total assets at year end0.64 %0.62 %0.74 %0.96 %1.64 %
Net charge-offs (recoveries) to average total loans0.09 %0.04 %(0.03 %)0.04 %0.14 %
Nonfinancial Data – number of branches101 101 101 104 88 
Nonfinancial Data – number of employees (FTEs)1,095 1,088 1,076 1,140 834 
Note - During 2017, the Company completed two significant whole-bank acquisitions. See additional discussion in "Mergers and Acquisitions" in Item 1.
60

Table 2

Table 2 Average Balances and Net Interest Income Analysis
 Year Ended December 31,
 202020192018
($ in thousands)Average
Volume		Avg.
Rate		Interest
Earned
or Paid		Average
Volume		Avg.
Rate		Interest
Earned
or Paid		Average
Volume		Avg.
Rate		Interest
Earned
or Paid
Assets
Loans (1) (2)$4,702,743 4.53 %$213,099 $4,346,331 5.08 %$220,784 $4,161,838 5.01 %$208,609 
Taxable securities967,900 2.11 %20,429 719,435 2.76 %19,881 419,356 2.54 %10,638 
Non-taxable securities34,108 2.13 %725 32,200 3.13 %1,007 50,945 2.91 %1,482 
Other interest-earning assets, primarily overnight funds455,349 0.75 %3,431 350,434 2.41 %8,435 480,297 2.18 %10,478 
Total interest-earning assets6,160,100 3.86 %237,684 5,448,400 4.59 %250,107 5,112,436 4.52 %231,207 
Cash and due from banks81,154 55,422 80,053 
Premises and equipment116,425 117,465 115,573 
Other assets408,319 405,760 385,698 
Total assets$6,765,998 $6,027,047 $5,693,760 
Liabilities and Equity
Interest-bearing checking accounts$1,019,773 0.12 %$1,208 $891,766 0.15 %$1,358 $875,751 0.10 %$887 
Money market accounts1,367,851 0.34 %4,632 1,111,599 0.63 %6,992 1,023,162 0.32 %3,265 
Savings accounts467,682 0.15 %711 419,450 0.29 %1,201 439,880 0.21 %922 
Time deposits >$100,000616,171 1.33 %8,215 704,332 1.93 %13,598 641,516 1.30 %8,356 
Other time deposits239,990 0.64 %1,535 260,741 0.73 %1,901 275,904 0.38 %1,061 
Total interest-bearing deposits3,711,467 0.44 %16,301 3,387,888 0.74 %25,050 3,256,213 0.45 %14,491 
Short-term borrowings71,955 1.42 %1,022 209,613 2.54 %5,324 222,891 2.11 %4,703 
Long-term borrowings114,490 1.96 %2,239 123,035 2.86 %3,529 183,973 2.49 %4,583 
Total interest-bearing liabilities3,897,912 0.50 %19,562 3,720,536 0.91 %33,903 3,663,077 0.65 %23,777 
Noninterest-bearing checking accounts1,932,823 1,436,329 1,260,598 
Total sources of funds5,830,735 0.34 %5,156,865 0.66 %4,923,675 0.48 %
Other liabilities60,731 57,359 42,165 
Shareholders’ equity874,532 812,823 727,920 
Total liabilities and shareholders’ equity$6,765,998 $6,027,047 $5,693,760 
Net yield on interest-earning assets and net interest income3.54 %$218,122 3.97 %$216,204 4.06 %$207,430 
Net yield on interest-earning assets and net interest income – tax-equivalent (3)3.56 %$219,590 4.00 %$217,845 4.09 %$209,024 
Interest rate spread3.36 %3.68 %3.87 %
Average prime rate3.54 %5.28 %4.91 %
(1)Average Balancesloans include nonaccruing loans, the effect of which is to lower the average rate shown. Interest earned includes recognized net loan fees, including late fees, prepayment fees, and Net Interest Income Analysis

  Year Ended December 31, 
  2018  2017  2016 
($ in thousands) Average
Volume		  Avg.
Rate		  Interest
Earned
or Paid		  Average
Volume		  Avg.
Rate		  Interest
Earned
or Paid		  Average
Volume		  Avg.
Rate		  Interest
Earned
or Paid		 
Assets                           
Loans (1) (2) $4,161,838   5.01%  $208,609  $3,420,939   4.79%  $163,738  $2,603,327   4.66%  $121,322 
Taxable securities  419,356   2.54%   10,638   302,892   2.31%   7,007   298,083   2.07%   6,162 
Non-taxable securities  50,945   2.91%   1,482   56,065   2.99%   1,677   49,986   3.50%   1,748 
Short-term investments, primarily overnight funds  444,196   2.36%   10,478   322,053   1.54%   4,960   157,522   1.11%   1,755 
Total interest-earning assets  5,076,335   4.55%   231,207   4,101,949   4.32%   177,382   3,108,918   4.21%   130,987 
Cash and due from banks  80,053           79,025           59,835         
Premises and equipment  115,573           98,216           76,418         
Other assets  421,799           311,596           177,096         
Total assets $5,693,760          $4,590,786          $3,422,267         
                                     
Liabilities and Equity                                    
Interest-bearing checking accounts $875,751   0.10%  $887  $722,286   0.07%  $477  $583,786   0.06%  $360 
Money market accounts  1,023,162   0.32%   3,265   825,015   0.19%   1,569   657,211   0.18%   1,160 
Savings accounts  439,880   0.21%   922   385,967   0.19%   715   200,093   0.05%   100 
Time deposits >$100,000  641,516   1.30%   8,356   504,349   0.79%   4,005   405,220   0.65%   2,654 
Other time deposits  275,904   0.38%   1,061   261,910   0.30%   778   268,854   0.33%   896 
     Total interest-bearing deposits  3,256,213   0.45%   14,491   2,699,527   0.28%   7,544   2,115,164   0.24%   5,170 
Borrowings  406,864   2.28%   9,286   325,874   1.57%   5,127   209,659   1.16%   2,437 
Total interest-bearing liabilities  3,663,077   0.65%   23,777   3,025,401   0.42%   12,671   2,324,823   0.33%   7,607 
Noninterest-bearing checking accounts  1,260,598           997,203           712,349         
Total sources of funds  4,923,675   0.48%       4,022,604   0.32%       3,037,172   0.25%     
Other liabilities  42,165           34,977           24,380         
Shareholders’ equity  727,920           533,205           360,715         
Total liabilities and shareholders’ equity $5,693,760          $4,590,786          $3,422,267         
Net yield on interest-earning assets and net interest income      4.09%  $207,430       4.02%  $164,711       3.97%  $123,380 
Net yield on interest-earning assets and net interest income – tax-equivalent (3)      4.12%  $209,024       4.08%  $167,301       4.03%  $125,434 
                                     
Interest rate spread      3.90%           3.90%           3.88%     
                                     
Average prime rate      4.91%           4.10%           3.51%     

(1)Average loans include nonaccruing loans, the effect of which is to lower the average rate shown. Interest earned includes recognized net loan fees (costs) in the amounts of $1,905, $536, and ($457) for 2018, 2017, and 2016, respectively.
deferred loan fee amortization, in the amounts of $4,755, $1,264, and $1,905 for 2020, 2019, and 2018, respectively.
(2)Includes accretion of discount on acquired and SBA loans of $6,328, $5,974, and $7,812 in 2020, 2019, and 2018, respectively.
(3)Includes tax-equivalent adjustments of $1,468, $1,641, and $1,594 in 2020, 2019, and 2018, respectively, to reflect the federal and state tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.

(2)Includes accretion of discount on acquired and SBA loans of $7,812, $7,076, and $4,451 in 2018, 2017, and 2016, respectively.
(3)Includes tax-equivalent adjustments of $1,594, $2,590, and $2,054 in 2018, 2017, and 2016, respectively, to reflect the federal and state tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status. This amount has been computed assuming a 23% tax rate for 2018 and 37% for 2017 and 2016 and is reduced by the related nondeductible portion of interest expense.
61

64 

Table 3 Volume and Rate Variance Analysis

  Year Ended December 31, 2018  Year Ended December 31, 2017 
  Change Attributable to     Change Attributable to    
($ in thousands) Changes
in Volumes		  Changes
in Rates		  Total
Increase
(Decrease)		  Changes
in Volumes		  Changes
in Rates		  Total
Increase
(Decrease)		 
Interest income:                        
     Loans $36,299   8,572   44,871   38,618   3,798   42,416 
     Taxable securities  2,824   807   3,631   105   740   845 
     Non-taxable securities  (151)  (44)  (195)  197   (268)  (71)
     Short-term investments, primarily
          overnight funds		  2,381   3,137   5,518   2,184   1,021   3,205 
               Total interest income  41,353   12,472   53,825   41,104   5,291   46,395 
                         
Interest expense:                        
     Interest-bearing checking accounts  128   282   410   88   29   117 
     Money market accounts  505   1,191   1,696   308   101   409 
     Savings accounts  106   101   207   219   396   615 
     Time deposits >$100,000  1,438   2,913   4,351   718   633   1,351 
     Other time deposits  48   235   283   (22)  (96)  (118)
          Total interest-bearing deposits  2,225   4,722   6,947   1,311   1,063   2,374 
     Borrowings  1,561   2,598   4,159   1,590   1,100   2,690 
              Total interest expense  3,786   7,320   11,106   2,901   2,163   5,064 
                         
             Net interest income $37,567   5,152   42,719   38,203   3,128   41,331 
                         

Table 3 Volume and Rate Variance Analysis
 Year Ended December 31, 2020Year Ended December 31, 2019
 Change Attributable toChange Attributable to
($ in thousands)Changes
in Volumes		Changes
in Rates		Total
Increase
(Decrease)		Changes
in Volumes		Changes
in Rates		Total
Increase
(Decrease)
Interest income:   
Loans$17,128 (24,813)(7,685)9,310 2,865 12,175 
Taxable securities6,055 (5,507)548 7,952 1,291 9,243 
Non-taxable securities50 (332)(282)(566)91 (475)
Short-term investments, primarily overnight funds1,658 (6,662)(5,004)(2,979)936 (2,043)
Total interest income24,891 (37,314)(12,423)13,717 5,183 18,900 
Interest expense:
Interest bearing checking accounts173 (323)(150)20 451 471 
Money market accounts1,240 (3,600)(2,360)419 3,310 3,729 
Savings accounts106 (596)(490)(51)330 279 
Time deposits >$100,000(1,439)(3,944)(5,383)1,016 4,229 5,245 
Other time deposits(142)(224)(366)(84)919 835 
Total interest-bearing deposits(62)(8,687)(8,749)1,320 9,239 10,559 
Short-term borrowings(2,726)(1,577)(4,303)(309)930 621 
Long-term borrowings(213)(1,076)(1,289)(1,626)572 (1,054)
Total interest expense(3,001)(11,340)(14,341)(615)10,741 10,126 
Net interest income$27,892 (25,974)1,918 14,332 (5,558)8,774 
Changes attributable to both volume and rate are allocated equally between rate and volume variances.

Table 4 Noninterest Income

  Year Ended December 31, 
($ in thousands) 2018  2017  2016 
          
Service charges on deposit accounts $12,690   11,862   10,571 
Other service charges, commissions, and fees  19,945   14,610   11,913 
Fees from presold mortgage loans  2,735   5,695   2,033 
Commissions from sales of insurance and financial products  8,731   5,300   3,790 
SBA consulting fees  4,675   4,024   3,199 
SBA loan sale gains  10,366   5,479   1,433 
Bank-owned life insurance income  2,534   2,321   2,052 
     Total core noninterest income  61,676   49,291   34,991 
Foreclosed property gains (losses), net  (565)  (531)  (625)
FDIC Indemnification asset income (expense), net  —   —   (10,255)
Securities gains (losses), net  —   (235)  3 
Gain on branch sale  —   —   1,466 
Other gains (losses), net  723   383   (29)
          Total $61,834   48,908   25,551 
             

65 


Table 4 Noninterest Income
 Year Ended December 31,
($ in thousands)202020192018
Service charges on deposit accounts$11,098 12,970 12,690 
Other service charges, commissions and fees - interchange income, net of interchange expense14,142 13,814 11,995 
Other service charges, commissions, and fees - other5,955 5,667 4,493 
Fees from presold mortgage loans14,183 3,944 2,735 
Commissions from sales of insurance and financial products8,848 8,495 8,731 
SBA consulting fees8,644 3,872 4,675 
SBA loan sale gains7,973 8,275 10,366 
Bank-owned life insurance income2,533 2,564 2,534 
Securities gains (losses), net8,024 97 — 
Other gains (losses), net(54)(169)723 
Noninterest income$81,346 59,529 58,942 
Non-GAAP adjustments - Exclude:
Securities (gains) losses, net(8,024)(97)— 
Other (gains) losses, net54 169 (723)
Adjusted noninterest income$73,376 59,601 58,219 
62

Table 5 Noninterest Expenses

  Year Ended December 31, 
($ in thousands) 2018  2017  2016 
          
Salaries $75,077   66,786   51,252 
Employee benefits  16,888   15,313   11,568 
     Total personnel expense  91,965   82,099   62,820 
Occupancy expense  10,793   9,661   7,838 
Equipment related expenses  5,627   4,480   3,608 
Merger and acquisition expenses  2,358   8,073   1,431 
Amortization of intangible assets  6,763   4,240   1,211 
Dues and subscriptions expense (includes software licenses)  3,431   1,969   1,604 
Credit/debit card processing expense  3,411   2,797   2,296 
Marketing expense  3,065   2,549   1,999 
Data processing expense  3,234   2,910   2,010 
Telephone and data lines  3,024   2,470   2,311 
Stationery and supplies  2,582   2,399   2,066 
FDIC insurance expense  2,333   2,350   2,009 
Outside consultants  1,820   2,511   1,700 
Repossession and collection expenses  1,366   1,736   1,934 
Non-credit losses  960   887   1,164 
Other operating expenses  16,643   14,026   10,820 
          Total $159,375   145,157   106,821 

Table 6 Income Taxes

($ in thousands) 2018  2017  2016 
          
Current  - Federal $19,188   11,286   12,827 
             - State  3,187   1,996   1,679 
Deferred - Federal  1,658   7,742   16 
          - State  156   743   102 
     Total tax expense $24,189   21,767   14,624 
             
Effective tax rate  21.3%   32.1%   34.7% 
             

66 

Table 5 Noninterest Expenses
Year Ended December 31,
($ in thousands)202020192018
Salaries$84,941 79,129 75,077 
Employee benefits16,027 16,844 16,888 
Total personnel expense100,968 95,973 91,965 
Occupancy expense11,278 11,122 10,793 
Equipment related expenses4,285 5,023 5,627 
Merger and acquisition expenses— 192 2,358 
Amortization of intangible assets3,956 4,858 5,917 
Dues and subscriptions expense (includes software licenses)4,764 4,250 3,431 
Data processing expense3,157 3,130 3,234 
Telephone and data lines2,893 3,057 3,024 
Marketing expense1,960 2,727 3,065 
Non-credit losses1,024 974 960 
Foreclosed property losses, net547 939 565 
Other operating expenses26,466 24,949 25,544 
Total$161,298 157,194 156,483 


Table 6 Income Taxes
($ in thousands)202020192018
Current- Federal$27,799 19,920 19,188 
- State3,909 2,499 3,187 
Deferred - Federal(8,893)1,572 1,658 
- State(1,161)239 156 
Total tax expense$21,654 24,230 24,189 
Effective tax rate21.0 %20.8 %21.3 %
63

Table 7 Distribution of Assets and Liabilities

  As of December 31, 
  2018  2017  2016 
Assets         
     Interest-earning assets            
        Net loans  72%   73%   74% 
        Securities available for sale  9   6   6 
        Securities held to maturity  2   2   4 
        Short-term investments  7   7   6 
           Total interest-earning assets  90   88   90 
             
     Noninterest-earning assets            
        Cash and due from banks  1   2   2 
        Premises and equipment  2   2   2 
        Intangible assets  4   5   2 
        Foreclosed real estate  —   —   — 
        Bank-owned life insurance  2   2   2 
        Other assets  1   1   2 
           Total assets  100%   100%   100% 
             
Liabilities and shareholders’ equity            
     Noninterest-bearing checking accounts  22%   22%   21% 
     Interest-bearing checking accounts  16   16   17 
     Money market accounts  18   18   19 
     Savings accounts  7   8   6 
     Time deposits of $100,000 or more  12   11   12 
     Other time deposits  4   5   7 
        Total deposits  79   80   82 
     Borrowings  7   7   7 
     Accrued expenses and other liabilities  1   1   1 
        Total liabilities  87   88   90 
             
Shareholders’ equity  13   12   10 
        Total liabilities and shareholders’ equity  100%   100%   100% 
             

Table 8 Securities Portfolio Composition

  As of December 31, 
($ in thousands) 2018  2017  2016 
Securities available for sale:            
     Government-sponsored enterprise securities $82,662   13,867   17,490 
     Mortgage-backed securities  385,551   295,213   148,065 
     Corporate bonds  33,138   34,190   33,600 
     Equity securities  —   —   174 
             Total securities available for sale  501,351   343,270   199,329 
             
Securities held to maturity:            
     Mortgage-backed securities  52,048   63,829   80,585 
     State and local governments  49,189   54,674   49,128 
             Total securities held to maturity  101,237   118,503   129,713 
             
                       Total securities $602,588   461,773   329,042 
             
                       Average total securities during year $470,301   358,957   348,069 

67 

Table 7 Distribution of Assets and Liabilities
 As of December 31,
 202020192018
Assets 
Interest-earning assets 
Net loans64 %72 %72 %
Securities available for sale20 13 9 
Securities held to maturity2 1 2 
Short-term investments4 3 7 
Total interest-earning assets90 89 90 
Noninterest-earning assets 
Cash and due from banks1 1 1 
Premises and equipment2 2 2 
Intangible assets3 4 4 
Foreclosed real estate— — — 
Bank-owned life insurance1 2 2 
Other assets3 2 1 
Total assets100 %100 %100 %
Liabilities and shareholders’ equity 
Noninterest-bearing checking accounts30 %25 %22 %
Interest-bearing checking accounts16 15 16 
Money market accounts22 19 18 
Savings accounts7 7 7 
Time deposits of $100,000 or more8 10 12 
Other time deposits3 4 4 
Total deposits86 80 79 
Borrowings1 5 7 
Accrued expenses and other liabilities1 1 1 
Total liabilities88 86 87 
Shareholders’ equity12 14 13 
Total liabilities and shareholders’ equity100 %100 %100 %

Table 8 Securities Portfolio Composition
 As of December 31,
($ in thousands)202020192018
Securities available for sale: 
Government-sponsored enterprise securities$70,206 20,009 82,662 
Mortgage-backed securities1,337,706 767,285 385,551 
Corporate bonds45,220 34,651 33,138 
Total securities available for sale1,453,132 821,945 501,351 
Securities held to maturity: 
Mortgage-backed securities29,959 41,423 52,048 
State and local governments137,592 26,509 49,189 
Total securities held to maturity167,551 67,932 101,237 
Total securities$1,620,683 889,877 602,588 
Average total securities during year$1,002,008 751,635 470,301 
64
Table 9 Securities Portfolio Maturity Schedule
 As of December 31,
 2020
($ in thousands)Book
Value		Fair
Value		Book
Yield (1)
Securities available for sale:
Government-sponsored enterprise securities
Due after five but within ten years$60,016 60,280 1.14 %
Due after ten years10,000 9,926 1.24 %
Total70,016 70,206 1.15 %
Mortgage-backed securities (2)
Due within one year12,423 12,593 0.72 %
Due after one but within five years637,867 654,200 1.75 %
Due after five but within ten years498,645 500,402 1.43 %
Due after ten years170,063 170,511 1.46 %
Total1,318,998 1,337,706 1.58 %
Corporate debt securities
Due after one but within five years28,670 30,265 3.46 %
Due after five but within ten years14,000 14,120 4.12 %
Due after ten years1,000 835 2.47 %
Total43,670 45,220 3.65 %
Total securities available for sale   
Due within one year12,423 12,593 0.72 %
Due after one but within five years666,537 684,465 1.82 %
Due after five but within ten years572,661 574,802 1.47 %
Due after ten years181,063 181,272 1.45 %
Total$1,432,684 $1,453,132 1.62 %
Securities held to maturity:  
Mortgage-backed securities (2)   
Due after one but within five years$29,959 30,900 1.82 %
Total29,959 30,900 1.82 %
State and local governments   
Due within one year2,087 2,101 3.75 %
Due after one but within five years2,915 3,008 4.59 %
Due after five but within ten years3,418 3,536 2.70 %
Due after ten years129,172 131,189 2.08 %
Total securities held to maturity137,592 139,834 2.17 %
Total securities held to maturity   
Due within one year2,087 2,101 3.75 %
Due after one but within five years32,874 33,908 2.07 %
Due after five but within ten years3,418 3,536 2.70 %
Due after ten years129,172 131,189 2.08 %
Total$167,551 170,734 2.11 %

Table 9 Securities Portfolio Maturity Schedule

  As of December 31, 
  2018 
($ in thousands) Book
Value		  Fair
Value		  Book
Yield (1)		 
Securities available for sale:            
             
   Government-sponsored enterprise securities            
        Due after one but within five years $82,995   82,662   2.97% 
              Total  82,995   82,662   2.97% 
             
   Mortgage-backed securities (2)            
        Due after one but within five years  89,498   85,693   2.53% 
        Due after five but within ten years  232,251   224,996   2.75% 
        Due after ten years  75,246   74,862   3.13% 
              Total  396,995   385,551   2.77% 
             
   Corporate debt securities            
        Due after one but within five years  26,210   25,641   3.27% 
        Due after five but within ten years  2,541   2,559   5.40% 
        Due after ten years  5,000   4,938   5.82% 
              Total  33,751   33,138   3.81% 
             
Total securities available for sale            
        Due after one but within five years  198,703   193,996   2.81% 
        Due after five but within ten years  234,792   227,555   2.78% 
        Due after ten years  80,246   79,800   3.30% 
              Total $513,741   501,351   2.87% 
             
Securities held to maturity:            
             
   Mortgage-backed securities (2)            
        Due after one but within five years $41,550   40,081   2.20% 
        Due after five but within ten years  10,498   10,160   2.60% 
              Total  52,048   50,241   2.28% 
             
   State and local governments            
        Due within one year  2,233   2,240   4.59% 
        Due after one but within five years  28,488   28,766   4.20% 
        Due after five but within ten years  16,743   16,932   3.96% 
        Due after ten years  1,725   1,727   3.23% 
              Total securities held to maturity  49,189   49,665   4.10% 
             
Total securities held to maturity            
        Due within one year  2,233   2,240   4.59% 
        Due after one but within five years  70,038   68,847   3.01% 
        Due after five but within ten years  27,241   27,092   3.44% 
        Due after ten years  1,725   1,727   3.23% 
              Total $101,237   99,906   3.17% 
(1)Yields on tax-exempt investments have been adjusted to a taxable equivalent basis using a 22.98% tax rate.
(2)Mortgage-backed securities are shown maturing in the periods consistent with their estimated lives based on expected prepayment speeds.
___________________________________
65
(1)Yields on tax-exempt investments have been adjusted to a taxable equivalent basis using a 23.37% tax rate.
(2)Mortgage-backed securities are shown maturing in the periods consistent with their estimated lives based on expected prepayment speeds.

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Table of Contents

Table 10 Loan Portfolio Composition

  As of December 31, 
  2018  2017  2016  2015  2014 
($ in thousands) Amount  % of
Total
Loans		  Amount  % of
Total
Loans		  Amount  % of
Total
Loans		  Amount  % of
Total
Loans		  Amount  % of
Total
Loans		 
Commercial, financial, and agricultural $457,037   11%  $381,130   10%  $261,813   9%  $202,671   8%  $160,878   7% 
Real estate – construction, land development & other land loans  518,976   12%   539,020   13%   354,667   13%   308,969   12%   288,148   12% 
Real estate – mortgage – residential (1-4 family) first mortgages  1,054,176   25%   972,772   24%   750,679   28%   768,559   31%   789,871   33% 
Real estate – mortgage – home equity loans / lines of credit  359,162   8%   379,978   9%   239,105   9%   232,601   9%   223,500   9% 
Real estate – mortgage – commercial and other  1,787,022   42%   1,696,107   42%   1,049,460   39%   957,587   38%   882,127   37% 
Installment loans to individuals  71,392   2%   74,348   2%   55,037   2%   47,666   2%   50,704   2% 
   Loans, gross  4,247,765   100%   4,043,355   100%   2,710,761   100%   2,518,053   100%   2,395,228   100% 
Unamortized net deferred loan costs (fees)  1,299       (986)      (49)      873       946     
Total loans  4,249,064       4,042,369       2,710,712       2,518,926       2,396,174     
                                         

69 

Table 10 Loan Portfolio Composition
 As of December 31,
 20202019201820172016
($ in thousands)Amount% of
Total
Loans		Amount% of
Total
Loans		Amount% of
Total
Loans		Amount% of
Total
Loans		Amount% of
Total
Loans
Commercial, financial, and agricultural$782,549 17 %$504,271 11 %$457,037 11 %$381,130 10 %$261,813 9 %
Real estate – construction, land development & other land loans570,672 12 %530,866 12 %518,976 12 %539,020 13 %354,667 13 %
Real estate – mortgage – residential (1-4 family) first mortgages972,378 21 %1,105,014 25 %1,054,176 25 %972,772 24 %750,679 28 %
Real estate – mortgage – home equity loans / lines of credit306,256 6 %337,922 8 %359,162 8 %379,978 9 %239,105 9 %
Real estate – mortgage – commercial and other2,049,203 43 %1,917,280 43 %1,787,022 42 %1,696,107 42 %1,049,460 39 %
Consumer loans53,955 1 %56,172 1 %71,392 2 %74,348 2 %55,037 2 %
Loans, gross4,735,013 100 %4,451,525 100 %4,247,765 100 %4,043,355 100 %2,710,761 100 %
Unamortized net deferred loan costs (fees)(3,698) 1,941 1,299 (986)(49)
Total loans$4,731,315  4,453,466 4,249,064 4,042,369 2,710,712 

66

Table 11 Loan Maturities

  As of December 31, 2018 
  Due within
one year		  Due after one year but
within five years		  Due after five
years		  Total 
($ in thousands) Amount  Yield  Amount  Yield  Amount  Yield  Amount  Yield 
Variable Rate Loans:                                
   Commercial, financial, and agricultural $76,579   6.02%  $34,382   5.79%  $43,606   7.55%  $154,567   6.40% 
   Real estate – construction only  60,500   6.26%   109,327   5.47%   12,507   5.29%   182,334   5.72% 
   Real estate – all other mortgage  103,475   5.96%   180,041   5.80%   470,662   4.94%   754,178   5.29% 
   Real estate – home equity loans/ line of credit  11,329   5.55%   78,422   5.48%   253,646   5.44%   343,397   5.45% 
   Consumer, primarily installment loans to individuals  3,524   6.46%   30,130   9.12%   2,647   7.61%   36,301   8.75% 
          Total at variable rates  255,407   6.04%   432,302   5.89%   783,068   5.26%   1,470,777   5.58% 
                                 
Fixed Rate Loans:                                
   Commercial, financial, and agricultural  21,147   4.82%   119,692   4.53%   167,429   3.46%   308,268   3.97% 
   Real estate – construction only  88,781   4.14%   60,770   4.51%   56,161   4.40%   205,712   4.32% 
   Real estate – all other mortgage  177,754   4.99%   1,197,016   4.62%   830,586   4.42%   2,205,356   4.57% 
   Consumer, primarily installment loans to individuals  2,773   5.13%   25,105   5.35%   8,498   10.22%   36,376   6.47% 
          Total at fixed rates  290,455   4.72%   1,402,583   4.62%   1,062,674   4.31%   2,755,712   4.51% 
                                 
              Subtotal  545,862   5.34%   1,834,885   4.92%   1,845,742   4.71%   4,226,489   4.88% 
Nonaccrual loans  22,575       —       —       22,575     
                  Total loans $568,437      $1,834,885      $1,845,742      $4,249,064     

Table 11 Loan Maturities
 As of December 31, 2020
 Due within
one year		Due after one year but
within five years		Due after five years but
within fifteen years		Due after fifteen
years		Total
($ in thousands)AmountYieldAmountYieldAmountYieldAmountYieldAmountYield
Variable Rate Loans:        
Commercial, financial, and agricultural$66,551 7.31 %$45,998 5.32 %$48,787 5.68 %$562 5.02 %$161,898 6.25 %
Real estate – construction, land development & other land loans80,705 4.68 %53,802 4.05 %1,750 4.39 %10,959 5.25 %147,216 4.49 %
Real estate – mortgage – residential (1-4 family) first mortgages10,597 4.88 %15,798 5.12 %28,339 4.44 %153,380 3.71 %208,114 3.92 %
Real estate – mortgage – home equity loans / lines of credit13,134 3.97 %57,034 4.02 %211,972 3.61 %317 3.86 %282,457 3.70 %
Real estate – mortgage – commercial and other59,494 3.39 %165,134 3.42 %63,535 3.52 %98,466 4.76 %386,629 3.77 %
Consumer loans2,898 4.01 %20,029 8.66 %65 12.54 %1,694 5.64 %24,686 7.90 %
Total at variable rates233,379 5.06 %357,795 4.22 %354,448 3.95 %265,378 4.18 %1,211,000 4.28 %
Fixed Rate Loans:       
Commercial, financial, and agricultural$29,840 3.11 %$389,178 2.28 %$106,870 3.38 %$81,385 2.83 %$607,273 2.59 %
Real estate – construction, land development & other land loans112,719 3.66 %171,095 4.76 %138,081 4.22 %918 3.40 %422,813 4.29 %
Real estate – mortgage – residential (1-4 family) first mortgages24,570 5.16 %149,886 4.13 %127,953 3.97 %455,807 3.86 %758,216 3.97 %
Real estate – mortgage – home equity loans / lines of credit42 4.91 %5 5.50 %22,419 2.90 %— — %22,466 2.90 %
Real estate – mortgage – commercial and other139,742 4.42 %759,673 4.53 %737,640 3.99 %8,327 2.51 %1,645,382 4.27 %
Consumer loans1,303 5.67 %20,073 6.11 %5,171 7.61 %2,542 17.55 %29,089 7.36 %
Total at fixed rates308,216 4.08 %1,489,910 3.95 %1,138,134 3.96 %548,979 3.75 %3,485,239 3.93 %
Subtotal541,595 4.50 %1,847,705 4.00 %1,492,582 3.94 %814,357 3.89 %4,696,239 4.02 %
Nonaccrual loans35,076  —  — —  35,076  
Total loans$576,671  $1,847,705  $1,492,582 $814,357  $4,731,315  
The above table is based on contractual scheduled maturities. Early repayment of loans or renewals at maturity are not considered in this table.

70 

67

Table 12 Nonperforming Assets

  As of December 31, 
($ in thousands) 2018  2017  2016  2015  2014 
                
Non-covered nonperforming assets (1)                    
Nonaccrual loans $22,575   20,968   27,468   39,994   50,066 
Restructured loans - accruing  13,418   19,834   22,138   28,011   35,493 
Accruing loans >90 days past due  —   —   —   —   — 
     Total non-covered nonperforming loans  35,993   40,802   49,606   68,005   85,559 
Nonperforming loans held for sale  —   —   —   —   — 
Foreclosed real estate  7,440   12,571   9,532   9,188   9,771 
     Total non-covered nonperforming assets $43,433   53,373   59,138   77,193   95,330 
                     
Purchased credit impaired loans not included above (2) $17,393   23,165   —   —   — 
                     
Covered nonperforming assets (1)                    
Nonaccrual loans $—   —   —   7,816   10,508 
Restructured loans – accruing  —   —   —   3,478   5,823 
Accruing loans >90 days past due  —   —   —   —   — 
     Total covered nonperforming loans  —   —   —   11,294   16,331 
Foreclosed real estate  —   —   —   806   2,350 
     Total covered nonperforming assets  —   —   —   12,100   18,681 
                     
Total nonperforming assets $43,433   53,373   59,138   89,293   114,011 
                     
Asset Quality Ratios – All Assets                    
Nonperforming loans to total loans  0.85%   1.01%   1.83%   3.15%   4.25% 
Nonperforming assets to total loans and foreclosed real estate  1.02%   1.32%   2.17%   3.53%   4.73% 
Nonperforming assets to total assets  0.74%   0.96%   1.64%   2.66%   3.54% 
                     
Asset Quality Ratios – Based on Non-covered Assets only                    
Non-covered nonperforming loans to non-covered loans  0.85%   1.01%   1.83%   2.81%   3.77% 
Non-covered nonperforming assets to non-covered loans and non-covered foreclosed real estate  1.02%   1.32%   2.17%   3.18%   4.18% 
Non-covered nonperforming assets to total non-covered assets  0.74%   0.96%   1.64%   2.37%   3.09% 

Table 12 Nonperforming Assets
 As of December 31,
($ in thousands)20202019201820172016
Nonperforming assets 
Nonaccrual loans$35,076 24,866 22,575 20,968 27,468 
Restructured loans - accruing9,497 9,053 13,418 19,834 22,138 
Accruing loans >90 days past due— — — — — 
Total nonperforming loans44,573 33,919 35,993 40,802 49,606 
Foreclosed properties2,424 3,873 7,440 12,571 9,532 
Total nonperforming assets$46,997 37,792 43,433 53,373 59,138 
Purchased credit impaired loans not included above (1)$8,591 12,664 17,393 23,165 — 
Allowance for loan losses$52,388 21,398 21,039 23,298 23,781 
Total Loans$4,731,315 4,453,466 4,249,064 4,042,369 2,710,712 
Asset Quality Ratios 
Nonaccrual loans to total loans0.74 %0.56 %0.53 %0.52 %1.01 %
Nonperforming loans to total loans0.94 %0.76 %0.85 %1.01 %1.83 %
Nonperforming assets to total loans and foreclosed properties0.99 %0.85 %1.02 %1.32 %2.17 %
Nonperforming assets to total assets0.64 %0.62 %0.74 %0.96 %1.64 %
Allowance for loan losses to nonaccrual loans149.36 %86.05 %93.20 %111.11 %86.58 %
(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 purchased credit impaired loans in accordance with ASC 310-30 accounting guidance. These loans are excluded from the nonperforming loan amounts.

(1)Covered nonperforming assets consisted of assets that were included in loss share agreements with the FDIC. In 2014, approximately $9.7 million of nonaccrual loans, $2.1 million accruing restructured loans and $3.0 million of foreclosed real estate were transferred from covered to non-covered status upon a scheduled expiration of a FDIC loss-share agreement. In 2016, approximately $7.0 million of nonaccrual loans and $1.6 million of foreclosed real estate were transferred from covered to non-covered status upon expirations/terminations of FDIC loss-share agreements.
(2)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 purchased credit impaired loans in accordance with ASC 310-30 accounting guidance. These loans are excluded from the nonperforming loan amounts.
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Table of Contents

Table 12a Nonperforming Assets by Geographical Region

  As of December 31, 2018 
($ in thousands) Total Nonperforming
Loans		  Total Loans  Nonperforming Loans to
Total Loans		 
          

Nonaccrual loans and

     Troubled Debt Restructurings (1)

            
Eastern Region (NC) $9,042  $884,000   1.02% 
Triangle Region (NC)  9,360   904,000   1.04% 
Triad Region (NC)  5,919   865,000   0.68% 
Charlotte Region (NC)  768   332,000   0.23% 
Southern Piedmont Region (NC)  6,100   264,000   2.31% 
Western Region (NC)  554   679,000   0.08% 
South Carolina Region  1,378   160,000   0.86% 
Former Virginia Region  —   2,000   0.00% 
Other  2,872   159,000   1.81% 
      Total nonaccrual loans and troubled debt restructurings $35,993  $4,249,000   0.85% 
             
Foreclosed Real Estate (1)            
Eastern Region (NC) $1,748         
Triangle Region (NC)  1,179         
Triad Region (NC)  843         
Charlotte Region (NC)  180         
Southern Piedmont Region (NC)  698         
Western Region (NC)  1,272         
South Carolina Region  496         
Former Virginia Region  1,024         
Other  —         
      Total foreclosed real estate $7,440         

Table 12a Nonperforming Assets by Geographical Region
As of December 31, 2020
($ in thousands)Total Nonperforming
Loans		Total LoansNonperforming Loans to
Total Loans		Total Foreclosed Properties
Nonaccrual loans and Troubled Debt Restructurings (1)   
Eastern Region (NC)$5,388 $1,057,000 0.51%$545 
Triangle Region (NC)5,338 982,000 0.54%483 
Triad Region (NC)6,226 810,000 0.77%72 
Charlotte Region (NC)1,238 358,000 0.35%— 
Southern Piedmont Region (NC)3,244 274,000 1.18%106 
Western Region (NC)3,225 601,000 0.54%23 
South Carolina Region1,294 214,000 0.60%349 
PPP Loans— 241,000 —%
Other18,620 194,000 9.60%846 
Total nonaccrual loans and troubled debt restructurings$44,573 $4,731,000 0.94%$2,424 
_____________________________

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

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

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

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

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

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

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

South Carolina Region - Chesterfield, Dillon, Florence

Former Virginia Region - Wythe, Washington, Montgomery, Roanoke

Other

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

and through the Company's Credit Card Division

Table 13 Allocation of the Allowance for Loan Losses
 As of December 31,
($ in thousands)2020% of
Loan Category		2019% of
Loan Category		2018% of
Loan Category		2017% of
Loan Category		2016% of
Loan Category
Commercial, financial, and agricultural$11,316 1.45 %4,553 0.90 %2,889 0.63 %3,111 0.82 %3,829 1.46 %
Real estate – construction, land development5,355 0.94 %1,976 0.37 %2,243 0.43 %2,816 0.52 %2,691 0.76 %
Real estate – residential (1-4 family) first mortgages8,048 0.83 %3,832 0.35 %5,197 0.49 %6,147 0.63 %7,704 1.03 %
Real estate – mortgage - home equity lines of credit2,375 0.78 %1,127 0.33 %1,665 0.46 %1,827 0.48 %2,420 1.01 %
Real estate – mortgage - commercial and other23,603 1.15 %8,938 0.47 %7,983 0.45 %6,475 0.38 %5,098 0.49 %
Consumer loans1,478 2.74 %972 1.73 %952 1.33 %950 1.28 %1,145 2.08 %
Total allocated52,175 21,398 20,929 21,326 22,887 
Unallocated213 n/a— n/a110 n/a1,972 n/a894 n/a
Total$52,388 1.11 %21,398 0.48 %21,039 0.50 %23,298 0.58 %23,781 0.88 %
Note: "% of Loan Category" represents the Allowance for Loan Losses as a percent of the respective total loan categories presented in Table 10.
n/a - not applicable

72 

69

Table 13 Allocation of the Allowance for Loan Losses

  As of December 31, 
($ in thousands) 2018  2017  2016  2015  2014 
                
Commercial, financial, and agricultural $2,889   3,111   3,829   4,764   6,911 
Real estate – construction, land development  2,243   2,816   2,691   3,790   8,520 
Real estate – residential, commercial,  home equity, multifamily  14,845   14,449   15,222   18,282   23,103 
Installment loans to individuals  952   950   1,145   1,051   1,916 
Total allocated  20,929   21,326   22,887   27,887   40,450 
Unallocated  110   1,972   894   696   176 
Total $21,039   23,298   23,781   28,583   40,626 
                     
Allowance for loan losses related to covered loans included above (1) $—   —   —   1,799   2,281 

_____________________

Table 14 Loan Loss and Recovery Experience
 As of December 31,
($ in thousands)20202019201820172016
Loans outstanding at end of year$4,731,3154,453,4664,249,064 4,042,369 2,710,712 
Average amount of loans outstanding$4,702,7434,346,3314,161,838 3,420,939 2,603,327 
Allowance for loan losses, at beginning of year$21,398 21,039 23,298 23,781 28,583 
Provision (reversal) for loan losses – non-covered35,039 2,263 (3,589)723 2,109 
Provision (reversal) for loan losses – covered— — — — (2,132)
Total provision (reversal) for loan losses35,039 2,263 (3,589)723 (23)
 56,437 23,302 19,709 24,504 28,560 
Loans charged off:
Commercial, financial, and agricultural(5,608)(2,473)(2,128)(1,622)(2,033)
Real estate – construction, land development & other land loans(51)(553)(158)(589)(1,101)
Real estate – mortgage – residential (1-4 family) first mortgages(478)(657)(1,734)(2,641)(3,894)
Real estate – mortgage – home equity loans / lines of credit(524)(307)(711)(978)(1,010)
Real estate – mortgage – commercial and other(968)(1,556)(1,459)(1,182)(1,088)
Consumer loans(873)(757)(781)(799)(1,288)
Total charge-offs(8,502)(6,303)(6,971)(7,811)(10,414)
Recoveries of loans previously charged-off: 
Commercial, financial, and agricultural745 980 1,195 1,311 817 
Real estate – construction, land development & other land loans1,552 1,275 4,097 2,579 2,690 
Real estate – mortgage – residential (1-4 family) first mortgages754 705 833 1,076 1,207 
Real estate – mortgage – home equity loans / lines of credit487 629 364 333 279 
Real estate – mortgage – commercial and other621 575 1,503 1,027 1,286 
Consumer loans294 235 309 279 406 
Total recoveries4,453 4,399 8,301 6,605 6,685 
Net (charge-offs) recoveries(4,049)(1,904)1,330 (1,206)(3,729)
Allowance removed related to sold loans— — — — (1,050)
Allowance for loan losses, at end of year$52,388 21,398 21,039 23,298 24,831 
Covered net recoveries included above (1)$— — — — 1,714 
Ratios: 
Total net charge-offs (recoveries) as a percent of average loans0.09 %0.04 %(0.03 %)0.04 %0.14 %
Allowance for loan losses as a percent of loans at end of year1.11 %0.48 %0.50 %0.58 %0.88 %
Allowance for loan losses as a multiple of net charge-offs12.94x11.24xn/m19.32x6.38x
Provision (reversal) for loan losses as a percent of net charge-offs865.37%118.86%n/m59.95 %(0.62 %)
Recoveries of loans previously charged-off as a percent of loans charged-off52.38 %69.79 %119.08 %84.56 %64.19 %
(1)On September 22, 2016, all FDIC loss-share agreements were terminated, and accordingly, assets previously covered under those agreements became non-covered on that date.
n/m – not meaningful
(1)During 2016, all FDIC loss share agreements were terminated, and accordingly, there were no covered loans at December 31, 2018, 2017 and 2016.
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Table of Contents

Table 14 Loan Loss and Recovery Experience

  As of December 31, 
($ in thousands) 2018  2017  2016  2015  2014 
                
Loans outstanding at end of year $4,249,064   4,042,369   2,710,712   2,518,926   2,396,174 
Average amount of loans outstanding $4,161,838   3,420,939   2,603,327   2,434,602   2,434,331 
                     
Allowance for loan losses, at
   beginning of year		 $23,298   23,781   28,583   40,626   48,505 
Provision (reversal) for loan losses – non-covered  (3,589)  723   2,109   2,008   7,087 
Provision (reversal) for loan losses – covered  —   —   (2,132)  (2,788)  3,108 
Total provision (reversal) for loan losses  (3,589)  723   (23)  (780)  10,195 
   19,709   24,504   28,560   39,846   58,700 
Loans charged off:                    
Commercial, financial, and agricultural  (2,128)  (1,622)  (2,033)  (3,039)  (5,179)
Real estate – construction, land development & other land loans  (158)  (589)  (1,101)  (3,616)  (6,071)
Real estate – mortgage – residential (1-4 family) first mortgages  (1,734)  (2,641)  (3,894)  (5,145)  (4,050)
Real estate – mortgage – home equity loans / lines of credit  (711)  (978)  (1,010)  (1,117)  (1,607)
Real estate – mortgage – commercial and other  (1,459)  (1,182)  (1,088)  (3,103)  (4,405)
Installment loans to individuals  (781)  (799)  (1,288)  (2,411)  (1,924)
       Total charge-offs  (6,971)  (7,811)  (10,414)  (18,431)  (23,236)
                     
Recoveries of loans previously charged-off:                    
Commercial, financial, and agricultural  1,195   1,311   817   934   149 
Real estate – construction, land development & other land loans  4,097   2,579   2,690   3,599   3,363 
Real estate – mortgage – residential (1-4 family) first mortgages  833   1,076   1,207   678   646 
Real estate – mortgage – home equity loans / lines of credit  364   333   279   143   100 
Real estate – mortgage – commercial and other  1,503   1,027   1,286   1,390   446 
Installment loans to individuals  309   279   406   424   458 
       Total recoveries  8,301   6,605   6,685   7,168   5,162 
            Net recoveries (charge-offs)  1,330   (1,206)  (3,729)  (11,263)  (18,074)
Allowance removed related to sold loans  —   —   (1,050)  —   — 
Allowance for loan losses, at end of year $21,039   23,298   23,781   28,583   40,626 
                     
                     
Covered net recoveries (charge-offs) included  above (1) $—   —   1,714   2,306   (3,332)
                     
Ratios:                    
   Net charge-offs (recoveries) as a percent of average loans  (0.03%)  0.04%   0.14%   0.46%   0.74% 
   Allowance for loan losses as a percent of loans at end of year  0.50%   0.58%   0.88%   1.13%   1.70% 
   Allowance for loan losses as a multiple of net charge-offs  n/m   19.32x  6.38x  2.54x  2.25x
   Provision (reversal) for loan losses as a percent of net charge-offs  n/m   59.95%   (0.62%)  (6.93%)  56.41% 
   Recoveries of loans previously charged-off as a percent of loans charged-off  119.08%   84.56%   64.19%   38.89%   22.22% 

Table 14a Loan Loss and Recovery Experience, continued
 As of December 31,
($ in thousands)20202019201820172016
Net loan (charge-offs) recoveries
Commercial, financial, and agricultural$(4,863)(1,493)(933)(311)(1,216)
Real estate – construction, land development & other land loans1,501 722 3,939 1,990 1,589 
Real estate – mortgage – residential (1-4 family) first mortgages276 48 (901)(1,565)(2,687)
Real estate – mortgage – home equity loans / lines of credit(37)322 (347)(645)(731)
Real estate – mortgage – commercial and other(347)(981)44 (155)198 
Consumer loans(579)(522)(472)(520)(882)
Total (charge-offs) recoveries$(4,049)(1,904)1,330 (1,206)(3,729)
Average loans: 
Commercial, financial, and agricultural$707,976 482,654 430,449 367,793 246,105 
Real estate – construction, land development & other land loans615,717 503,183 555,354 466,272 323,894 
Real estate – mortgage – residential (1-4 family) first mortgages1,028,334 1,074,938 1,015,360 779,307 743,692 
Real estate – mortgage – home equity loans / lines of credit316,593 346,331 366,416 333,397 238,082 
Real estate – mortgage – commercial and other1,981,763 1,872,666 1,723,117 1,412,511 1,000,341 
Consumer loans52,360 66,559 71,142 61,659 51,213 
Total average loans$4,702,743 4,346,331 4,161,838 3,420,939 2,603,327 
Ratios: 
Total net charge-offs (recoveries) as a percent of average loans0.09 %0.04 %(0.03 %)0.04 %0.14 %
Net charge-offs (recoveries) by loan category as a percent of average loans:
Commercial, financial, and agricultural0.69 %0.31 %0.22 %0.08 %0.49 %
Real estate – construction, land development & other land loans(0.24 %)(0.14 %)(0.71 %)(0.43 %)(0.49 %)
Real estate – mortgage – residential (1-4 family) first mortgages(0.03 %)— %0.09 %0.20 %0.36 %
Real estate – mortgage – home equity loans / lines of credit0.01 %(0.09 %)0.09 %0.19 %0.31 %
Real estate – mortgage – commercial and other0.02 %0.05 %— %0.01 %(0.02 %)
Consumer loans1.11 %0.78 %0.66 %0.84 %1.72 %

(1)On September 22, 2016, all FDIC loss-share agreements were terminated, and accordingly, assets previously covered under those agreements became non-covered on that date.
n/m – not meaningful
71

74 

Table 15 Average Deposits

  Year Ended December 31, 
  2018  2017  2016 
($ in thousands) Average
Amount		  Average
Rate		  Average
Amount		  Average
Rate		  Average
Amount		  Average
Rate		 
                   
Interest-bearing checking accounts $875,751   0.10%  $722,286   0.07%  $583,786   0.06% 
Money market accounts  1,023,162   0.32%   825,015   0.19%   657,211   0.18% 
Savings accounts  439,880   0.21%   385,967   0.19%   200,093   0.05% 
Time deposits >$100,000  641,516   1.30%   504,349   0.79%   405,220   0.65% 
Other time deposits  275,904   0.38%   261,910   0.30%   268,854   0.33% 
     Total interest-bearing deposits  3,256,213   0.45%   2,699,527   0.28%   2,115,164   0.24% 
Noninterest-bearing checking accounts  1,260,598   —   997,203   —   712,349   — 
     Total deposits  4,516,811   0.32%   3,696,730   0.20%   2,827,513   0.18% 
                         

Table 16 Maturities of Time Deposits of $100,000 or More

  As of December 31, 2018 
($ in thousands) 3 Months
or Less		  Over 3 to 6
Months		  Over 6 to 12
Months		  Over 12
Months		  Total 
                     
Time deposits of $100,000 or more $175,032   174,359   204,638   136,893   690,922 

75 

Table 15 Average Deposits
 Year Ended December 31,
 202020192018
($ in thousands)Average
Amount		Average
Rate		Average
Amount		Average
Rate		Average
Amount		Average
Rate
Interest-bearing checking accounts$1,019,773 0.12 %$891,766 0.15 %$875,751 0.10 %
Money market accounts1,367,851 0.34 %1,111,599 0.63 %1,023,162 0.32 %
Savings accounts467,682 0.15 %419,450 0.29 %439,880 0.21 %
Time deposits >$100,000616,171 1.33 %704,332 1.93 %641,516 1.30 %
Other time deposits239,990 0.64 %260,741 0.73 %275,904 0.38 %
Total interest-bearing deposits3,711,467 0.44 %3,387,888 0.74 %3,256,213 0.45 %
Noninterest-bearing checking accounts1,932,823 — 1,436,329 — 1,260,598 — 
Total deposits5,644,290 0.29 %4,824,217 0.52 %4,516,811 0.32 %

Table 16 Maturities of Time Deposits
 As of December 31, 2020
($ in thousands)3 Months
or Less		Over 3 to 6
Months		Over 6 to 12
Months		Over 12
Months		Total
Time deposits of $100,000 or more$183,859 139,653 175,318 65,535 564,365 
Time deposits of $250,000 or more Included above$123,464 101,947 112,853 37,399 375,663 
72
Table 17 Interest Rate Sensitivity Analysis
 Repricing schedule for interest-earning assets and interest-bearing
liabilities held as of December 31, 2020
($ in thousands)3 Months
or Less		Over 3 to 12
Months		Total Within
12 Months		Over 12
Months		Total
Earning assets:     
Loans (1)$1,146,012 256,236 1,402,248 3,329,067 4,731,315 
Securities available for sale (2)66,359 187,407 253,766 1,199,366 1,453,132 
Securities held to maturity (2)6,965 10,993 17,958 149,593 167,551 
Other earning assets, primarily short-term investments321,692 — 321,692 17,671 339,363 
Total earning assets$1,541,028 454,636 1,995,664 4,695,697 6,691,361 
Percent of total earning assets23.03 %6.79 %29.82 %70.18 %100.00 %
Cumulative percent of total earning assets23.03 %29.82 %29.82 %100.00 %100.00 %
Interest-bearing liabilities:     
Interest-bearing checking accounts$1,172,022 — 1,172,022 — 1,172,022 
Money market accounts1,581,364 — 1,581,364 — 1,581,364 
Savings accounts519,266 — 519,266 — 519,266 
Time deposits of $100,000 or more183,859 314,971 498,830 65,535 564,365 
Other time deposits52,285 130,603 182,888 43,679 226,567 
Borrowings54,200 — 54,200 7,629 61,829 
Total interest-bearing liabilities$3,562,996 445,574 4,008,570 116,843 4,125,413 
Percent of total interest-bearing liabilities86.37 %10.80 %97.17 %2.83 %100.00 %
Cumulative percent of total interest-bearing liabilities86.37 %97.17 %97.17 %100.00 %100.00 %
Interest sensitivity gap$(2,021,968)9,062 (2,012,906)4,578,854 2,565,948 
Cumulative interest sensitivity gap$(2,021,968)(2,012,906)(2,012,906)2,565,948 2,565,948 
Cumulative interest sensitivity gap as a percent of total earning assets(30.22 %)(30.08 %)(30.08 %)38.35 %38.35 %
Cumulative ratio of interest-sensitive assets to interest-sensitive liabilities43.25 %49.78 %49.78 %162.20 %162.20 %

Table 17 Interest Rate Sensitivity Analysis

  Repricing schedule for interest-earning assets and interest-bearing
liabilities held as of December 31, 2018		 
($ in thousands) 3 Months
or Less		  Over 3 to 12
Months		  Total Within
12 Months		  Over 12
Months		  Total 
                
Earning assets:                    
     Loans (1) $1,300,310   233,384   1,533,694   2,715,370   4,249,064 
     Securities available for sale (2)  34,764   86,594   121,358   379,993   501,351 
     Securities held to maturity (2)  11,985   19,264   31,249   69,988   101,237 
     Short-term investments  411,127   —   411,127   —   411,127 
          Total earning assets $1,758,186   339,242   2,097,428   3,165,351   5,262,779 
                     
     Percent of total earning assets  33.41%   6.45%   39.85%   60.15%   100.00% 
     Cumulative percent of total earning assets  33.41%   39.85%   39.85%   100.00%   100.00% 
                     
Interest-bearing liabilities:                    
     Interest-bearing checking accounts $916,374   —   916,374   —   916,374 
     Money market accounts  1,035,523   —   1,035,523   —   1,035,523 
     Savings accounts  432,389   —   432,389   —   432,389 
     Time deposits of $100,000 or more  175,032   378,997   554,029   136,893   690,922 
     Other time deposits  77,479   122,030   199,509   64,491   264,000 
     Borrowings  309,704   50,000   359,704   46,905   406,609 
          Total interest-bearing liabilities $2,946,501   551,027   3,497,528   248,289   3,745,817 
                     
     Percent of total interest-bearing liabilities  78.66%   14.71%   93.37%   6.63%   100.00% 
     Cumulative percent of total interest-
          bearing liabilities		  78.66%   93.37%   93.37%   100.00%   100.00% 
                     
Interest sensitivity gap $(1,188,315)  (211,785)  (1,400,100)  2,917,062   1,516,962 
Cumulative interest sensitivity gap  (1,188,315)  (1,400,100)  (1,400,100)  1,516,962   1,516,962 
Cumulative interest sensitivity gap
     as a percent of total earning assets		  (22.58%)  (26.60%)  (26.60%)  28.82%   28.82% 
Cumulative ratio of interest-sensitive
     assets to interest-sensitive liabilities		  59.67%   59.97%   59.67%   140.50%   140.50% 

(1)The three months or less category for loans includes $455,757 in adjustable rate loans that are at their contractual rate floors. Of that amount, approximately $206,741 will reprice higher within the next 100 basis points of increases in the underlying interest rate.

(2)Securities available for sale include government-sponsored enterprise securities, mortgage-backed securities, and corporate bonds. Securities held to maturity include mortgage-backed securities and state and local government securities. For fixed rate mortgage-backed securities, the principal is assumed to reprice equally over the average life of the underlying security. All other fixed rate securities are assumed to reprice based on maturity date or call date. Variable rate securities are included in the period in which they are subject to reprice.
(1)The three months or less category for loans includes $31,296 in adjustable rate loans that are at their contractual rate floors, and approximately $11,604 will reprice higher within the next 100 basis points of increases in the prime rate.
73
(2)Securities available for sale include government-sponsored enterprise securities, mortgage-backed securities, and corporate bonds. Securities held to maturity include mortgage-backed securities and state and local government securities. For fixed rate mortgage-backed securities, the principal is assumed to reprice equally over the average life of the underlying security. All other fixed rate securities are assumed to reprice based on maturity date or call date. Variable rate securities are included in the period in which they are subject to reprice.

76 

Table 18 Contractual Obligations and Other Commercial Commitments

  Payments Due by Period ($ in thousands) 
Contractual
Obligations
As of December 31, 2018		 Total  On Demand or
Less
than 1 Year		  1-3 Years  4-5 Years  After 5 Years 
Borrowings $406,609   303,000   40,000   1,275   62,334 
Operating leases  11,304   2,268   3,317   1,637   4,082 
   Total contractual cash obligations, excluding deposits  417,913   305,268   43,317   2,912   66,416 
                     
Deposits  4,659,339   4,457,954   165,706   34,862   817 
   Total contractual cash obligations, including deposits $5,077,252   4,763,222   209,023   37,774   67,233 

  Amount of Commitment Expiration Per Period ($ in thousands) 
Other Commercial
Commitments
As of December 31, 2018		 Total
Amounts
Committed		  Less
than 1 Year		  1-3 Years  4-5 Years  After 5 Years 
Credit cards $123,707   61,854   61,853         
Lines of credit and loan commitments  1,165,087   468,433   218,423   150,668   327,563 
Standby letters of credit  15,705   15,303   400   2   — 
   Total commercial commitments $1,304,499   545,590   280,676   150,670   327,563 
                     

77 

Table 18 Contractual Obligations and Other Commercial Commitments
 Payments Due by Period ($ in thousands)
Contractual Obligations
As of December 31, 2020		TotalLess
than 1 Year		1-3 Years4-5 YearsAfter 5 Years
Borrowings$61,829 1,129 3,228 2,096 55,376 
Operating leases26,736 2,245 3,505 2,714 18,272 
Time deposits790,932 681,719 84,493 24,046 674 
Non-qualified postretirement plan liabilities9,310 330 648 658 7,674 
Committed investment obligations6,342 6,342 — — — 
Estimated interest expense on borrowings and time deposits (1)22,568 4,565 3,940 3,021 11,042 
Total contractual cash obligations$917,717 696,330 95,814 32,535 93,038 
(1) Represents forecasted interest expense on borrowings and time deposits based on interest rates at December 31, 2020. Forecasts are based on the contractual maturity of each liability.
 Amount of Commitment Expiration Per Period ($ in thousands)
Other Commercial
Commitments
As of December 31, 2020		Total
Amounts
Committed		Less
than 1 Year		1-3 Years4-5 YearsAfter 5 Years
Credit cards$145,669 72,835 72,834   
Lines of credit and loan commitments1,275,354 560,702 254,859 58,619 401,174 
Standby letters of credit14,061 13,482 578 1 — 
Total commercial commitments$1,435,084 647,019 328,271 58,620 401,174 
74

Table 19 Market Risk Sensitive Instruments

  Expected Maturities of Market Sensitive Instruments Held
at December 31, 2018 Occurring in Indicated Year		       
($ in thousands) 2019  2020  2021  2022  2023  Beyond  Total  Average
Interest
Rate		  Estimated
Fair
Value		 
                            
Due from banks, interest-bearing $406,848   —   —   —   —   —   406,848   2.37%  $406,848 
Presold mortgages in process of settlement  4,279   —   —   —   —   —   4,279   4.41%   4,279 
Debt Securities - at amortized cost (1) (2)  151,015   91,013   81,117   91,127   88,024   112,682   614,978   2.92%   601,257 
Loans – fixed (3) (4)  290,455   218,660   299,049   445,146   439,727   1,062,675   2,755,712   4.51%   2,721,947 
Loans – adjustable (3) (4)  255,406   107,053   118,326   105,520   101,404   783,068   1,470,777   5.58%   1,457,655 
  Total $1,108,003   416,726   498,492   641,793   629,155   1,958,425   5,252,594   4.46%  $5,191,986 
                                     
Interest-bearing checking accounts $916,374   —   —   —   —   —   916,374   0.11%  $916,374 
Money market accounts  1,035,523   —   —   —   —   —   1,035,523   0.48%   1,035,523 
Savings accounts  432,389   —   —   —   —   —   432,389   0.26%   432,389 
Time deposits  753,537   117,229   48,477   21,726   13,136   817   954,922   1.39%   949,105 
Borrowings – fixed  303,000   40,000   —   —   1,275   8,432   352,707   2.35%   351,990 
Borrowings – adjustable  —   —   —   —   —   53,902   53,902   4.60%   50,566 
  Total $3,440,823   157,229   48,477   21,726   14,411   63,151   3,745,817   0.83%  $3,735,947 

Table 19 Market Risk Sensitive Instruments
 Expected Maturities of Market Sensitive Instruments Held
at December 31, 2020 Occurring in Indicated Year		  
($ in thousands)20212022202320242025BeyondTotalAverage
Interest
Rate		Estimated
Fair
Value
Due from banks, interest-bearing$273,566 — — — — — 273,566 0.09 %$273,566 
Presold mortgages in process of settlement42,271 — — — — — 42,271 2.72 %42,271 
SBA loans held for sale6,077 — — — — — 6,077 5.65 %7,465 
Debt Securities - at amortized cost (1) (2)262,195 260,431 261,928 234,584 237,617 343,480 1,600,235 1.68 %1,623,866 
Loans – fixed (3) (4)308,216 539,822 308,930 362,341 284,459 1,681,471 3,485,239 3.93 %3,478,634 
Loans – adjustable (3) (4)233,379 134,730 95,279 76,133 54,141 617,338 1,211,000 4.28 %1,199,875 
Total$1,125,704 934,983 666,137 673,058 576,217 2,642,289 6,618,388 3.29 %$6,625,677 
Interest-bearing checking accounts$1,172,022 — — — — — 1,172,022 0.08 %$1,172,022 
Money market accounts1,581,364 — — — — — 1,581,364 0.23 %1,581,364 
Savings accounts519,266 — — — — — 519,266 0.10 %519,266 
Time deposits681,719 63,423 21,070 8,217 15,829 674 790,932 0.67 %792,665 
Borrowings – fixed1,129 1,237 1,991 1,047 1,049 1,178 7,631 1.68 %7,893 
Borrowings – adjustable— — — — — 54,198 54,198 2.20 %45,428 
Total$3,955,500 64,660 23,061 9,264 16,878 56,050 4,125,413 0.29 %$4,118,638 
______________________

(1)Tax-exempt securities are reflected at a tax-equivalent basis using a 22.98% tax rate.
(2)Securities with call dates within 12 months of December 31, 2020 that have above market interest rates are assumed to mature at their call date for purposes of this table. Mortgage securities are assumed to mature in the period of their expected repayment based on estimated prepayment speeds.
(3)Excludes nonaccrual loans.
(4)Loans are shown in the period of their contractual maturity.
(5)Excludes the Company's investment in FHLB stock and FRB stock due to their perpetual nature.

(1)Tax-exempt securities are reflected at a tax-equivalent basis using a 23.37% tax rate.
(2)Securities with call dates within 12 months of December 31, 2018 that have above market interest rates are assumed to mature at their call date for purposes of this table. Mortgage securities are assumed to mature in the period of their expected repayment based on estimated prepayment speeds.
75
(3)Excludes nonaccrual loans.
(4)Loans are shown in the period of their contractual maturity.

Table 20 Return on Assets and Common Equity

  For the Year Ended December 31, 
  2018  2017  2016 
          
Return on average assets  1.57%   1.00%   0.80% 
Return on average common equity  12.27%   8.62%   7.73% 
Dividend payout ratio – common shares  13.25%   17.58%   23.36% 
Average shareholders’ equity to average assets  12.78%   11.61%   10.54% 
             

78 

Table of Contents

Table 21 Risk-Based and Leverage Capital Ratios

  As of December 31, 
($ in thousands) 2018  2017  2016 
          
Risk-Based and Leverage Capital            
Common Equity Tier I capital:            
     Shareholders’ equity $764,230   692,979   368,101 
     Intangible assets, net of deferred tax liability  (240,625)  (240,299)  (64,496)
     Accumulated other comprehensive income adjustments  11,961   4,146   5,107 
               Total Common Equity Tier I capital  535,566   456,826   308,712 
             
Tier I capital:            
     Trust preferred securities eligible for Tier I capital treatment  52,198   52,054   45,000 
     Deductions from Tier I capital  —  (89)  (349)
               Total Tier I leverage capital  587,764   508,791   353,363 
             
Tier II capital:            
     Allowable allowance for loan losses  21,039   23,298   23,781 
     Other Tier II capital  625   818   703 
               Tier II capital additions  21,664   24,116   24,484 
Total capital $609,428   532,907   377,847 
             
Total risk weighted assets $4,361,238   4,262,941   2,828,118 
             
Adjusted fourth quarter average assets $5,612,092   5,314,246   3,474,518 
             
Risk-based capital ratios:            
Common equity Tier I capital to Tier I risk adjusted assets  12.28%   10.72%   10.92% 
Minimum required under Basel III  6.375%   5.75%   5.125% 
Fully phased-in minimum under Basel III  7.00%   7.00%   7.00% 
             
   Tier I capital to Tier I risk adjusted assets  13.48%   11.94%   12.49% 
Minimum required under Basel III  7.875%   7.25%   6.625% 
Fully phased-in minimum under Basel III  8.50%   8.50%   8.50% 
             
Total risk-based capital to Tier II risk-adjusted assets  13.97%   12.50%   13.36% 
Minimum required under Basel III  9.875%   9.25%   8.625% 
Fully phased-in minimum under Basel III  10.50%   10.50%   10.50% 
             
Leverage capital ratios:            
Tier I leverage capital to adjusted fourth quarter average assets  10.47%   9.58%   10.17% 
Minimum required under Basel III  4.00%   4.00%   4.00% 
Fully phased-in minimum under Basel III  4.00%   4.00%   4.00% 

79 

Table 20 Risk-Based and Leverage Capital Ratios
 As of December 31,
($ in thousands)202020192018
Risk-Based and Leverage Capital 
Common Equity Tier I capital: 
Shareholders’ equity$893,421 852,401 764,230 
Intangible assets, net of deferred tax liability(239,702)(236,636)(240,625)
Accumulated other comprehensive income adjustments(14,350)(5,123)11,961 
Total Common Equity Tier I capital639,369 610,642 535,566 
Tier I capital: 
Trust preferred securities eligible for Tier I capital treatment52,496 52,345 52,198 
Deductions from Tier I capital— — — 
Total Tier I leverage capital691,865 662,987 587,764 
Tier II capital: 
Allowable allowance for loan losses52,388 21,398 21,039 
Other Tier II capital582 546 625 
Tier II capital additions52,970 21,944 21,664 
Total capital$744,835 684,931 609,428 
Total risk weighted assets$4,846,322 4,599,799 4,361,238 
Adjusted fourth quarter average assets$7,001,834 5,924,020 5,612,092 
Risk-based capital ratios: 
Common equity Tier I capital to Tier I risk adjusted assets13.19 %13.28 %12.28 %
Minimum required under Basel III7.00 %7.00 %6.375 %
Fully phased-in minimum under Basel III7.00 %7.00 %7.00 %
Tier I capital to Tier I risk adjusted assets14.28 %14.41 %13.48 %
Minimum required under Basel III8.50 %8.50 %7.875 %
Fully phased-in minimum under Basel III8.50 %8.50 %8.50 %
Total risk-based capital to Tier II risk-adjusted assets15.37 %14.89 %13.97 %
Minimum required under Basel III10.50 %10.50 %9.875 %
Fully phased-in minimum under Basel III10.50 %10.50 %10.50 %
Leverage capital ratios: 
Tier I leverage capital to adjusted fourth quarter average assets9.88 %11.19 %10.47 %
Minimum required under Basel III4.00 %4.00 %4.00 %
Fully phased-in minimum under Basel III4.00 %4.00 %4.00 %
76

Table 22 Quarterly Financial Summary (Unaudited)

  2018  2017 
($ in thousands except
per share data)		 Fourth
Quarter		  Third
Quarter		  Second
Quarter		  First
Quarter		  Fourth
Quarter		  Third
Quarter		  Second
Quarter		  First
Quarter		 
Income Statement Data                                
Interest income, taxable equivalent $61,635   58,647   57,102   55,417   53,686   45,713   43,520   37,053 
Interest expense  7,346   6,374   5,503   4,554   4,216   3,372   2,911   2,172 
Net interest income, taxable equivalent  54,289   52,273   51,599   50,863   49,470   42,341   40,609   34,881 
Taxable equivalent, adjustment  443   428   367   356   610   702   693   585 
Net interest income  53,846   51,845   51,232   50,507   48,860   41,639   39,916   34,296 
Provision (reversal) for loan losses  693   87   (710)  (3,659)  ̶   ̶   ̶   723 
Net interest income after provision for losses  53,153   51,758   51,942   54,166   48,860   41,639   39,916   33,573 
Noninterest income  14,406   15,376   16,111   15,941   14,862   12,362   11,875   9,809 
Noninterest expense  37,666   39,238   38,873   43,598   43,617   34,384   35,084   32,072 
Income before income taxes  29,893   27,896   29,180   26,509   20,105   19,617   16,707   11,310 
Income taxes  5,998   5,905   6,450   5,836   5,928   6,531   5,553   3,755 
Net income available to common shareholders  23,895   21,991   22,730   20,673   14,177   13,086   11,154   7,555 
                                 
Per Common Share Data                                
Earnings per common share – basic $0.81   0.74   0.77   0.70   0.48   0.53   0.45   0.34 
Earnings per common share – diluted  0.80   0.74   0.77   0.70   0.48   0.53   0.45   0.34 
Cash dividends declared  0.10   0.10   0.10   0.10   0.08   0.08   0.08   0.08 
Market Price                                
High  41.74   43.14   42.94   37.85   41.76   34.85   32.27   31.31 
Low  30.50   39.32   34.70   33.88   34.08   29.73   27.50   26.47 
Close  32.66   40.51   40.91   35.65   35.31   34.41   31.26   29.29 
Stated book value - common  25.71   24.99   24.20   23.79   23.38   20.73   20.29   19.85 
Tangible book value - common  17.18   16.43   15.79   15.17   14.69   14.25   14.16   13.53 
                                 
Selected Average Balances                                
Assets $5,840,964   5,712,940   5,671,620   5,549,516   5,554,545   4,514,409   4,448,404   3,856,589 
Loans  4,222,417   4,191,751   4,133,689   4,099,495   4,048,224   3,404,862   3,327,391   2,903,279 
Earning assets  5,238,827   5,105,981   5,042,904   4,917,628   4,899,421   4,040,257   3,989,593   3,478,525 
Deposits  4,264,868   4,526,012   4,512,559   4,403,805   4,390,879   3,632,319   3,610,944   3,152,778 
Interest-bearing liabilities  3,697,076   3,654,176   3,671,692   3,629,364   3,618,312   2,958,134   2,944,208   2,580,950 
Shareholders’ equity  754,734   737,560   717,975   701,411   699,558   520,432   496,791   426,842 
                                 
Ratios (annualized where applicable)                                
Return on average assets  1.62%   1.53%   1.61%   1.51%   1.01%   1.15%   1.01%   0.79% 
Return on average common equity  12.56%   11.83%   12.70%   11.95%   8.04%   9.98%   9.01%   7.18% 
Equity to assets at end of period  13.03%   13.01%   12.68%   12.51%   12.49%   11.16%   11.06%   11.02% 
Tangible equity to tangible assets at end of period  9.07%   8.95%   8.59%   8.35%   8.23%   7.95%   7.98%   7.79% 
Average loans to average deposits  91.30%   92.60%   91.60%   93.09%   92.20%   93.74%   92.15%   92.09% 
Average earning assets to interest-
    bearing liabilities		  141.70%   139.73%   137.35%   135.50%   135.41%   136.58%   135.51%   134.78% 
Net interest margin  4.11%   4.06%   4.10%   4.19%   4.01%   4.16%   4.08%   4.07% 
Allowance for loan losses to gross loans  0.50%   0.49%   0.56%   0.57%   0.58%   0.72%   0.71%   0.72% 
Nonperforming loans as a percent of total loans  0.85%   0.83%   1.03%   0.98%   1.01%   1.27%   1.30%   1.44% 
Nonperforming assets as a percent of total assets  0.74%   0.72%   0.90%   0.92%   0.96%   1.16%   1.21%   1.35% 
Net charge-offs (recoveries) as a percent of average total loans  0.02%   0.27%   (0.07%)  (0.36%)  0.13%   (0.07%)  (0.06%)  0.13% 
                                 

80 

Table 21 Quarterly Financial Summary (Unaudited)
 20202019
($ in thousands except
per share data)		Fourth
Quarter		Third
Quarter		Second
Quarter		First
Quarter		Fourth
Quarter		Third
Quarter		Second
Quarter		First
Quarter
Income Statement Data    
Interest income, taxable equivalent$59,780 59,035 57,970 62,367 63,351 62,795 63,445 62,159 
Interest expense3,317 3,955 5,016 7,274 8,313 8,604 8,613 8,374 
Net interest income, taxable equivalent56,463 55,080 52,954 55,093 55,038 54,191 54,832 53,785 
Taxable equivalent, adjustment457 347 330 334 382 413 423 424 
Net interest income56,006 54,733 52,624 54,759 54,656 53,778 54,409 53,361 
Provision (reversal) for loan losses4,031 6,120 19,298 5,590 3,176 (1,105)(308)500 
Net interest income after provision for losses51,975 48,613 33,326 49,169 51,480 54,883 54,717 52,861 
Noninterest income - see Note19,996 21,452 26,193 13,705 14,662 15,156 15,634 14,078 
Noninterest expense41,882 40,439 38,901 40,076 39,891 38,446 40,084 38,774 
Income before income taxes30,089 29,626 20,618 22,798 26,251 31,593 30,267 28,165 
Income taxes6,441 6,329 4,266 4,618 5,368 6,574 6,408 5,880 
Net income23,648 23,297 16,352 18,180 20,883 25,019 23,859 22,285 
Per Common Share Data    
Earnings per common share – basic$0.83 0.81 0.56 0.62 0.71 0.84 0.80 0.75 
Earnings per common share – diluted0.83 0.81 0.56 0.62 0.71 0.84 0.80 0.75 
Cash dividends declared0.18 0.18 0.18 0.18 0.18 0.12 0.12 0.12 
Market Price    
High34.78 25.20 29.65 40.00 41.34 37.65 39.49 39.82 
Low20.44 19.60 19.26 17.32 34.51 34.13 33.99 31.22 
Close33.83 20.93 25.08 23.08 39.91 35.90 36.42 34.76 
Stated book value - common31.26 30.70 29.95 29.69 28.80 28.20 27.43 26.50 
Selected Average Balances    
Assets$7,240,685 6,904,112 6,727,762 6,183,098 6,159,232 6,021,979 5,994,595 5,945,049 
Loans4,771,446 4,785,848 4,738,702 4,512,893 4,419,982 4,354,477 4,329,866 4,280,272 
Earning assets6,640,732 6,294,556 6,102,012 5,595,734 5,560,099 5,440,014 5,417,284 5,372,766 
Deposits6,232,692 5,882,792 5,502,356 4,950,199 4,939,182 4,838,574 4,810,019 4,704,231 
Interest-bearing liabilities4,085,619 3,878,783 3,885,903 3,739,467 3,716,248 3,678,530 3,716,092 3,773,714 
Shareholders’ equity889,481 878,325 871,495 858,592 847,317 826,914 802,131 775,059 
Ratios (annualized where applicable)    
Return on average assets1.30 %1.34 %0.98 %1.18 %1.35 %1.65 %1.60 %1.52 %
Return on average common equity10.58 %10.55 %7.55 %8.52 %9.78 %12.00 %11.93 %11.66 %
Equity to assets at end of period12.26 %12.47 %12.60 %13.52 %13.87 %13.76 %13.56 %13.03 %
Average loans to average deposits76.56 %81.35 %86.12 %91.17 %89.49 %90.00 %90.02 %90.99 %
Average earning assets to interest-bearing liabilities162.54 %162.28 %157.03 %149.64 %149.62 %147.89 %145.78 %142.37 %
Net interest margin3.38 %3.48 %3.49 %3.96 %3.93 %3.95 %4.06 %4.06 %
Allowance for loan losses to gross loans1.11 %1.02 %0.89 %0.54 %0.48 %0.44 %0.48 %0.49 %
Nonperforming loans as a percent of total loans0.94 %0.86 %0.94 %0.76 %0.76 %0.67 %0.67 %0.77 %
Nonperforming assets as a percent of total assets0.64 %0.63 %0.69 %0.60 %0.62 %0.56 %0.57 %0.65 %
Net charge-offs (recoveries) as a percent of average total loans0.07 %(0.06)%0.12 %0.22 %0.09 %0.04 %— %0.04 %
Note: In the second quarter of 2020, the Company recorded $8.0 million in gains on the sale of available for sale securities, which are included in noninterest income for that quarter.
77

Item 8. Financial Statements and Supplementary Data

First Bancorp and Subsidiaries

Consolidated Balance Sheets

December 31, 20182020 and 2017

($ in thousands) 2018  2017 
Assets        
Cash and due from banks, noninterest-bearing $56,050   114,301 
Due from banks, interest-bearing  406,848   375,189 
     Total cash and cash equivalents  462,898   489,490 
         
Securities available for sale  501,351   343,270 
Securities held to maturity (fair values of $99,906 in 2018 and $118,998 in 2017)  101,237   118,503 
         
Presold mortgages in process of settlement  4,279   12,459 
         
Loans  4,249,064   4,042,369 
Allowance for loan losses  (21,039)  (23,298)
     Net loans  4,228,025   4,019,071 
         
Premises and equipment  119,000   116,233 
Accrued interest receivable  16,004   14,094 
Goodwill  234,368   233,070 
Other intangible assets  21,112   24,437 
Foreclosed real estate  7,440   12,571 
Bank-owned life insurance  101,878   99,162 
Other assets  66,524   64,677 
          Total assets $5,864,116   5,547,037 
         
Liabilities        
Deposits:   Noninterest-bearing checking accounts $1,320,131   1,196,161 
Interest-bearing checking accounts  916,374   884,254 
Money market accounts  1,035,523   984,945 
Savings accounts  432,389   454,860 
Time deposits of $100,000 or more  690,922   593,123 
Other time deposits  264,000   293,612 
     Total deposits  4,659,339   4,406,955 
Borrowings  406,609   407,543 
Accrued interest payable  1,976   1,235 
Other liabilities  31,962   38,325 
       Total liabilities  5,099,886   4,854,058 
         
Commitments and contingencies (see Note 13)        
         
Shareholders’ Equity        
Preferred stock, no par value per share.  Authorized: 5,000,000 shares        
     Issued & outstanding:  none in 2018 and 2017  —   — 
Common stock, no par value per share.  Authorized: 40,000,000 shares        
     Issued & outstanding:  29,724,874 shares in 2018 and 29,639,374 shares in 2017  434,453   432,794 
Retained earnings  341,738   264,331 
Stock in rabbi trust assumed in acquisition  (3,235)  (3,581)
Rabbi trust obligation  3,235   3,581 
Accumulated other comprehensive income (loss)  (11,961)  (4,146)
       Total shareholders’ equity  764,230   692,979 
          Total liabilities and shareholders’ equity $5,864,116   5,547,037 

2019

($ in thousands)20202019
Assets  
Cash and due from banks, noninterest-bearing$93,724 64,519 
Due from banks, interest-bearing273,566 166,783 
Total cash and cash equivalents367,290 231,302 
Securities available for sale1,453,132 821,945 
Securities held to maturity (fair values of $170,734 in 2020 and $68,333 in 2019)167,551 67,932 
Presold mortgages in process of settlement42,271 19,712 
SBA loans held for sale6,077 0 
Loans4,731,315 4,453,466 
Allowance for loan losses(52,388)(21,398)
Net loans4,678,927 4,432,068 
Premises and equipment120,502 114,859 
Operating right-of-use lease assets17,514 19,669 
Accrued interest receivable20,272 16,648 
Goodwill239,272 234,368 
Other intangible assets15,366 17,217 
Foreclosed properties2,424 3,873 
Bank-owned life insurance106,974 104,441 
Other assets52,179 59,605 
Total assets$7,289,751 6,143,639 
Liabilities
Deposits:  Noninterest-bearing checking accounts$2,210,012 1,515,977 
Interest-bearing checking accounts1,172,022 912,784 
Money market accounts1,581,364 1,173,107 
Savings accounts519,266 424,415 
Time deposits of $100,000 or more564,365 649,947 
Other time deposits226,567 255,125 
Total deposits6,273,596 4,931,355 
Borrowings61,829 300,671 
Accrued interest payable904 2,154 
Operating lease liabilities17,868 19,855 
Other liabilities42,133 37,203 
Total liabilities6,396,330 5,291,238 
Commitments and contingencies (see Note 12)00
Shareholders’ Equity
Preferred stock, no par value per share.  Authorized: 5,000,000 shares
Issued & outstanding:  none in 2020 and 20190 0 
Common stock, no par value per share.  Authorized: 40,000,000 shares
Issued & outstanding:  28,579,335 shares in 2020 and 29,601,264 shares in 2019400,582 429,514 
Retained earnings478,489 417,764 
Stock in rabbi trust assumed in acquisition(2,243)(2,587)
Rabbi trust obligation2,243 2,587 
Accumulated other comprehensive income (loss)14,350 5,123 
Total shareholders’ equity893,421 852,401 
Total liabilities and shareholders’ equity$7,289,751 6,143,639 
See accompanying notes to consolidated financial statements.

81 

78

First Bancorp and Subsidiaries

Consolidated Statements of Income

Years Ended December 31, 2018, 20172020, 2019 and 2016

($ in thousands, except per share data) 2018  2017  2016 
Interest Income            
Interest and fees on loans $208,609   163,738   121,322 
Interest on investment securities:            
     Taxable interest income  10,638   7,007   6,162 
     Tax-exempt interest income  1,482   1,677   1,748 
Other, principally overnight investments  10,478   4,960   1,755 
     Total interest income  231,207   177,382   130,987 
             
Interest Expense            
Savings, checking and money market accounts  5,074   2,761   1,620 
Time deposits of $100,000 or more  8,356   4,005   2,654 
Other time deposits  1,061   778   896 
Borrowings  9,286   5,127   2,437 
     Total interest expense  23,777   12,671   7,607 
             
Net interest income  207,430   164,711   123,380 
Provision (reversal) for loan losses – non-covered  (3,589)  723   2,109 
Provision (reversal) for loan losses – covered  —   —   (2,132)
     Total provision (reversal) for loan losses  (3,589)  723   (23)
Net interest income after provision for loan losses  211,019   163,988   123,403 
             
Noninterest Income            
Service charges on deposit accounts  12,690   11,862   10,571 
Other service charges, commissions and fees  19,945   14,610   11,913 
Fees from presold mortgage loans  2,735   5,695   2,033 
Commissions from sales of insurance and financial products  8,731   5,300   3,790 
SBA consulting fees  4,675   4,024   3,199 
SBA loan sale gains  10,366   5,479   1,433 
Bank-owned life insurance income  2,534   2,321   2,052 
Foreclosed property losses, net  (565)  (531)  (625)
FDIC indemnification asset income (expense), net  —   —   (10,255)
Securities gains (losses), net  —   (235)  3 
Gain on branch sale  —   —   1,466 
Other gains (losses), net  723   383   (29)
     Total noninterest income  61,834   48,908   25,551 
             
Noninterest Expenses            
Salaries  75,077   66,786   51,252 
Employee benefits  16,888   15,313   11,568 
   Total personnel expense  91,965   82,099   62,820 
Occupancy expense  10,793   9,661   7,838 
Equipment related expenses  5,627   4,480   3,608 
Merger and acquisition expenses  2,358   8,073   1,431 
Intangibles amortization  6,763   4,240   1,211 
Other operating expenses  41,869   36,604   29,913 
     Total noninterest expenses  159,375   145,157   106,821 
             
Income before income taxes  113,478   67,739   42,133 
Income tax expense  24,189   21,767   14,624 
             
Net income  89,289   45,972   27,509 
             
Preferred stock dividends  —   —   (175)
             
Net income available to common shareholders $89,289   45,972   27,334 
             
Earnings per common share:  Basic $3.02   1.82   1.37 
Earnings per common share:  Diluted  3.01   1.82   1.33 
             
Dividends declared per common share $0.40   0.32   0.32 
             
Weighted average common shares outstanding:            
Basic  29,566,259   25,210,606   19,964,727 
Diluted  29,707,431   25,291,382   20,732,917 

2018

($ in thousands, except per share data)202020192018
Interest Income   
Interest and fees on loans$213,099 220,784 208,609 
Interest on investment securities:
Taxable interest income20,429 19,881 10,638 
Tax-exempt interest income725 1,007 1,482 
Other, principally overnight investments3,431 8,435 10,478 
Total interest income237,684 250,107 231,207 
Interest Expense
Savings, checking and money market accounts6,551 9,551 5,074 
Time deposits of $100,000 or more8,215 13,598 8,356 
Other time deposits1,535 1,901 1,061 
Borrowings3,261 8,853 9,286 
Total interest expense19,562 33,903 23,777 
Net interest income218,122 216,204 207,430 
Provision (reversal) for loan losses35,039 2,263 (3,589)
Net interest income after provision for loan losses183,083 213,941 211,019 
Noninterest Income
Service charges on deposit accounts11,098 12,970 12,690 
Other service charges, commissions and fees20,097 19,481 16,488 
Fees from presold mortgage loans14,183 3,944 2,735 
Commissions from sales of insurance and financial products8,848 8,495 8,731 
SBA consulting fees8,644 3,872 4,675 
SBA loan sale gains7,973 8,275 10,366 
Bank-owned life insurance income2,533 2,564 2,534 
Securities gains, net8,024 97 0 
Other gains (losses), net(54)(169)723 
Total noninterest income81,346 59,529 58,942 
Noninterest Expenses
Salaries84,941 79,129 75,077 
Employee benefits16,027 16,844 16,888 
Total personnel expense100,968 95,973 91,965 
Occupancy expense11,278 11,122 10,793 
Equipment related expenses4,285 5,023 5,627 
Merger and acquisition expenses0 192 2,358 
Intangibles amortization3,956 4,858 5,917 
Foreclosed property losses, net547 939 565 
Other operating expenses40,264 39,087 39,258 
Total noninterest expenses161,298 157,194 156,483 
Income before income taxes103,131 116,276 113,478 
Income tax expense21,654 24,230 24,189 
Net income$81,477 92,046 89,289 
Earnings per common share:  Basic$2.81 3.10 3.02 
Earnings per common share:  Diluted2.81 3.10 3.01 
Dividends declared per common share$0.72 0.54 0.40 
Weighted average common shares outstanding:
Basic28,839,866 29,547,851 29,566,259 
Diluted28,981,567 29,720,499 29,707,431 
See accompanying notes to consolidated financial statements.

82 

79

First Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2018, 20172020, 2019 and 2016

       
($ in thousands) 2018  2017  2016 
          
Net income $89,289   45,972   27,509 
Other comprehensive income (loss):            
Unrealized gains (losses) on securities available for sale:            
Unrealized holding gains (losses) arising during the period, pretax  (10,179)  639   (1,919)
     Tax (expense) benefit  2,379   (234)  683 
Reclassification to realized (gains) losses  —   235   (3)
     Tax expense (benefit)  —   (87)  1 
Postretirement plans:            
        Net gain (loss) arising during period  (41)  1,601   (557)
              Tax (expense) benefit  10   (593)  115 
        Amortization of unrecognized net actuarial (gain) loss  21   211   202 
              Tax expense (benefit)  (5)  (75)  (79)
Other comprehensive income (loss)  (7,815)  1,697   (1,557)
 Comprehensive income $81,474   47,669   25,952 
             

2018

($ in thousands)202020192018
Net income$81,477 92,046 89,289 
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period, pretax18,729 22,230 (10,179)
Tax (expense) benefit(4,304)(5,157)2,379 
Reclassification to realized (gains) losses(8,024)(97)0 
Tax expense (benefit)1,844 22 0 
Postretirement plans:
Net gain (loss) arising during period589 (686)(41)
Tax (expense) benefit(135)158 10 
Amortization of unrecognized net actuarial loss686 814 21 
Tax benefit(158)(200)(5)
Other comprehensive income (loss)9,227 17,084 (7,815)
Comprehensive income$90,704 109,130 81,474 
See accompanying notes to consolidated financial statements.

83 

80

First Bancorp and Subsidiaries

Consolidated Statements of Shareholders’ Equity

Years Ended December 31, 2018, 20172020, 2019 and 2016

($ in thousands, except per share) Preferred  Common Stock  Retained  Stock in
rabbi
trust
assumed
in
acquisi-		  Rabbi trust  Accumu-
lated
Other
Compre-
hensive
Income		  Total
Share-
holders’		 
  Stock  Shares  Amount  Earnings  tion  obligation  (Loss)  Equity 
                         
Balances, January 1, 2016 $7,287   19,748  $133,393   205,060   —    —   (3,550)  342,190 
                                 
Net income              27,509               27,509 
Cash dividends declared ($0.32 per common share)              (6,473)              (6,473)
Preferred stock dividends              (175)              (175)
Conversion of preferred stock to common stock  (7,287)  729   7,287                   — 
Equity issued pursuant to acquisitions      279   5,509                   5,509 
Stock option exercises      23   375                   375 
Stock withheld for payment of taxes      (6)  (166)                  (166)
Stock-based compensation      72   889                   889 
Other comprehensive income (loss)                          (1,557)  (1,557)
                                 
Balances, December 31, 2016  —   20,845   147,287   225,921   —   —   (5,107)  368,101 
                                 
Net income              45,972               45,972 
Cash dividends declared ($0.32 per common share)              (8,298)              (8,298)
Equity issued pursuant to acquisitions      8,733   284,192       (7,688)  7,688       284,192 
Payment of deferred fees                  4,107   (4,107)      — 
Stock option exercises      18   287                   287 
Stock withheld for payment of taxes      (7)  (231)                  (231)
Stock-based compensation      50   1,259                   1,259 
Reclassification of accumulated other comprehensive income due to statutory tax changes              736           (736)  — 
Other comprehensive income (loss)                          1,697   1,697 
                                 
Balances, December 31, 2017   —   29,639   432,794   264,331   (3,581)  3,581   (4,146)  692,979 
                                 
Net income              89,289               89,289 
Cash dividends declared ($0.40 per common share)              (11,882)              (11,882)
Payment of deferred fees                  346   (346)      — 
Stock option exercises      25   324                   324 
Stock withheld for payment of taxes      (11)  (406)                  (406)
Stock-based compensation      72   1,741                   1,741 
Other comprehensive income (loss)                          (7,815)  (7,815)
                                 
Balances, December 31, 2018 $—   29,725  $434,453   341,738   (3,235)  3,235   (11,961)  764,230 
                                 

2018

(In thousands, except per share)Common StockRetained
Earnings		Stock in
rabbi
trust
assumed
in
acquisition		Rabbi trust
obligation		Accumulated
Other
Comprehensive
Income
(Loss)		Total
Shareholders’ Equity
SharesAmount
Balances, January 1, 201829,639 $432,794 264,331 (3,581)3,581 (4,146)692,979 
Net income89,289 89,289 
Cash dividends declared ($0.40 per common share)(11,882)(11,882)
Change in Rabbi Trust Obligation346 (346)0 
Stock option exercises25 324 324 
Stock withheld for payment of taxes(11)(406)(406)
Stock-based compensation72 1,741 1,741 
Other comprehensive loss(7,815)(7,815)
Balances, December 31, 201829,725 434,453 341,738 (3,235)3,235 (11,961)764,230 
Net income92,046 92,046 
Cash dividends declared ($0.54 per common share)(16,020)(16,020)
Change in Rabbi Trust Obligation648 (648)0 
Equity issued related to acquisition earn-out78 3,070 3,070 
Stock repurchases(282)(10,000)(10,000)
Stock option exercises9 129 129 
Stock withheld for payment of taxes(20)(702)(702)
Stock-based compensation91 2,564 2,564 
Other comprehensive income17,084 17,084 
Balances, December 31, 201929,601 429,514 417,764 (2,587)2,587 5,123 852,401 
Net income81,477 81,477 
Cash dividends declared ($0.72 per common share)(20,752)(20,752)
Change in Rabbi Trust Obligation344 (344)0 
Equity issued related to acquisition24 494 494 
Stock repurchases(1,117)(31,868)(31,868)
Stock withheld for payment of taxes(11)(307)(307)
Stock-based compensation82 2,749 2,749 
Other comprehensive income9,227 9,227 
Balances, December 31, 202028,579 $400,582 478,489 (2,243)2,243 14,350 893,421 
See accompanying notes to consolidated financial statements.

84 

81

First Bancorp and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2018, 20172020, 2019 and 2016

($ in thousands) 2018  2017  2016 
Cash Flows From Operating Activities            
Net income $89,289   45,972   27,509 
Reconciliation of net income to net cash provided by operating activities:            
     Provision (reversal) for loan losses  (3,589)  723   (23)
     Net security premium amortization  2,749   2,908   3,341 
     Loan discount accretion  (7,812)  (7,076)  (4,451)
     Purchase accounting accretion and amortization, net  (190)  (236)  — 
     FDIC indemnification asset expense, net  —   —   10,255 
     Foreclosed property losses and write-downs, net  565   531   625 
     Loss (gain) on securities available for sale  —   235   (3)
     Other (gains) losses  (723)  (383)  29 
     Decrease (increase) in net deferred loan costs  (2,285)  975   922 
     Depreciation of premises and equipment  6,077   5,493   4,602 
     Stock-based compensation expense  1,569   1,095   714 
     Amortization of intangible assets  6,763   4,240   1,211 
     Fees/gains from sale of presold mortgage and SBA loans  (13,101)  (11,174)  (3,466)
     Originations of presold mortgage loans in process of settlement  (118,791)  (228,871)  (76,912)
     Proceeds from sales of presold mortgage loans in process of settlement  129,519   235,493   81,127 
     Origination of SBA loans for sale  (196,784)  (95,436)  (24,784)
     Proceeds from sales of SBA loans  157,427   77,034   20,021 
     Gain on sale of branches  —   —   (1,466)
     Increase in accrued interest receivable  (1,910)  (1,072)  (120)
     Decrease (increase) in other assets  3,525   6,724   (724)
     Increase (decrease) in accrued interest payable  741   392   (4)
     Increase (decrease) in other liabilities  (6,629)  (10,729)  2,868 
          Net cash provided by operating activities  46,410   26,838   41,271 
Cash Flows From Investing Activities            
     Purchases of securities available for sale  (230,794)  (191,260)  (114,396)
     Purchases of securities held to maturity  —   (291)  — 
     Proceeds from maturities/issuer calls of securities available for sale  60,871   37,974   76,939 
     Proceeds from maturities/issuer calls of securities held to maturity  16,183   22,344   23,368 
     Proceeds from sales of securities available for sale  —   140,621   8 
     Purchases of Federal Reserve and Federal Home Loan Bank stock, net  (6,129)  (9,947)  (3,933)
     Net increase in loans  (152,972)  (204,631)  (192,393)
     Payments related to FDIC loss share agreements  —   —   (1,554)
     Payment to FDIC for termination of loss share agreements  —   —   (2,012)
     Proceeds from sales of foreclosed real estate  7,532   8,647   7,954 
     Purchases of premises and equipment  (10,723)  (4,659)  (8,689)
     Proceeds from sales of premises and equipment  2,753   151   2,025 
     Proceeds from branch sale  —   —   26,211 
     Net cash received (paid) in acquisitions  —   72,519   (53,640)
          Net cash used by investing activities  (313,279)  (128,532)  (240,112)
Cash Flows From Financing Activities            
     Net increase in deposits  252,756   195,468   158,989 
     Net increase (decrease) in borrowings  (1,116)  97,263   85,000 
     Cash dividends paid – common stock  (11,281)  (7,596)  (6,399)
     Cash dividends paid – preferred stock  —   —   (233)
     Proceeds from stock option exercises  324   287   375 
     Stock withheld for payment of taxes  (406)  (231)  (166)
          Net cash provided by financing activities  240,277   285,191   237,566 
             
Increase (decrease) in Cash and Cash Equivalents  (26,592)  183,497   38,725 
Cash and Cash Equivalents, Beginning of Year  489,490   305,993   267,268 
Cash and Cash Equivalents, End of Year $462,898   489,490   305,993 
             
Supplemental Disclosures of Cash Flow Information:            
Cash paid during the period for interest  23,036   12,239   7,653 
Cash paid during the period for income taxes  21,162   19,537   11,791 
Non-cash:  Foreclosed loans transferred to foreclosed real estate  4,148   5,452   8,117 
Non-cash:  Unrealized gain (loss) on securities available for sale, net of taxes  (7,800)  553   (1,238)

See accompanying notes to consolidated financial statements.

85 

2018
($ in thousands)202020192018
Cash Flows From Operating Activities   
Net income$81,477 92,046 89,289 
Reconciliation of net income to net cash provided by operating activities:
  Provision (reversal) for loan losses35,039 2,263 (3,589)
  Net security premium amortization5,019 2,653 2,749 
  Loan discount accretion(6,328)(5,974)(7,812)
  Other purchase accounting accretion and amortization, net81 (9)(190)
  Foreclosed property losses and write-downs, net547 939 565 
Gains on securities available for sale(8,024)(97)0 
  Other losses (gains)54 169 (723)
Bank-owned life insurance income(2,533)(2,564)(2,534)
Decrease (increase) in net deferred loan costs5,639 (642)(2,285)
  Depreciation of premises and equipment5,838 5,836 6,077 
  Amortization of operating lease right-of-use assets2,012 1,857 0 
  Repayments of lease obligations(1,844)(1,669)0 
  Stock-based compensation expense2,540 2,270 1,569 
  Amortization of intangible assets3,956 4,858 5,917 
  Amortization of SBA servicing assets1,795 1,340 846 
  Gains from sale of presold mortgage and SBA loans(22,156)(12,219)(13,101)
  Originations of presold mortgage loans in process of settlement(418,394)(173,705)(118,791)
  Proceeds from sales of presold mortgage loans in process of settlement410,898 162,476 129,519 
  Origination of SBA loans for sale(147,934)(150,677)(196,784)
  Proceeds from sales of SBA loans115,460 124,527 157,427 
  Increase in accrued interest receivable(3,624)(644)(1,910)
  (Increase) decrease in other assets(991)(3,171)6,059 
(Decrease) increase in accrued interest payable(1,250)178 741 
(Decrease) increase in net deferred income tax liability(10,007)1,588 1,601 
Increase (decrease) in other liabilities9,805 (391)(8,230)
Net cash provided by operating activities57,075 51,238 46,410 
Cash Flows From Investing Activities
Purchases of securities available for sale(1,060,054)(498,891)(230,794)
Purchases of securities held to maturity(133,611)0 0 
Proceeds from maturities/issuer calls of securities available for sale223,842 158,920 60,871 
Proceeds from maturities/issuer calls of securities held to maturity33,030 32,461 16,183 
Proceeds from sales of securities available for sale219,697 39,797 0 
Redemptions (purchases) of FRB and FHLB stock, net9,851 4,088 (6,129)
Net increase in loans(233,788)(165,203)(152,972)
Proceeds from sales of foreclosed properties2,485 5,877 7,532 
Purchases of premises and equipment(12,363)(3,534)(10,723)
Proceeds from sales of premises and equipment189 1,799 2,753 
  Net cash paid in acquisition(9,559)0 0 
Net cash used by investing activities(960,281)(424,686)(313,279)
Cash Flows From Financing Activities
Net increase in deposits1,342,340 272,206 252,756 
Net (decrease) increase in short-term borrowings(198,000)(55,000)50,000 
Proceeds from long-term borrowings150,000 0 50,000 
Payments on long-term borrowings(202,035)(51,119)(101,116)
Cash dividends paid – common stock(20,936)(13,662)(11,281)
Repurchases of common stock(31,868)(10,000)0 
Proceeds from stock option exercises0 129 324 
Payment of taxes related to stock withheld(307)(702)(406)
Net cash provided by financing activities1,039,194 141,852 240,277 
Increase (decrease) in Cash and Cash Equivalents135,988 (231,596)(26,592)
Cash and Cash Equivalents, Beginning of Year231,302 462,898 489,490 
Cash and Cash Equivalents, End of Year$367,290 231,302 462,898 
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest20,812 33,725 23,036 
Cash paid during the period for income taxes29,604 24,336 21,162 
Non-cash:  Foreclosed loans transferred to foreclosed real estate1,583 3,249 4,148 
Non-cash:  Unrealized gain (loss) on securities available for sale, net of taxes14,425 17,073 (7,800)
Non-cash: Initial recognition of operating lease right-of-use assets and liabilities253 19,406 0 
Non-cash: Equity issued related to acquisitions494 3,070 0 
Non-cash: Loans acquired14,633 0 0 
Non-cash: Other assets acquired451 0 0 
Non-cash: Borrowings assumed11,671 0 0 
See accompanying notes to consolidated financial statements.
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First Bancorp and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2018

2020

Note 1. Summary of Significant Accounting Policies

(a)

Basis of Presentation-The consolidated financial statements include the accounts of First Bancorp (the “Company”) and its wholly owned subsidiary - First Bank (the “Bank”). The Bank has threefour wholly owned subsidiaries that are fully consolidated - First Bank Insurance Services, Inc. (“First Bank Insurance”), SBA Complete, Inc. (“SBA Complete”), Magnolia Financial, Inc. ("Magnolia Financial"), and First Troy SPE, LLC. All significant intercompany accounts and transactions have been eliminated. Subsequent events have been evaluated through the date of filing this Form 10-K.

The Company is a bank holding company. The principal activity of the Company is the ownership and operation of the Bank, a state chartered bank with its main office in Southern Pines, North Carolina. The Company is also the parent company for a series of statutory trusts that were formed at various times since 2002 for the purpose of issuing trust preferred debt securities. The trusts are not consolidated for financial reporting purposes; however, notes issued by the Company to the trusts in return for the proceeds from the issuance of the trust preferred securities are included in the consolidated financial statements and have terms that are substantially the same as the corresponding trust preferred securities. The trust preferred securities qualify as capital for regulatory capital adequacy requirements. First Bank Insurance is an agent for property and casualty insurance policies. SBA Complete specializes in providing consulting services for financial institutions across the country related to Small Business Administration (“SBA”) loan origination and servicing. Magnolia Financial is a business financing company that makes loans throughout the southeastern United States. First Troy SPE, LLC was formed in order to hold and dispose of certain real estate foreclosed upon by the Bank.

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates made by the Company in the preparation of its consolidated financial statements are the determination of the allowance for loan losses, the valuation of other real estate, the accounting and impairment testing related to intangible assets, and the fair value and discount accretion of acquired loans.

(b) Reclassifications

Operating, Accounting and Reporting Considerations related to COVID-19 -The coronavirus (COVID-19) pandemic has negatively impacted the global economy, disrupted global supply chains and increased unemployment levels. The resulting temporary closure of many businesses and the implementation of social distancing and sheltering-in-place policies have impacted and may continue to impact many of the Company’s customers. While the full effects of the pandemic remain unknown, the Company is committed to supporting its customers, employees and communities during this difficult time. The Company has provided hardship relief assistance to customers, including the consideration of various loan payment deferral and fee waiver options, and encouraged customers to reach out for assistance to support their individual circumstances.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed by the President of the United States. Certain provisions within the CARES Act encourage financial institutions to practice prudent efforts to work with borrowers impacted by COVID-19. Under these provisions, which the Company has applied, loan modifications deemed to be COVID-19-related are not considered a troubled debt restructuring (“TDR”) if the loan was not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or December 31, 2020. In December 2020, this CARES Act provision was extended to December 31, 2021. The banking regulators issued similar guidance, which also clarified that a COVID-19-related modification would not meet the requirements under accounting principles generally accepted in the United States of America to be a TDR if the borrower was current on payments at the time the underlying loan modification program was implemented and if the modification is considered to be short-term. The Company generally offered impacted borrowers loan payment deferrals of 90 days in duration. The Company offered subsequent 90 day deferrals if requested by the borrower. Any deferred amounts were generally added by the Company to the payoff balance of the loan at maturity. Most of the deferral requests occurred during the second quarter of 2020, and in the second half of 2020, most of those borrowers resumed payments. As of December 31, 2020, the Company had remaining payment deferrals of $16.6 million.
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Additionally, the Company is a lender for prior yearsthe Small Business Administration's (“SBA”) Paycheck Protection Program ("PPP"), a program under the CARES Act, and other SBA, Federal Reserve or United States Treasury programs that have been reclassified to conformcreated in response to the 2018 presentation.pandemic and may be a lender under such programs created in the future. These programs are recent and their effects on the Company’s business remain uncertain. The reclassificationsCompany originated $245 million in PPP loans during the second quarter of 2020. The Company began accepting and transmitting PPP loan forgiveness documentation to the SBA in the fourth quarter of 2020 and had no effectreceived $4.0 million in PPP forgiveness payoffs from the SBA as of December 31, 2020. At December 31, 2020, the Company had 2,676 PPP loans outstanding totaling approximately $241 million.
In December 2020, the Bipartisan-Bicameral Omnibus COVID Relief Deal, included as a component of appropriations legislation, and the Economic Aid Act were enacted to provide economic stimulus to individuals and businesses in further response to the economic distress caused by the COVID-19 pandemic. Among other things, the legislation includes stimulus payment for individuals under certain income thresholds, extension of enhanced unemployment benefits, a rental assistance program, an extension of the eviction moratorium, targeted funding related to public health measures and small business relief, which included additional funds for PPP loans.

In a period of economic contraction, elevated levels of loan losses and lost interest income may occur.  The Company continues to accrue interest on net income or shareholders’ equityloans modified in accordance with the CARES Act.  To the extent those borrowers are unable to resume normal contractual payments, the Company could experience additional losses of principal and interest. The extent to which the COVID-19 pandemic has a further impact the Company's business, results of operations, and financial condition, as previously presented, nor did they materially impact trendswell as the Company's regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in financial information.

(c) response to the COVID-19 pandemic.

Business Combinations – The Company accounts for business combinations using the acquisition method of accounting. The accounts of an acquired entity are included as of the date of acquisition, and any excess of purchase price over the fair value of the net assets acquired is capitalized as goodwill. Under this method, all identifiable assets acquired, including purchased loans, and liabilities assumed are recorded at fair value.

The Company typically issues common stock and/or pays cash for an acquisition, depending on the terms of the acquisition agreement. The value of common shares issued is determined based on the market price of the stock as of the closing of the acquisition.

(d)

Cash and Cash Equivalents-The Company considers all highly liquid assets with original maturities of 90 days or less, such as cash on hand, noninterest-bearing and interest-bearing amounts due from banks and federal funds sold, to be “cash equivalents.”

(e)

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

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A decline in the market value of any available for sale or held to maturity security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Any equity security that is in an unrealized loss position for twelve consecutive months is presumed to be other than temporarily impaired and an impairment charge is recorded unless the amount of the charge is insignificant.

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

(f) Premises and Equipment

Presold Mortgages in Process of Settlement-Premises and equipment As a part of normal business operations, the Company originates residential mortgage loans that have been pre-approved by secondary investors to be sold on a best efforts basis. The terms of the loans are stated at cost less accumulated depreciation. Depreciation, computedset by the straight-line method,secondary investors, and the purchase price that the investor will pay for the loan is chargedagreed to operations overprior to the estimated useful livesfunding of the properties, which rangeloan by the Company. Generally within three weeks after funding, the loans are transferred to the investor in accordance with the agreed-upon terms. The Company records gains from 2the sale of these loans on the settlement date of the sale equal to 40 years or,the difference between the proceeds received and the carrying amount of the loan. Additionally, the Company records gains for loans in the caseprocess of leasehold improvements, overclosing, based on the termchanges in fair value of the lease, if shorter. Maintenanceloans and repairs are chargedrelated commitments. Between the initial funding of the loans
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by the Company and the subsequent reimbursement by the investors, the Company carries the loans on its balance sheet at fair value.
Periodically, the Company originates other types of commercial loans and decides to operationssell them in the year incurred. Gainssecondary market. The Company carries these loans at the lower of cost or fair value at each reporting date. There were no such loans held for sale as of December 31, 2020 or 2019, respectively.
SBA Loans Held for Sale - SBA Loans Held for Sale represent the guaranteed portion of SBA loans that the Company intends to sell in the near future. These loans are carried at the lower of cost or market as determined on an individual loan basis. There were $6.1 million in SBA loans held for sale as of December 31, 2020 and losses on dispositions are included in current operations.

(g) 0ne at December 31, 2019, respectively.

Loans –Loans are stated at the principal amount outstanding less any partial charge-offs plus deferred origination costs, net of nonrefundable loan fees. Interest on loans is accrued on the unpaid principal balance outstanding. Net deferred loan origination costs/fees are capitalized and recognized as a yield adjustment over the life of the related loan.

The Company does not hold a significant amount of interest-only strips, loans, other receivables, or retained interests in securitizations that can be contractually prepaid or otherwise settled in a way that it would not recover substantially all of its recorded investment.

Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date. No allowance for loan losses is carried over from the seller or otherwise recorded on the purchase date.

The Company follows specific accounting guidance related to purchased impaired loans. A loan is considered to be a purchased credit impaired loan when purchased loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. Evidence of credit quality deterioration as of the purchase date may include statistics such as past due, risk grade and nonaccrual status. At the acquisition date, when possible, a stream of expected cash flows is estimated and compared to the estimated fair value in order to determine the accretable yield amount, which is then recognized over the life of the loan based on the effective yield method. Throughout the life of the loan, the stream of expected cash flows may change based on actual results of the loan or the assumptions related to the future performance. Subsequent changes of expected cash flows may result in changes to accretable yield if the present value of expected cash flows exceeds the carrying value or an impairment reserve if the present value of expected cash flows is less than the carrying amount.

For purchased impaired loans for which the timing and amount of cash flows expected to be collected cannot be reasonably estimated, the Company uses the cost recovery method of income recognition. Under the cost recovery method of income recognition, all cash receipts are initially applied to principal, with interest income being recorded only after the carrying value of the loan has been reduced to zero.

For nonimpaired purchased loans, the Company accretes any fair value discount over the life of the loan in a manner consistent with the guidance for accounting for loan origination fees and costs. An allowance for loan losses is recorded for these loans when the estimated credit losses exceed the remaining unamortized discounts, based on pools of similar loans.

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A loan is placed on nonaccrual status when, in management’s judgment, the collection of interest appears doubtful. The accrual of interest is discontinued on substantially all loans that become 90 days or more past due with respect to principal or interest. The past due status of loans is based on the contractual payment terms. While a loan is on nonaccrual status, the Company’s policy is that all cash receipts are applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to recoveries of any amounts previously charged off. Further cash receipts are recorded as interest income to the extent that any interest has been foregone. Loans are removed from nonaccrual status when they become current as to both principal and interest, when concern no longer exists as to the collectability of principal or interest, and when the loan has provided generally six months of satisfactory payment performance. In some cases, where borrowers are experiencing financial difficulties, loans may be restructured to provide terms significantly different from the originally contracted terms. For a nonaccrual loan that has been restructured, if the borrower has six months of satisfactory performance under the restructured terms and it is reasonably assured that the borrower will continue to be able to comply with the restructured terms, the loan may be returned to accruing status. The nonaccrual policy discussed above applies to all loan classifications.

A loan is considered to be impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. A loan is specifically evaluated for an appropriate valuation allowance if the loan balance is above a prescribed evaluation threshold (which
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(which varies based on credit quality, accruing status, troubled debt restructured status, and type of collateral) and the loan is determined to be impaired. Impaired loans are measured using either 1) an estimate of the cash flows that the Company expects 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 less estimated selling costs. Unless restructured, while a loan is considered to be impaired, the Company’s policy is that interest accrual is discontinued and all cash receipts are applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to recoveries of any amounts previously charged off. Further cash receipts are recorded as interest income to the extent that any interest has been foregone. Impaired loans that are restructured are returned to accruing status in accordance with the restructured terms if the Company believes that the borrower will be able to meet the obligations of the restructured loan terms, and the loan has provided generally six months of satisfactory payment performance. The impairment policy discussed above applies to all loan classifications.

(h) Presold Mortgages in Process of Settlement-As a part of normal business operations, the Company originates residential mortgage loans that have been pre-approved by secondary investors to be sold on a best efforts basis. The terms of the loans are set by the secondary investors, and the purchase price that the investor will pay for the loan is agreed to prior to the funding of the loan by the Company. Generally within three weeks after funding, the loans are transferred to the investor in accordance with the agreed-upon terms. The Company records gains from the sale of these loans on the settlement date of the sale equal to the difference between the proceeds received and the carrying amount of the loan. The gain generally represents the portion of the proceeds attributed to service release premiums received from the investors and the realization of origination fees received from borrowers that were deferred as part of the carrying amount of the loan. Between the initial funding of the loans by the Company and the subsequent reimbursement by the investors, the Company carries the loans on its balance sheet at the lower of cost or market.

(i)

SBA Loan Originations – Beginning in 2016, throughThrough its SBA Lending Division, the Company began offeringoffers loans guaranteed by the Small Business Administration (“SBA”) for the purchase of businesses, business startups, business expansion, equipment, and working capital. All SBA loans are underwritten and documented as prescribed by the SBA. SBA loans are generally fully amortizing and have maturity dates and amortizations of up to 25 years. The portion of SBA loans originated that are guaranteed and intended for sale on the secondary market are classified as held for sale and are carried at the lower of cost or fair value - there were an insignificant amount of these loans held for sale at December 31, 2018 and 2017.value. The Company generally sells the guaranteed portion of the SBA loan as soon after originationas it is eligible to be sold and retains the servicing right. When the guaranteed portion of an SBA loan is sold, the Company allocates the carrying basis of the loan between the guaranteed portion of the loan sold, the unguaranteed portion of the loans retained, and the servicing asset based on their relative fair values.  A gain is recorded for the difference between the proceeds received from the sale and the basis allocated to the sold portion. The servicing asset is included in “Other intangible assets” and is amortized as expense over the life of the loan.  Servicing assets are aggregated by year of origination and tested for impairment on a quarterly basis.  Servicing fees collected are recorded as noninterest income.  The relative fair value allocation also results in a discount that is recorded on the unguaranteed portion of the loan that is retained. ThisThe discount is amortized as a yield adjustment over the life of the loan, so long as the loan performs. In the event the loan is moved to nonaccrual status, the Company ceases the amortization of default,the discount and upon any subsequent transfer to foreclosed properties or liquidation of the loan, the remaining discount is available to offset the write-off of theamortized, along with any remaining servicing asset and deferred origination costs, with any remaining discount availableloan costs.
The foregoing discussion relates to offset any loan charge-off.

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Periodically, the Company originates other types of commercial loans and decides to sell themCompany's activities in the secondary market. The Company carries these loans atSBA's Section 7(a) and similar programs. For information on the lower of cost or fair value at each reporting date. There were no such loans held for sale as of December 31, 2018 or 2017.

(j) Company's participation in the SBA's PPP program, see Note 4 below.

Also see SBA Servicing Assets below.
Allowance for Loan Losses-The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged-off against the allowance for loan losses when management believes that the collectability of the principal is unlikely. Recoveries on loans previously charged-off are added back to the allowance. 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. Management’s determination of the adequacy of the allowance is based on several factors, including:

1.Risk grades assigned to the loans in the portfolio,
2.Specific reserves for individually evaluated impaired loans,
3.Current economic conditions, including the local, state, and national economic outlook; interest rate risk; trends in loan volume, mix and size of loans; levels and trends of delinquencies,
4.Historical loan loss experience, and
5.An assessment of the risk characteristics of the Company’s loan portfolio, including industry concentrations, payment structures, changes in property values, and credit administration practices.

1.Risk grades assigned to the loans in the portfolio,
2.Specific reserves for individually evaluated impaired loans,
3.Current economic conditions, including the local, state, and national economic outlook; interest rate risk; trends in loan volume, mix and size of loans; levels and trends of delinquencies,
4.Historical loan loss experience, and
5.An assessment of the risk characteristics of the Company’s loan portfolio, including industry concentrations, payment structures, changes in property values, and credit administration practices.
The Company segments the loan portfolio into broad categories with similar risk elements for the purposes of computing the allowance for loan losses. Those categories and their specific risks are described below.
Commercial, financial, and agricultural - Risks to this loan category include industry concentration and the inability to monitor the condition of the collateral which often consists of inventory, accounts receivable and other non-real estate assets. Equipment and inventory obsolescence can also pose a risk. Declines in general economic conditions and other events can cause cash flows to fall to levels insufficient to service debt. Also included in this category for 2020 are PPP loans, which are fully guaranteed by the SBA and thus have minimal risk.
Real estate - construction, land development, & other land loans - Risks common to commercial construction loans are cost overruns, changes in market demand for property, inadequate long-term financing arrangements and declines in real estate values. Residential construction loans are susceptible to those same risks as well as those
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associated with residential mortgage loans (see below). Changes in market demand for property could lead to longer marketing times resulting in higher carrying costs, declining values, and higher interest rates.
Real estate - mortgage - residential (1-4 family) first - Residential mortgage loans are susceptible to weakening general economic conditions and increases in unemployment rates and declining real estate values.
Real estate - mortgage - home equity loans / lines of credit - Risks common to home equity loans and lines of credit are general economic conditions, including an increase in unemployment rates, and declining real estate values which reduce or eliminate the borrower’s home equity.
Real estate - mortgage - commercial and other - Loans in this category are susceptible to declines in occupancy rates, business failure and general economic conditions. Also, declines in real estate values and lack of suitable alternative use for the properties are risks for loans in this category.
Consumer loans - Risks common to these loans include regulatory risks, unemployment and changes in local economic conditions as well as the inability to monitor collateral consisting of personal property.
While management uses the best information available to make evaluations, future adjustments may be necessary if economic and other conditions differ substantially from the assumptions used.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on the examiners’ judgment about information available to them at the time of their examinations.

(k)

Transfers of Financial Assets - Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over financial assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Premises and Equipment- Premises and equipment are stated at cost less accumulated depreciation. Depreciation, computed by the straight-line method, is charged to operations over the estimated useful lives of the properties, which range from 2 to 40 years or, in the case of leasehold improvements, over the term of the lease, if shorter. Land is carried at cost. Maintenance and repairs are charged to operations in the year incurred. Gains and losses on dispositions are included in current operations.
Goodwill and Other Intangible Assets- Business combinations are accounted for using the acquisition method of accounting. Identifiable intangible assets are recognized separately and are amortized over their estimated useful lives, which for the Company has generally been seven to ten years and at an accelerated rate. Goodwill is recognized in business combinations to the extent that the price paid exceeds the fair value of the net assets acquired, including any identifiable intangible assets. Goodwill is not amortized is subject to fair value impairment tests on at least an annual basis.
SBA Servicing Assets - When the Company sells the guaranteed portion of an SBA loan, the Company continues to perform the servicing on the loan and collects a fee related to the sold portion of the loan. A SBA servicing asset is recorded for the fair value of that fee based on a discounted cash flow analysis. SBA servicing assets are included in “Other intangible assets” on the Consolidated Balance Sheets. SBA servicing assets are amortized against income over the lives of the related loans as a reduction of servicing fee income. SBA servicing assets are tested for impairment on a quarterly basis by comparing their estimated fair values, aggregated by year of origination, to the related carrying values.
Foreclosed Real EstateProperties-Foreclosed real estateproperties consists primarily of real estate acquired by the Company through legal foreclosure or deed in lieu of foreclosure. The property is initially carried at the lower of cost (generally the loan balance plus additional costs incurred for improvements to the property) or the estimated fair value of the property less estimated selling costs (also see Note 14)13). If there are subsequent declines in fair value, which is reviewed routinely by management, the property is written down to its fair value through a charge to expense. Capital expenditures made to improve the property are capitalized. Costs of holding real estate, such as property taxes, insurance and maintenance, less related revenues during the holding period, are recorded as expense.

(l)expense as they are incurred.

Bank-owned life insurance – The Company has purchased life insurance policies on certain current and past key employees and directors where the insurance policy benefits and ownership are retained by the employer. These
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policies are recorded at their cash surrender value. Income from these policies and changes in the net cash surrender value are recorded within noninterest income as “Bank-owned life insurance income.”
Income Taxes-Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced, if necessary, by the amount of such benefits that are not expected to be realized based upon available evidence. The Company’s investment tax credits, which are low income housing tax credits and state historic tax credits, are recorded in the period that they are reflected in the Company’s tax returns.

(m) Intangible Assets-Business combinations are accounted for using the purchase method of accounting. Identifiable intangible assets are recognized separately and are amortized over their estimated useful lives, which for the Company has generally been seven to ten years and at an accelerated rate. Goodwill is recognized in business combinations to the extent that the price paid exceeds the fair value of the net assets acquired, including any identifiable intangible assets. Goodwill is not amortized, but as discussed in Note 1(s), is subject to fair value impairment tests on at least an annual basis.

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(n) Bank-owned life insurance – The Company has purchased life insurance policies on certain current and past key employees and directors where the insurance policy benefits and ownership are retained by the employer. These policies are recorded at their cash surrender value. Income from these policies and changes in the net cash surrender value are recorded within noninterest income as “Bank-owned life insurance income.”

(o) Other Investments – The Company accounts for substantially all of its investments in limited partnerships, limited liability companies (“LLCs”), and other privately held companies using either the cost or the equity method of accounting. The accounting treatment depends upon the Company’s percentage ownership and degree of management influence.

Under the cost method of accounting, the Company records an investment in stock at cost and generally recognizes cash dividends received as income. If cash dividends received exceed the Company’s relative ownership of the investee’s earnings since the investment date, these payments are considered a return of investment and reduce the cost of the investment.

Under the equity method of accounting, the Company records its initial investment at cost. Subsequently, the carrying amount of the investment is increased or decreased to reflect the Company’s share of income or loss of the investee. The Company’s recognition of earnings or losses from an equity method investment is based on the Company’s ownership percentage in the investee and the investee’s earnings on a quarterly basis. The investees generally provide their financial information during the quarter following the end of a given period. The Company’s policy is to record its share of earnings or losses on equity method investments in the quarter the financial information is received.

All of the Company’s investments in limited partnerships, LLCs, and other companies are privately held, and their market values are not readily available. The Company’s management evaluates its investments in investees for impairment based on the investee’s ability to generate cash through its operations or obtain alternative financing, and other subjective factors. There are inherent risks associated with the Company’s investments in such companies, which may result in income statement volatility in future periods.

At December 31, 20182020 and 2017,2019, the Company’s investments in limited partnerships, LLCs and other privately held companies totaled $7.5$7.8 million and $5.3$8.0 million, respectively, and wereare included in "Other assets".
Also see Note 3 for discussion of an investment without a readily determinable fair value.
Federal Home Loan Bank (FHLB) Stock - The Company is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other assets.

(p)factors. FHLB stock is carried at cost and is recorded in "Other assets". Cash dividends are reported as income.

Federal Reserve Bank (FRB) Stock Option Plan-At December 31, 2018, The Company is a member of its regional Federal Reserve Bank and is required to own stock based on its level of capital. FRB stock is carried at cost and is recorded in "Other assets". Cash dividends are reported as income.
Loan Commitments and Related Financial Instruments - Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
Stock-based Compensation - Restricted stock awards are the primary form of equity grant utilized by the Company. Compensation cost is based on the fair value of the award, which is the closing price of the Company's common stock on the date of the grant.
Restricted stock awards issued by the Company had two equity-based employeetypically have vesting periods with service conditions. Compensation cost is recognized as expense over the vesting period. For awards with graded vesting, compensation plans, whichcost is recognized on a straight-line basis over the requisite service period. Because of the insignificant amount of forfeitures the Company has experienced, forfeitures are described more fully in Note 15. The Company accounts for these plans under the recognition and measurement principles of relevant accounting guidance.

(q)recognized as they occur.

Earnings Per Share Amounts-Basic Earnings Per Common Share is calculated by dividing net income, availableless income allocated to common shareholdersparticipating securities, by the weighted average number of common shares outstanding during the period, excluding unvested shares of restricted stock. For the Company, participating securities are comprised of unvested shares of restricted stock. Diluted Earnings Per Common Share is computed by assuming the issuance
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of common shares for all potentially dilutive common shares outstanding during the reporting period. For the yearsperiods 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 2016, the Company’s potentially dilutive common stock issuances also included the Company’s Series C Preferred stock, which was convertible into common stock on a one-for-one ratio. As discussed in Note 19, on December 22, 2016 each outstanding share of the Company’s Series C Preferred stock was exchanged by the holder for an equal number of shares of common stock.

plans, as well as contingently issuable shares.

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 total number of weighted average 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.outstanding. 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. As it relates to contingently issuable shares, the number of shares that are included in the calculation of dilutive securities is based on the weighted average number of shares that arewould have been issuable if the end of the reporting period werehad been the end of the contingency period. As it relates to the Series C Preferred Stock for the period of time it was outstanding, it is assumed that the preferred stock was converted to common stock at the beginning of the reporting period. Dividends on the preferred stock are added back to net income in 2016 and the shares assumed to be converted are included in the number of shares outstanding.

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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 Years Ended December 31, 
  2018  2017  2016 
($ 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		 
                            
Basic EPS                                    
Net income available to common shareholders $89,289   29,566,259  $3.02  $45,972   25,210,606  $1.82  $27,334   19,964,727  $1.37 
                                     
Effect of dilutive securities  —   141,172       —   80,776       175   768,190     
                                     
Diluted EPS per common share $89,289   29,707,431  $3.01  $45,972   25,291,382  $1.82  $27,509   20,732,917  $1.33 

For the years ended December 31, 2018 and 2017, there were no options that were anti-dilutive. For the year ended December 31, 2016, there were 5,000 options that were anti-dilutive because the exercise price exceeded the average market price for the year, and thus are not included in the calculation to determine the effect of dilutive securities.

(r)

Fair Value of Financial Instruments-Relevant accounting guidance requires that the Company disclose estimated fair values for its financial instruments. Fair value methods and assumptions are set forth below for the Company’s financial instruments.

Cash and Amounts Due from Banks, Federal Funds Sold, 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, 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.

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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.

SBA Servicing Asset – The fair value of the Company’s SBA servicing asset is estimated based on the present value of the discounted cash flows of the expected servicing income less the estimated cost to service the loans.

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.

Commitments to Extend Credit and Standby Letters of Credit-At December 31, 2018 and 2017, the Company’s off-balance sheet financial instruments had no carrying value. The large majority of commitments to extend credit and standby letters of credit are at variable rates and/or have relatively short terms to maturity. Therefore, the fair value for these financial instruments is considered to be immaterial.

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.instrument, as more fully described in Note 13. 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 assets and other assets such as foreclosed properties, 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.

(s)

Impairment-Goodwill is evaluated for impairment on at least an annual basis, and more often if a triggering event is identified, by comparing the estimated fair value of the reporting units to their related carrying value. At December 31, 2020, the Company had 3 reporting units – 1) First Bank with $227.6 million in goodwill, 2) First Bank Insurance with $7.4 million in goodwill, and 3) SBA activities, including SBA Complete and our SBA Lending
Division, with $4.3 million in goodwill. If the carrying value of a reporting unit exceeds its fair value, the Company determines whether the implied fair value of the goodwill, using various valuation techniques, exceeds the carrying value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value of the goodwill, an impairment loss is recorded in an amount equal to that excess.

The Company reviews all other long-lived assets, including identifiable intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company’s policy is that an impairment loss is recognized if the sum of the undiscounted future cash flows is less than the carrying amount of the asset. Any long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell.

To date, the Company has not recorded any impairment write-downs of its long-lived assets or goodwill.

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(t) Comprehensive Income (Loss)-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:

($ in thousands) December 31,
2018		  December 31,
2017		  December 31,
2016		 
Unrealized gain (loss) on securities available for sale $(12,390)  (2,211)  (3,085)
     Deferred tax asset (liability)  2,896   517   1,138 
Net unrealized gain (loss) on securities available for sale  (9,494)  (1,694)  (1,947)
             
Additional pension asset (liability)  (3,220)  (3,200)  (5,012)
     Deferred tax asset (liability)  753   748   1,852 
Net additional pension asset (liability)  (2,467)  (2,452)  (3,160)
             
Total accumulated other comprehensive income (loss) $(11,961)  (4,146)  (5,107)

The following table discloses the changes in accumulated other comprehensive income (loss) for the years ended December 31, 2018, 2017, and 2016 (all amounts are net of tax).

($ in thousands) Unrealized Gain
(Loss) on Securities
Available for Sale		  Additional
Pension Asset
(Liability)		  Total 
Beginning balance at January 1, 2016 $(709)  (2,841)  (3,550)
             
     Other comprehensive income (loss) before reclassifications  (1,236)  (442)  (1,678)
     Amounts reclassified from accumulated other comprehensive income  (2)  123   121 
Net current-period other comprehensive income (loss)  (1,238)  (319)  (1,557)
             
Ending balance at December 31, 2016  (1,947)  (3,160)  (5,107)
             
     Other comprehensive income (loss) before reclassifications  405   1,008   1,413 
     Amounts reclassified from accumulated other comprehensive income  148   136   284 
Net current-period other comprehensive income (loss)  553   1,144   1,697 
Reclassification of accumulated other comprehensive income to retained earnings due to statutory tax changes  (300)  (436)  (736)
             
Ending balance at December 31, 2017  (1,694)  (2,452)  (4,146)
             
     Other comprehensive income (loss) before reclassifications  (7,800)  (31)  (7,831)
     Amounts reclassified from accumulated other comprehensive income  —   16   16 
Net current-period other comprehensive income (loss)  (7,800)  (15)  (7,815)
             
Ending balance at December 31, 2018 $(9,494)  (2,467)  (11,961)

(u)

Segment Reporting-Accounting standards require management to report selected financial and descriptive information about reportable operating segments.segments that exceed certain thresholds. The standards also require related disclosures about products and services, geographic areas, and major customers. Generally, disclosures are required for segments internally identified to evaluate performance and resource allocation. The Company’s
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operations are primarilysubstantially all within thea single banking segment, and the financial statements presented herein reflect the combined results of all of its operations with that segment. The Company has no foreign operations or customers.

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(v) Recent Accounting Pronouncements-

Accounting Standards Adopted in 2018

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. See Note 20 for additional information on this matter.

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. The Company presents the service cost component within the “Employee benefits” line item and the other components of net periodic pension costs are presented within the “Other operating expenses” line item.  The Company has reclassified amounts in the Consolidated Statements of Income for the years ended December 31, 2017 and December 31, 2016 to be consistent with the presentation required for December 31, 2018.

In February 2018, the FASB issued guidance related to the Income Statement – Reporting Comprehensive Income topic of the Accounting Standards 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.

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Accounting Standards Pending Adoption

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 currently expects that the adoption of the guidance will have no impact on net income and will result in the recording of approximately $18 million of additional assets and liabilities. Accordingly, the Company does not expect these amendments to have a material effect on its financial statements or regulatory capital position.

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 continues its ongoing analysis on the impact of this guidance on its consolidated financial statements. As required by the guidance, the initial adjustment will be recorded by decreasing shareholders’ equity and not through an earnings adjustment. All subsequent adjustments will be recorded in earnings.

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.test in which an entity performs a hypothetical purchase price allocation to determine the amount of impairment. The amount of goodwill impairment will now beunder this amendment is 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 bewere 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 expect2020 and the adoption of this amendment todid not have a material effect on itsthe Company's 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.Statements. The amendments were effective on January 1, 2020. These amendments did not have a material effect on the Company's financial statements.

In March 2019, the FASB issued guidance to address concerns companies had raised about an accounting exception they would lose when assessing the fair value of underlying assets under the leases standard and clarify that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new standard. The amendments were effective for fiscal years,the Company on January 1, 2020 and interim periods within those fiscal years, beginning after December 15, 2019. Earlytheir 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 doesdid not expect these amendments to have a material effect on its financial statements.

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TableAccounting Standards Pending Adoption
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 losses" and record an allowance that, when deducted from the amortized cost basis of Contentsthe financial assets, presents the net amount expected to be collected on the financial assets. In May 2019, the FASB issued additional guidance to provide entities with an option to irrevocably elect the fair value option, applied on an instrument-by-instrument basis for eligible instruments, upon the adoption of the CECL model. The Company does not expect to elect this option. The CECL framework is expected to result in earlier recognition of credit losses and is expected to be significantly influenced by the composition, characteristics and quality of the Company's loan portfolio, as well as the prevailing economic conditions and forecasts. As originally provided for in the CECL standard, the Company would have applied the new guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, which, for the Company, was January 1, 2020, with future adjustments to credit loss expectations recorded through the income statement as charges or credits to earnings. In the first quarter of 2020, in response to the COVID-19 pandemic, the CARES Act was enacted by the United States Congress and signed by the President. The CARES Act included an election to defer the implementation of CECL until the earlier of the cessation of the national emergency or December 31, 2020. Due primarily to the challenges associated with developing a reliable forecast of losses that may result from the unprecedented pandemic, the Company elected to opt-in to this deferral option. In December 2020, the United States Congress extended several provisions of the CARES Act, including the option to further defer implementation of CECL until January 1, 2022. The Company currently expects to adopt CECL as of January 1, 2021. Upon the adoption of CECL, the Company expects its allowance for credit losses related to all financial assets will increase by approximately $12-$14 million and its reserve for unfunded commitments will increase by $6-$7 million. As noted above, this initial impact will be reflected as a cumulative-effect adjustment to retained earnings.

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.
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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 March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for LIBOR reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. 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.

Note 2. Acquisitions

Since JanuaryAcquisition

On September 1, 2016,2020, the Company completed the acquisitions described below. The resultsacquisition of each acquired company/branch are includedMagnolia Financial, Inc., a business financing company headquartered in Spartanburg, South Carolina, that makes loans throughout the Company’s results beginning on its respective acquisition date.

(1)On January 1, 2016, First Bank Insurance completed the acquisition of Bankingport, Inc. (“Bankingport”). The results of Bankingport are included in First Bancorp’s results for the twelve months ended December 31, 2016 beginning on the January 1, 2016 acquisition date.

Bankingport was an insurance agency based in Sanford, North Carolina. This acquisition represented an opportunity to expandsoutheastern United States. In the insurance agency operations into a contiguous and significant banking market for the Company. Also, this acquisition providedtransaction, the Company with a larger platform for leveraging insurance services throughoutacquired $14.6 million in loans and $0.5 million of other assets, and assumed $11.7 million in borrowings, substantially all of which was paid off subsequent to the Company’s bank branch network.closing. The transaction value was $2.2approximately $10.0 million with the Company paying $700,000$9.5 million in cash and issuing 79,01224,096 shares of its common stock, which had a value of approximately $1.5$0.5 million. In connection with the acquisition, the Company also paid $1.1 million to purchase the office space previously leased by Bankingport.


This acquisition was accounted for using the purchaseacquisition method of accounting for business combinations, and accordingly, the assets and liabilities of Bankingportthe financing company were recorded based on estimates of fair values as of January 1, 2016. In connection with this transaction, the Company recorded $1.7 million in goodwill, which is non-deductible for tax purposes, and $0.7 million in other amortizable intangible assets.

(2)On May 5, 2016, the Company completed the acquisition of SBA Complete, Inc. (“SBA Complete”). The results of SBA Complete are included in the Company’s results beginning on the May 5, 2016 acquisition date. SBA Complete specializes in consulting with financial institutions across the country related to Small Business Administration (“SBA”) loan origination and servicing. The transaction value was approximately $8.5 million with the Company paying $1.5 million in cash and issuing 199,829 shares of its common stock, which had a value of approximately $4.0 million. Per the terms of the acquisition agreement, the Company recorded an earn-out liability initially valued at $3.0 million, which will be paid in shares of Company stock if pre-determined goals are met for the first three years following the acquisition.

This acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of SBA Complete were recorded based on estimates of fair values, which according to applicable accounting guidance, wereare subject to change for twelve months following the acquisition. In connection with this transaction, the Company originally recorded $5.6 million in goodwill, which was non-deductible for tax purposes, and $2.0 million in other amortizable intangible assets.

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In the second quarter of 2017, the Company recorded a measurement period adjustment to reduce the earn-out liability and goodwill by $1.2 million based on the availability of new information that provided a more reliable estimate of the most likely earn-out. Subsequent to the measurement period, later in 2017, the Company recorded a $780,000 upward adjustment to the earn-out liability with a charge to earnings. In 2018, a net downward adjustment of $32,000 was recorded to the earn-out liability with a positive credit to earnings.

(3)On July 15, 2016, the Company completed a branch exchange with First Community Bank headquartered in Bluefield, Virginia. In the branch exchange transaction, the Bank acquired six of First Community Bank’s branches located in North Carolina, while concurrently selling seven of its branches in the southwestern area of Virginia to First Community Bank.

In connection with the sale, the Company sold $150.6 million in loans, $5.7 million in premises and equipment and $134.3 million in deposits to First Community Bank. In connection with the sale, the Company received a deposit premium of $3.8 million, removed $1.0 million of allowance for loan losses associated with the sold loans, allocated and wrote-off $3.5 million of previously recorded goodwill and recorded a net gain of $1.5 million in this transaction.

In connection with this transaction, the Company acquired assets with a fair value of $157.2 million, including $152.2 million in loans and $3.4 million in premises and equipment. Additionally, the Company assumed $111.3 million in deposits and $0.2 million in other liabilities. In connection with the purchase, the Company recorded: i) a discount on acquired loans of $1.5 million, ii) a premium on deposits of $0.3 million, iii) a $1.2 million core deposit intangible, iv) and $5.4 million in goodwill.

The branch acquisition was accounted for using the purchase method of accounting for business combinations, and accordingly, the assets and liabilities of the acquired branches were recorded on the Company’s balance sheet at their fair values as of July 15, 2016 and the related results of operations for the acquired branches have been included in the Company’s consolidated statement of comprehensive income since that date. The goodwill recorded in the branch exchange is deductible for tax purposes.

(4)On March 3, 2017, the Company completed the acquisition of Carolina Bank Holdings, Inc. (“Carolina Bank”), headquartered in Greensboro, North Carolina, pursuant to an Agreement and Plan of Merger and Reorganization dated June 21, 2016. The results of Carolina Bank are included in First Bancorp’s results beginning on the March 3, 2017 acquisition date.

Carolina Bank’s subsidiary bank was a North Carolina state-chartered bank with eight 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$4.9 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 by recording measurement period adjustments. 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 $66.5 million in goodwill that resulted from this transaction is non-deductible for tax purposes.

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($ 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)   757   (n)   30,929 
   Total  683,852   5,536       584       689,972 
                         
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                      73,217 
                         
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                     $66,540 
                         

Explanation of Fair Value Adjustments

(a)This adjustment was recorded to a short-term investment to its estimated fair value.
(b)This fair value adjustment was recorded to adjust the securities portfolio to its estimated fair value.
(c)This fair value adjustment represents the amount necessary to reduce performing loans to their fair value due to interest rate factors and credit factors. Assuming the loans continue to perform, this amount will be amortized to increase interest income over the remaining lives of the related loans.
(d)This fair value adjustment was recorded to write-down purchased credit impaired loans assumed in the acquisition to their estimated fair market value.
(e)This fair value adjustment reduced the allowance for loan losses to zero as required by relevant accounting guidance.
(f)This adjustment represents the amount necessary to increase premises and equipment from its book value on the date of acquisition to its estimated fair market value.
(g)This fair value adjustment represents the value of the core deposit base assumed in the acquisition based on a study performed by an independent consulting firm. This amount was recorded by the Company as an identifiable intangible asset and will be amortized as expense on an accelerated basis over seven years.
(h)This fair value adjustment primarily represents the net deferred tax liability associated with the other fair value adjustments made to record the transaction.
(i)This fair value adjustment was recorded because the weighted average interest rate of Carolina Bank’s time deposits exceeded the cost of similar wholesale funding at the time of the acquisition. This amount is being amortized to reduce interest expense on an accelerated basis over their remaining five year life.
(j)This fair value adjustment was primarily recorded because the interest rate of Carolina Bank’s trust preferred securities was less than the current interest rate on similar instruments. This amount is being amortized on approximately a straight-line basis to increase interest expense over the remaining life of the related borrowing, which is 18 years.
(k)This fair value adjustment represents miscellaneous adjustments needed to record assets and liabilities at their fair value.
(l)This fair value adjustment was a miscellaneous adjustment to increase the initial fair value of gross loans.
(m)This fair value adjustment relates to miscellaneous adjustment to decrease the initial fair value of premises and equipment.

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(n)This fair value adjustment relates to changes in the estimate of deferred tax assets/liabilities associated with the acquisition and a miscellaneous adjustment to decrease the initial fair value of foreclosed real estate acquired in the transaction based on newly obtained valuations.
(o)This fair value adjustment relates to miscellaneous adjustments to decrease the initial fair value of borrowings.
(p)This fair value adjustment related to a change in the estimate of a contingent liability.

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) Pro Forma Combined
Year Ended
December 31,
2017		  Pro Forma Combined
Year Ended
December 31,
2016		 
Net interest income $168,759   147,089 
Noninterest income  50,098   36,684 
Total revenue  218,857   183,773 
         
Net income available to common shareholders  49,907   25,364 
         
Earnings per common share        
     Basic $1.93   1.07 
     Diluted  1.92   1.03 

For purposes of the supplemental pro forma information, merger-related expenses of $5.2 million that were recorded in the Company’s consolidated statements of income for the year ended December 31, 2017 and $4.6 million of merger-related expenses that were recorded by Carolina Bank in 2017 prior to the merger date are each included above in the pro forma presentation for 2016.

(5)On September 1, 2017, First Bank Insurance completed the acquisition of Bear Insurance Service (“Bear Insurance”). The results of Bear Insurance are included the Company’s results beginning on the September 1, 2017 acquisition date.

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, and 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, 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 acquisition agreement, the Company also recorded an earn-out liability initially 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 transaction, the Company recorded $5.3 million in goodwill, which is deductible for tax purposes, and $3.9$1.6 million in other amortizable intangible assets, all of which are also deductible for tax purposes.

(6)On October 1, 2017, the Company completed the acquisition of ASB Bancorp, Inc. (“Asheville Savings Bank”), headquartered in Asheville, North Carolina, pursuant to an Agreement and Plan of Merger and Reorganization dated May 1, 2017. The results of Asheville Savings Bank are included in First Bancorp’s results beginning on the October 1, 2017 acquisition date.

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purposes over 15 years.

Asheville Savings Bank’s subsidiary bank was a North Carolina state-chartered savings bank with eight branches located in Buncombe County, North Carolina and five 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 was able to change its valuations of acquired Asheville Savings Bank assets and liabilities for up to one year after the acquisition date by recording measurement period adjustments. 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 $88.7 million in goodwill that resulted from this transaction 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		 
Assets                        
Cash and cash equivalents $41,824   —       —       41,824 
Securities  95,020   —       —       95,020 
Loans, gross  617,159   (9,631)  (a)   —       606,180 
       (1,348)  (b)   —         
Allowance for loan losses  (6,685)  6,685   (c)   —       — 
Presold mortgages  3,785   —       —       3,785 
Premises and equipment  10,697   9,857   (d)   —       20,554 
Core deposit intangible  —   9,760   (e)   120   (i)   9,880 
Other  35,944   (5,851)  (f)   (777)  (j)   29,316 
   Total  797,744   9,472       (657)      806,559 
                         
Liabilities                        
Deposits $678,707   430   (g)   —       679,137 
Borrowings  20,000   —       —       20,000 
Other  8,943   298   (h)   (380)  (k)   8,861 
   Total  707,650   728       (380)      707,998 
                         
Net identifiable assets acquired                      98,561 
                         
Total cost of acquisition                        
   Value of stock issued     $169,299                 
   Cash paid in the acquisition      17,939                 
       Total cost of acquisition                      187,238 
                         
Goodwill recorded related to acquisition of Asheville Savings Bank             $88,677 

Explanation of Fair Value Adjustments

(a)This fair value adjustment represents the amount necessary to reduce performing loans to their fair value due to interest rate factors and credit factors. Assuming the loans continue to perform, this amount will be amortized to increase interest income over the remaining lives of the related loans.
(b)This fair value adjustment was recorded to write-down purchased credit impaired loans assumed in the acquisition to their estimated fair market value.

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(c)This fair value adjustment reduced the allowance for loan losses to zero as required by relevant accounting guidance.
(d)This adjustment represents the amount necessary to increase premises and equipment from its book value on the date of acquisition to its estimated fair market value.
(e)This fair value adjustment represents the value of the core deposit base assumed in the acquisition based on a study performed by an independent consulting firm. This amount was recorded by the Company as an identifiable intangible asset and is being amortized as expense on an accelerated basis over seven years.
(f)This fair value adjustment primarily represents the net deferred tax liability associated with the other fair value adjustments made to record the transaction.
(g)This fair value adjustment was recorded because the weighted average interest rate of Asheville Savings Bank’s time deposits exceeded the cost of similar wholesale funding at the time of the acquisition. This amount is being amortized to reduce interest expense on an accelerated basis over their remaining five year life.
(h)This fair value adjustment represents miscellaneous adjustments needed to record assets and liabilities at their fair value.
(i)This fair value adjustment relates to a change in the final amount of the core deposit intangible asset from the amount originally estimated.
(j)This fair value adjustment relates to the write-down of a foreclosed property based on an updated appraisal and the related tax deferred tax asset adjustment.
(k)This fair value adjustment was recorded to adjust the tax liability assumed on the acquisition date based on updated information.

The following unaudited pro forma financial information presents the combined results of the Company and Asheville Savings 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 Asheville Savings Bank constituted a single entity during such period.

($ in thousands, except share data) Pro Forma Combined
Twelve Months Ended
December 31, 2017		  Pro Forma Combined
Twelve Months Ended
December 31, 2016		 
Net interest income $183,996   147,284 
Noninterest income  54,523   34,307 
Total revenue  238,391   181,591 
         
Net income available to common shareholders  51,600   12,291 
         
Earnings per common share        
     Basic $1.79   0.49 
     Diluted  1.78   0.48 

For purposes of the supplemental pro forma information, merger-related expenses of $2.7 million that were recorded in the Company’s consolidated statements of income for the twelve months ended December 31, 2017 and $20.4 million of merger-related expenses that were recorded by Asheville Savings Bank in 2017 prior to the merger date are each included above in the pro forma presentation for 2016.

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Note 3. Securities

The book values and approximate fair values of investment securities at December 31, 20182020 and 20172019 are summarized as follows:

  2018  2017 
  Amortized  Fair  Unrealized  Amortized  Fair  Unrealized 
($ in thousands) Cost  Value  Gains  (Losses)  Cost  Value  Gains  (Losses) 
                         
Securities available for sale:                                
  Government-sponsored enterprise securities $82,995   82,662   63   (396)  14,000   13,867   —   (133)
  Mortgage-backed securities  396,995   385,551   39   (11,483)  297,690   295,213   246   (2,722)
  Corporate bonds  33,751   33,138   76   (689)  33,792   34,190   512   (114)
Total available for sale  513,741   501,351   178   (12,568)  345,482   343,270   758   (2,969)
                                 
Securities held to maturity:                                
  Mortgage-backed securities  52,048   50,241   —   (1,807)  63,829   63,092   —   (737)
  State and local governments  49,189   49,665   525   (49)  54,674   55,906   1,280   (48)
Total held to maturity $101,237   99,906   525   (1,856)  118,503   118,998   1,280   (785)

 20202019
 Amortized
Cost		Fair
Value		UnrealizedAmortized
Cost		Fair
Value		Unrealized
($ in thousands)Gains(Losses)Gains(Losses)
Securities available for sale:        
Government-sponsored enterprise securities$70,016 70,206 371 (181)20,000 20,009 17 (8)
Mortgage-backed securities1,318,998 1,337,706 20,832 (2,124)758,491 767,285 9,463 (669)
Corporate bonds43,670 45,220 1,760 (210)33,711 34,651 1,025 (85)
Total available for sale1,432,684 1,453,132 22,963 (2,515)812,202 821,945 10,505 (762)
Securities held to maturity:
Mortgage-backed securities29,959 30,900 941 0 41,423 41,542 125 (6)
State and local governments137,592 139,834 2,407 (165)26,509 26,791 285 (3)
Total held to maturity$167,551 170,734 3,348 (165)67,932 68,333 410 (9)
All of the Company’s mortgage-backed securities were issued by government-sponsored corporations, except for private mortgage-backed securities with a fair value of $1.0 million and $0.5$1.1 million as of December 31, 20182020 and 2017,2019, respectively.

The following table presents information regarding securities with unrealized losses at December 31, 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 
  Fair Value  Unrealized
Losses		  Fair Value  Unrealized
Losses		  Fair Value  Unrealized
Losses		 
  Government-sponsored enterprise securities $4,921   78   13,682   318   18,603   396 
  Mortgage-backed securities  82,525   351   294,305   12,939   376,830   13,290 
  Corporate bonds  20,704   433   5,817   256   26,521   689 
  State and local governments  595   1   6,641   48   7,236   49 
      Total temporarily impaired securities $108,745   863   320,445   13,561   429,190   14,424 

2020:

91
($ 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
 Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
Government-sponsored enterprise securities$29,812 181 0 0 29,812 181 
Mortgage-backed securities497,992 1,957 6,168 167 504,160 2,124 
Corporate bonds3,956 45 835 165 4,791 210 
State and local governments23,310 165 0 0 23,310 165 
Total temporarily impaired securities$555,070 2,348 7,003 332 562,073 2,680 
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 
  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 
  Mortgage-backed securities  192,702   1,582   125,060   1,877   317,762   3,459 
  Corporate bonds  2,500   49   935   65   3,435   114 
  State and local governments  7,928   48   —   —   7,928   48 
      Total temporarily impaired securities $214,027   1,782   128,965   1,972   342,992   3,754 

2019:

($ 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
 Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses		Fair ValueUnrealized
Losses
Government-sponsored enterprise securities$4,992 8 0 0 4,992 8 
Mortgage-backed securities77,274 293 50,851 382 128,125 675 
Corporate bonds0 0 915 85 915 85 
State and local governments0 0 934 3 934 3 
Total temporarily impaired securities$82,266 301 52,700 470 134,966 771 
In the above tables, all of the securities that were in an unrealized loss position at December 31, 20182020 and 20172019 are bonds that the Company has determined are 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 no0 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.

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TableAs of ContentsDecember 31, 2020 and December 31, 2019, the Company's security portfolio held 69 and 54 securities that were in an unrealized loss position, respectively. The majority of unrealized losses are related to the Company's mortgage-backed securities.

The book values and approximate fair values of investment securities at December 31, 2018,2020, 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 
  Amortized  Fair  Amortized  Fair 
($ in thousands) Cost  Value  Cost  Value 
             
Debt securities                
Due within one year $—   —  $2,233   2,240 
Due after one year but within five years  109,205   108,303   28,488   28,766 
Due after five years but within ten years  2,541   2,559   16,743   16,932 
Due after ten years  5,000   4,938   1,725   1,727 
Mortgage-backed securities  396,995   385,551   52,048   50,241 
Total securities $513,741   501,351  $101,237   99,906 

 Securities Available for SaleSecurities Held to Maturity
($ in thousands)Amortized
Cost		Fair
Value		Amortized
Cost		Fair
Value
Debt securities    
Due within one year$0 0 $2,087 2,101 
Due after one year but within five years28,670 30,265 2,915 3,008 
Due after five years but within ten years74,016 74,400 3,418 3,536 
Due after ten years11,000 10,761 129,172 131,189 
Mortgage-backed securities1,318,998 1,337,706 29,959 30,900 
Total securities$1,432,684 1,453,132 $167,551 170,734 
At December 31, 20182020 and 2017,2019, investment securities with carrying values of $234,382,000$630,303,000 and $176,813,000,$260,826,000, respectively, were pledged as collateral for public deposits.

The Company sold no securities in 2018, while in 2017,

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In 2020, the Company received proceeds from sales of securities of $140,621,000$219,697,000 and recorded $235,000$8,024,000 in lossesgross gains from the sales. In 2016,2019, the Company received proceeds from sales of securities of $8,000$39,797,000 and recorded $3,000$97,000 in gross gains from the sales.

The Company sold 0 securities in 2018.

Included in “other assets” in the Consolidated Balance Sheets are cost-method investments in Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank of Richmond (“FRB”) stock totaling $37,468,000$23,526,000 and $31,338,000$33,380,000 at December 31, 20182020 and 2017,2019, respectively. These investments do not have readily determinable fair values. The FHLB stock had a cost and fair value of $20,036,000$5,855,000 and $19,647,000$15,789,000 at December 31, 20182020 and 2017,2019, 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 $17,432,000$17,671,000 and $11,691,000$17,591,000 at December 31, 20182020 and 2017,2019, 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.

The Company owns 12,356 Class B shares of Visa, Inc. (“Visa”) stock that were received upon Visa’s initial public offering. These shares are expected to convert into Class A Visa shares subsequent to the settlement of certain litigation against Visa.Visa, to which the Company is not a party. The Class B shares have transfer restrictions, and the conversion rate into Class A shares is periodically adjusted as Visa settles litigation. The conversion rate at December 31, 20182020 was approximately 1.63,1.62, which means the Company would receive approximately 20,14020,051 Class A shares if the stock had converted on that date. This Class B stock does not have a readily determinable fair value and is therefore carried at its cost basis of zero.0. If a readily determinable fair value becomes available for the Class B shares, or upon the conversion to Class A shares, the Company will adjust the carrying value of the stock to its market value with a credit to earnings.

Note 4. Loans and Asset Quality Information

Prior to September 22, 2016,

The following is a summary of the Company’s banking subsidiary, First Bank, had certainmajor categories of total loans outstanding:
($ in thousands)December 31, 2020December 31, 2019
 AmountPercentageAmountPercentage
All  loans:    
Commercial, financial, and agricultural$782,549 17 %$504,271 11 %
Real estate – construction, land development & other land loans570,672 12 %530,866 12 %
Real estate – mortgage – residential (1-4 family) first mortgages972,378 21 %1,105,014 25 %
Real estate – mortgage – home equity loans / lines of credit306,256 6 %337,922 8 %
Real estate – mortgage – commercial and other2,049,203 43 %1,917,280 43 %
Consumer loans53,955 1 %56,172 1 %
Subtotal4,735,013 100 %4,451,525 100 %
Unamortized net deferred loan costs (fees)(3,698)1,941 
Total loans$4,731,315 $4,453,466 
Included within "Commercial, financial and foreclosed real estate that were coveredagricultural" in the table above are PPP loans totaling $240.5 million. PPP loans are fully guaranteed by loss share agreements between the FDIC and First BankSBA. Included in unamortized net deferred loan fees are $6.0 million in unamortized net deferred loan fees associated with PPP loans. These fees are being amortized under the effective interest method over the terms of the loans. Accelerated amortization is recorded in the periods in which afforded First Bank significant loss protection - see Note 2 toprincipal amounts are forgiven in accordance with the financial statementsterms of the program. Because of their fully guaranteed nature, the Company has no allocation of allowance for loan losses established for these loans.

Also included in the Company’s 2011 Annual Reporttable above are various non-PPP SBA loans, with additional information on Form 10-K for detailed information regarding FDIC-assisted purchase transactions. On September 22, 2016,these loans presented in the Company terminated all of the loss share agreements with the FDIC, such that all future losses and recoveries on loans and foreclosed real estate associated with the failed banks acquired through FDIC-assisted transactions began to be borne solely by First Bank.

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table below.
93

In

($ in thousands)December 31,
2020		December 31,
2019
Guaranteed portions of non-PPP SBA Loans included in table above$33,959 54,400 
Unguaranteed portions of SBA Loans included in table above135,703 110,782 
Total non-PPP SBA loans included in the table above$169,662 165,182 
Sold portions of SBA loans with servicing retained - not included in table above$395,398 316,730 
At December 31, 2020 and 2019, there was a remaining unaccreted discount on the information presented below,retained portion of sold SBA loans amounting to $7.3 million and $7.1 million, respectively. The discounts are amortized as yield adjustments over the term “covered” is used to describe assets that were subject to FDIC loss share agreements, while the term “non-covered” refers to the Company’s legacy assets, which were not included in any type of loss share arrangement. As discussed previously, all loss share agreements were terminated during 2016 and thus the entire loan portfolio is now classified as non-covered. Certain prior period disclosures will continue to present the breakoutrespective lives of the loan portfolio between coveredloans, so long as the loans perform.
Loans in the amount of $4.0 billion were pledged as collateral for certain borrowings at both December 31, 2020 and non-covered.

On March 3, 2017,December 31, 2019, respectively (see Note 9).

Included in the table above are credit card balances outstanding totaling $33.2 million and $30.9 million at December 31, 2020 and 2019, respectively.
The loans above also include loans to executive officers and directors serving the Company at December 31, 2020 and to their associates, totaling approximately $3.6 million and $5.3 million at December 31, 2020 and 2019, respectively. New loans and advances on those loans in 2020 totaled $2.2 million and repayments amounted to $3.9 million. Management does not believe these loans involve more than the normal risk of collectability or present other unfavorable features.
The Company has several acquired Carolina Bank (see Note 2 for more information). Asloan portfolios as a result of thismerger and acquisition transactions. In these transactions, the Company recorded loans with aat their fair value of $497.5 million. Of those loans, $19.3 millionas required by applicable accounting guidance. Included in these loan portfolios 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 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 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.

($ 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 

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.

($ in thousands)

 

 Carolina Bank Acquisition
on March 3, 2017		 
Contractually required payments $569,980 
Fair value of acquired loans at acquisition date  478,515 
Contractual cash flows not expected to be collected  3,650 

On October 1, 2017, the Company acquired Asheville Savings Bank (see Note 2 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.

($ 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 

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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) Asheville Savings Bank
Acquisition on
October 1, 2017		 
Contractually required payments $727,706 
Fair value of acquired loans at acquisition date  595,167 
Contractual cash flows not expected to be collected  7,000 

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

($ in thousands) December 31, 2018  December 31, 2017 
  Amount  Percentage  Amount  Percentage 
All  loans:                
                 
Commercial, financial, and agricultural $457,037   11%  $381,130   10% 
Real estate – construction, land development & other land loans  518,976   12%   539,020   13% 
Real estate – mortgage – residential (1-4 family) first mortgages  1,054,176   25%   972,772   24% 
Real estate – mortgage – home equity loans / lines of credit  359,162   8%   379,978   9% 
Real estate – mortgage – commercial and other  1,787,022   42%   1,696,107   42% 
Installment loans to individuals  71,392   2%   74,348   2% 
    Subtotal  4,247,765   100%   4,043,355   100% 
Unamortized net deferred loan costs (fees)  1,299       (986)    
    Total loans $4,249,064      $4,042,369     

Loans in the amount of $3.8 billion and $3.6 billion were pledged as collateral for certain borrowings as of December 31, 2018 and December 31, 2017, respectively (see Note 10).

The loans above also include loans to executive officers and directors serving the Company at December 31, 2018 and to their associates, totaling approximately $5.7 million and $3.6 million at December 31, 2018 and 2017, respectively. During 2018, net advances on such loans were approximately $2.1 million. These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other non-related borrowers. Management does not believe these loans involve more than the normal risk of collectability or present other unfavorable features.

At December 31, 2018 and 2017, there was a remaining unaccreted discount on the retained portion of sold SBA loans amounting to $5.7 million and $2.6 million, respectively. As of December 31, 20182020, 2019 and 2017,2018, there was a remaining accretable discount of $15.0$7.9 million, $11.1 million, and $21.5$15.0 million, respectively, related to purchased non-impaired loans. Both types ofThe discounts are amortized as yield adjustments over the respective lives of the loans, so long as the loans perform.

The following table presents changes in the carrying value of PCI loans.

($ in thousands)



Purchased Credit Impaired Loans		 For the Year
Ended
December 31,
2018		  For the Year
Ended
December 31,
2017		 
Balance at beginning of period $23,165   514 
Additions due to acquisition of Carolina Bank  —   19,254 
Additions due to acquisition of Asheville Savings Bank  —   9,886 
Change due to payments received and accretion  (5,799)  (6,016)
Change due to loan charge-offs  (10)  (12)
Transfers to foreclosed real estate  (4)  (69)
Other  41   (392)
Balance at end of period $17,393   23,165 

105 

Table of Contents
($ in thousands)
Purchased Credit Impaired Loans
For the Year Ended December 31,
2020		For the Year Ended December 31,
2019		For the Year Ended December 31,
2018
Balance at beginning of period$12,664 17,393 23,165 
Change due to payments received and accretion(4,087)(4,863)(5,799)
Change due to loan charge-offs(13)(11)(4)
Transfers to foreclosed real estate0 0 (10)
Other27 145 41 
Balance at end of period$8,591 12,664 17,393 

The following table presents changes in the accretable yield for PCI loans.

($ in thousands)



Accretable Yield for PCI loans		 For the Year
Ended
December 31,
2018		  For the Year
Ended
December 31,
2017		 
Balance at beginning of period $4,688   — 
Additions due to acquisition of Carolina Bank  —   3,617 
Additions due to acquisition of Asheville Savings Bank  —   1,804 
Accretion  (2,050)  (1,846)
Reclassification from (to) nonaccretable difference  849   423 
Other, net  1,263   690 
Balance at end of period $4,750   4,688 

94
($ in thousands)
Accretable Yield for PCI loans
For the Year Ended December 31,
2020		For the Year Ended December 31,
2019		For the Year Ended December 31,
2018
Balance at beginning of period$4,149 4,750 4,688 
Accretion(1,119)(1,486)(2,050)
Reclassification from (to) nonaccretable difference413 617 849 
Other, net(545)268 1,263 
Balance at end of period$2,898 4,149 4,750 
During 2020, the Company received $500,000 in payments that exceeded the carrying amount of the related PCI loans, of which $397,000 was recognized as loan discount accretion income, $89,000 was recorded as additional loan interest income, and $14,000 was recorded as a recovery. During 2019, the Company received $406,000 in payments that exceeded the carrying amount of the related PCI loans, of which $348,000 was recognized as loan discount accretion income and $58,000 was recorded as additional loan interest income. During 2018, the Company received $772,000 in payments that exceeded the carrying amount of the related PCI loans, of which $493,000 was recognized as loan discount accretion income and $279,000 was recorded as additional loan interest income. During 2017, the Company received $1,064,000 in payments that exceeded the carrying amount of the related PCI loans, of which $962,000 was recognized as loan discount accretion income and $102,000 was recorded as additional loan interest income.

During 2018, the Company recorded $750,000 in interest recoveries on purchased non-impaired loans. Amounts recorded for 2016 and 2017 were not significant.

Nonperforming assets are defined as nonaccrual loans, restructured 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)		 December 31,
2018		  December 31,
2017		 
       
Nonperforming assets        
Nonaccrual loans $22,575   20,968 
Restructured loans - accruing  13,418   19,834 
Accruing loans > 90 days past due  —   — 
     Total nonperforming loans  35,993   40,802 
Foreclosed real estate  7,440   12,571 
Total nonperforming assets $43,433   53,373 
         
          Purchased credit impaired loans not included above (1) $17,393   23,165 

ASSET QUALITY DATA ($ in thousands)
December 31,
2020		December 31,
2019
Nonperforming assets  
Nonaccrual loans$35,076 24,866 
Restructured loans - accruing9,497 9,053 
Accruing loans > 90 days past due0 0 
Total nonperforming loans44,573 33,919 
Foreclosed properties2,424 3,873 
Total nonperforming assets$46,997 37,792 
Purchased credit impaired loans not included above (1)$8,591 12,664 

(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 $0.6$0.7 million and $0.6$0.8 million in PCI loans at December 31, 20182020 and 2017,2019, respectively, that are contractually past due 90 days or more.

At December 31, 20182020 and 2017,2019, the Company had $0.7$1.9 million and $0.8$0.6 million in residential mortgage loans in process of foreclosure, respectively.

If the nonaccrual and restructured loans as of December 31, 2018, 2017 and 2016 had been current in accordance with their original terms and had been outstanding throughout the period (or since origination if held for part of the period), gross interest income in the amounts of approximately $1,616,000, $1,503,000, and $1,893,000 for nonaccrual loans and $974,000, $1,182,000, and $1,417,000, for restructured loans would have been recorded for 2018, 2017, and 2016, respectively. Interest income on such loans that was actually collected and included in net income in 2018, 2017 and 2016 amounted to approximately $765,000, $415,000, and $266,000 for nonaccrual loans (prior to their being placed on nonaccrual status), and $763,000, $885,000, and $423,000 for restructured loans, respectively.

At December 31, 20182020 and 2017,2019, there were no commitments to lend additional funds to debtors whose loans were nonperforming.

106 

Table of Contents

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

($ in thousands) December 31,
2018		  December 31,
2017		 
Commercial, financial, and agricultural $919   1,001 
Real estate – construction, land development & other land loans  2,265   1,822 
Real estate – mortgage – residential (1-4 family) first mortgages  10,115   12,201 
Real estate – mortgage – home equity loans / lines of credit  1,685   2,524 
Real estate – mortgage – commercial and other  7,452   3,345 
Installment loans to individuals  139   75 
  Total $22,575   20,968 
         

($ in thousands)December 31,
2020		December 31,
2019
Commercial, financial, and agricultural$9,681 5,518 
Real estate – construction, land development & other land loans643 1,067 
Real estate – mortgage – residential (1-4 family) first mortgages6,048 7,552 
Real estate – mortgage – home equity loans / lines of credit1,333 1,797 
Real estate – mortgage – commercial and other17,191 8,820 
Consumer loans180 112 
Total$35,076 24,866 
95
The following table presents an analysis of the payment status of the Company’s loans as of December 31, 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		 
                   
Commercial, financial, and agricultural $191   5   —   919   455,692   456,807 
Real estate – construction, land development & other land loans  849   212   —   2,265   515,472   518,798 
Real estate – mortgage – residential (1-4 family) first mortgages  14,178   1,369   —   10,115   1,022,261   1,047,923 
Real estate – mortgage – home equity loans / lines of credit  1,048   254   —   1,685   355,831   358,818 
Real estate – mortgage – commercial and other  709   520   —   7,452   1,768,205   1,776,886 
Installment loans to individuals  359   220   —   139   70,422   71,140 
Purchased credit impaired  990   138   583   —   15,682   17,393 
  Total $18,324   2,718   583   22,575   4,203,565   4,247,765 
Unamortized net deferred loan costs                      1,299 
           Total loans                     $4,249,064 

2020.

($ 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$1,464 1,101 0 9,681 770,166 782,412 
Real estate – construction, land development & other land loans572 0 0 643 569,307 570,522 
Real estate – mortgage – residential (1-4 family) first mortgages10,146 869 0 6,048 951,088 968,151 
Real estate – mortgage – home equity loans / lines of credit1,088 42 0 1,333 303,693 306,156 
Real estate – mortgage – commercial and other2,540 3,111 0 17,191 2,022,422 2,045,264 
Consumer loans180 36 0 180 53,521 53,917 
Purchased credit impaired328 112 719 0 7,432 8,591 
Total$16,318 5,271 719 35,076 4,677,629 4,735,013 
Unamortized net deferred loan (fees) costs(3,698)
Total loans$4,731,315 
The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2017.

($ 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 

107 

2019.
($ 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$752 0 0 5,518 497,788 504,058 
Real estate – construction, land development & other land loans37 152 0 1,067 529,444 530,700 
Real estate – mortgage – residential (1-4 family) first mortgages10,858 5,056 0 7,552 1,076,205 1,099,671 
Real estate – mortgage – home equity loans / lines of credit770 300 0 1,797 334,832 337,699 
Real estate – mortgage – commercial and other4,257 0 0 8,820 1,897,573 1,910,650 
Consumer loans344 137 0 112 55,490 56,083 
Purchased credit impaired218 38 762 0 11,646 12,664 
Total$17,236 5,683 762 24,866 4,402,978 4,451,525 
Unamortized net deferred loan (fees) costs1,941 
Total loans$4,453,466 
96

The following table presents the activity in the allowance for loan losses for the year ended December 31, 2020.
($ in thousands)Commercial,
Financial, and
Agricultural		Real Estate –
Construction,
Land
Development
& Other Land
Loans		Real Estate –
Residential
(1-4 Family)
First
Mortgages		Real Estate
– Mortgage
– Home
Equity Lines
of Credit		Real Estate
– Mortgage
–
Commercial
and Other		Consumer loansUnallocatedTotal
As of and for the year ended December 31, 2020
Beginning balance$4,553 1,976 3,832 1,127 8,938 972 0 21,398 
Charge-offs(5,608)(51)(478)(524)(968)(873)0 (8,502)
Recoveries745 1,552 754 487 621 294 0 4,453 
Provisions11,626 1,878 3,940 1,285 15,012 1,085 213 35,039 
Ending balance$11,316 5,355 8,048 2,375 23,603 1,478 213 52,388 
Ending balances as of December 31, 2020: Allowance for loan losses
Individually evaluated for impairment$3,546 30 800 0 2,175 0 0 6,551 
Collectively evaluated for impairment$7,742 5,325 7,141 2,375 21,428 1,475 213 45,699 
Purchased credit impaired$28 0 107 0 0 3 0 138 
Loans receivable as of December 31, 2020:
Ending balance – total$782,549 570,672 972,378 306,256 2,049,203 53,955 0 4,735,013 
Unamortized net deferred loan (fees) costs(3,698)
Total loans$4,731,315 
Ending balances as of December 31, 2020: Loans
Individually evaluated for impairment$7,700 677 9,303 15 18,582 4 0 36,281 
Collectively evaluated for impairment$774,712 569,845 958,848 306,141 2,026,682 53,913 0 4,690,141 
Purchased credit impaired$137 150 4,227 100 3,939 38 0 8,591 
97
The following table presents the activity in the allowance for loan losses for the year ended December 31, 2019.
($ in thousands)Commercial,
Financial, and
Agricultural		Real Estate –
Construction,
Land
Development
& Other Land
Loans		Real Estate –
Residential
(1-4 Family)
First
Mortgages		Real Estate
– Mortgage
– Home
Equity Lines
of Credit		Real Estate
– Mortgage
–
Commercial
and Other		Consumer loansUnallocatedTotal
As of and for the year ended December 31, 2019
Beginning balance$2,889 2,243 5,197 1,665 7,983 952 110 21,039 
Charge-offs(2,473)(553)(657)(307)(1,556)(757)0 (6,303)
Recoveries980 1,275 705 629 575 235 0 4,399 
Provisions3,157 (989)(1,413)(860)1,936 542 (110)2,263 
Ending balance$4,553 1,976 3,832 1,127 8,938 972 0 21,398 
Ending balances as of December 31, 2019: Allowance for loan losses
Individually evaluated for impairment$1,791 50 750 0 983 0 0 3,574 
Collectively evaluated for impairment$2,720 1,926 2,976 1,127 7,931 961 0 17,641 
Purchased credit impaired$42 0 106 0 24 11 0 183 
Loans receivable as of December 31, 2019:
Ending balance – total$504,271 530,866 1,105,014 337,922 1,917,280 56,172 0 4,451,525 
Unamortized net deferred loan (fees) costs1,941 
Total loans$4,453,466 
Ending balances as of December 31, 2019: Loans
Individually evaluated for impairment$4,957 796 9,546 333 9,570 0 0 25,202 
Collectively evaluated for impairment$499,101 529,904 1,090,125 337,366 1,901,080 56,083 0 4,413,659 
Purchased credit impaired$213 166 5,343 223 6,630 89 0 12,664 
98
The following table presents the activity in the allowance for loan losses for the year ended December 31, 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		  Install-
ment
Loans to
Individuals		  Unallo-
cated		  Total 
                
As of and for the year ended December 31, 2018
                                 
Beginning balance $3,111   2,816   6,147   1,827   6,475   950   1,972   23,298 
Charge-offs  (2,128)  (158)  (1,734)  (711)  (1,459)  (781)  —   (6,971)
Recoveries  1,195   4,097   833   364   1,503   309   —   8,301 
Provisions  711   (4,512)  (49)  185   1,464   474   (1,862)  (3,589)
Ending balance $2,889   2,243   5,197   1,665   7,983   952   110   21,039 
                                 
Ending balances as of December 31, 2018:  Allowance for loan losses
Individually evaluated for impairment $226   134   955   48   906   —   —   2,269 
Collectively evaluated for impairment $2,661   2,109   4,143   1,608   7,070   941   110   18,642 
Purchased credit impaired $2   —   99   9   7   11   —   128 
                                 
Loans receivable as of December 31, 2018:
Ending balance – total $457,037   518,976   1,054,176   359,162   1,787,022   71,392   —   4,247,765 
Unamortized net deferred loan costs                              1,299 
Total loans                             $4,249,064 
                                 
Ending balances as of December 31, 2018: Loans
Individually evaluated for impairment $696   1,345   12,391   296   9,525   —   —   24,253 
Collectively evaluated for impairment $456,111   517,453   1,035,532   358,522   1,767,361   71,140   —   4,206,119 
Purchased credit impaired $230   178   6,253   344   10,136   252   —   17,393 

108 

($ in thousands)Commercial,
Financial, and
Agricultural		Real Estate –
Construction,
Land
Development
& Other Land
Loans		Real Estate
–
Residential
(1-4 Family)
First
Mortgages		Real Estate
– Mortgage
– Home
Equity Lines
of Credit		Real Estate
– Mortgage
–
Commercial
and Other		Consumer loansUnallo-
cated		Total
As of and for the year ended December 31, 2018
Beginning balance$3,111 2,816 6,147 1,827 6,475 950 1,972 23,298 
Charge-offs(2,128)(158)(1,734)(711)(1,459)(781)0 (6,971)
Recoveries1,195 4,097 833 364 1,503 309 0 8,301 
Provisions711 (4,512)(49)185 1,464 474 (1,862)(3,589)
Ending balance$2,889 2,243 5,197 1,665 7,983 952 110 21,039 
Ending balances as of December 31, 2018: Allowance for loan losses
Individually evaluated for impairment$226 134 955 48 906 0 0 2,269 
Collectively evaluated for impairment$2,661 2,109 4,143 1,608 7,070 941 110 18,642 
Purchased credit impaired$2 0 99 9 7 11 0 128 
Loans receivable as of December 31, 2018:
Ending balance – total$457,037 518,976 1,054,176 359,162 1,787,022 71,392 0 4,247,765 
Unamortized net deferred loan (fees) costs1,299 
Total loans4,249,064 
Ending balances as of December 31, 2018: Loans
Individually evaluated for impairment$696 1,345 12,391 296 9,525 0 0 24,253 
Collectively evaluated for impairment$456,111 517,453 1,035,532 358,522 1,767,361 71,140 0 4,206,119 
Purchased credit impaired$230 178 6,253 344 10,136 252 0 17,393 
99

The following table presents the activity in the allowanceloans individually evaluated for loan losses forimpairment by class of loans, excluding purchased credit impaired loans, as of December 31, 2020.
($ in thousands)Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment
Impaired loans with no related allowance recorded:    
Commercial, financial, and agricultural$3,688 4,325 — 750 
Real estate – mortgage – construction, land development & other land loans554 694 — 308 
Real estate – mortgage – residential (1-4 family) first mortgages4,115 4,456 — 4,447 
Real estate – mortgage –home equity loans / lines of credit15 27 — 264 
Real estate – mortgage –commercial and other11,763 13,107 — 9,026 
Consumer loans4 4 — 1 
Total impaired loans with no allowance$20,139 22,613 — 14,796 
Impaired loans with an allowance recorded:
Commercial, financial, and agricultural$4,012 4,398 3,546 5,139 
Real estate – mortgage – construction, land development & other land loans123 131 30 502 
Real estate – mortgage – residential (1-4 family) first mortgages5,188 5,361 800 5,186 
Real estate – mortgage –home equity loans / lines of credit0 0 0 21 
Real estate – mortgage –commercial and other6,819 7,552 2,175 5,786 
Consumer loans0 0 0 0 
Total impaired loans with allowance$16,142 17,442 6,551 16,634 
Interest income recorded on impaired loans during the year ended December 31, 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		  Install-
ment
Loans to
Individuals		  Unallo-
cated		  Total 
                
As of and for the year ended December 31, 2017
                         
Beginning balance $3,829   2,691   7,704   2,420   5,098   1,145   894   23,781 
Charge-offs  (1,622)  (589)  (2,641)  (978)  (1,182)  (799)  —   (7,811)
Recoveries  1,311   2,579   1,076   333   1,027   279   —   6,605 
Provisions  (407)  (1,865)  8   52   1,532   325   1,078   723 
Ending balance $3,111   2,816   6,147   1,827   6,475   950   1,972   23,298 
                                 
Ending balances as of December 31, 2017:  Allowance for loan losses
Individually evaluated for impairment $215   18   1,099   —   232   —   —   1,564 
Collectively evaluated for impairment $2,896   2,798   4,831   1,788   6,226   950   1,972   21,461 
Purchased credit impaired $—   —   217   39   17   —   —   273 
                                 
Loans receivable as of December 31, 2017:
Ending balance – total $381,130   539,020   972,772   379,978   1,696,107   74,348   —   4,043,355 
Unamortized net deferred loan fees                              (986)
Total loans                             $4,042,369 
                                 
Ending balances as of December 31, 2017: Loans
Individually evaluated for impairment $579   2,975   14,800   368   8,493   —   —   27,215 
Collectively evaluated for impairment $379,903   535,638   949,113   379,327   1,675,102   73,892   —   3,992,975 
Purchased credit impaired $648   407   8,859   283   12,512   456   —   23,165 

109 

2020 was $1.1 million, and reflects interest income recorded on nonaccrual loans prior to them being placed on nonaccrual status and interest income recorded on accruing TDRs.
100

The following table presents the activity in the allowanceloans individually evaluated for loan losses forimpairment by class of loans, excluding purchased credit impaired loans, as of December 31, 2019.
 
($ in thousands)		Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment
Impaired loans with no related allowance recorded:    
Commercial, financial, and agricultural$16 19 — 74 
Real estate – mortgage – construction, land development & other land loans221 263 — 366 
Real estate – mortgage – residential (1-4 family) first mortgages4,300 4,539 — 4,415 
Real estate – mortgage –home equity loans / lines of credit333 357 — 147 
Real estate – mortgage –commercial and other2,643 3,328 — 3,240 
Consumer loans0 0 — 0 
Total impaired loans with no allowance$7,513 8,506 — 8,242 
Impaired loans with an allowance recorded:
Commercial, financial, and agricultural$4,941 4,995 1,791 1,681 
Real estate – mortgage – construction, land development & other land loans575 575 50 586 
Real estate – mortgage – residential (1-4 family) first mortgages5,246 5,469 750 6,206 
Real estate – mortgage –home equity loans / lines of credit0 0 0 55 
Real estate – mortgage –commercial and other6,927 7,914 983 5,136 
Consumer loans0 0 0 0 
Total impaired loans with allowance$17,689 18,953 3,574 13,664 
Interest income recorded on impaired loans during the year ended December 31, 2016. There were no covered2019 was $1.3 million, and reflects interest income recorded on nonaccrual loans at December 31, 2016prior to them being placed on nonaccrual status and all reserves associated with previously covered loans were transferred to the non-covered allowance.

($ 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		  Covered  Total 
                   
As of and for the year ended December 31, 2016
Beginning balance $4,742   3,754   7,832   2,893   5,816   1,051   696   1,799   28,583 
Charge-offs  (2,271)  (1,101)  (3,815)  (969)  (1,005)  (1,008)  (1)  (244)  (10,414)
Recoveries  805   1,422   1,060   250   836   354   —   1,958   6,685 
Transfer from covered status  56   65   839   293   127   —   1   (1,381)  — 
Removed due to branch loan sale  (263)  (39)  (347)  (110)  (228)  (63)  —   —   (1,050)
Provisions  760   (1,410)  2,135   63   (448)  811   198   (2,132)  (23)
Ending balance $3,829   2,691   7,704   2,420   5,098   1,145   894   —   23,781 
                                     
Ending balances as of December 31, 2016:  Allowance for loan losses
Individually evaluated for impairment $7   184   1,339   5   105   —   —   —   1,640 
Collectively evaluated for impairment $3,822   2,507   6,365   2,415   4,993   1,145   894   —   22,141 
Purchased credit impaired $—   —   —   —   —   —   —   —   — 
                                     
Loans receivable as of December 31, 2016:                                    
Ending balance – total $261,813   354,667   750,679   239,105   1,049,460   55,037   —   —   2,710,761 
Unamortized net deferred loan fees                                  (49)
Total loans                                 $2,710,712 
                                     
Ending balances as of December 31, 2016: Loans
Individually evaluated for impairment $644   4,001   20,807   280   6,494   —   —   —   32,226 
Collectively evaluated for impairment $261,169   350,666   729,872   238,825   1,042,452   55,037   —   —   2,678,021 
Purchased credit impaired $—   —   —   —   514   —   —   —   514 

110 

interest income recorded on accruing TDRs.
101

The following table presents loans individually evaluated for impairment by class of loans, excluding purchased credit impaired loans, as of December 31, 2018.

 

($ in thousands)

 Recorded
Investment		  Unpaid
Principal
Balance		  Related
Allowance		  Average
Recorded
Investment		 
Impaired loans with no related allowance recorded:                
                 
Commercial, financial, and agricultural $310   310   —   957 
Real estate – mortgage – construction, land development & other land loans  485   803   —   2,366 
Real estate – mortgage – residential (1-4 family) first mortgages  4,626   4,948   —   4,804 
Real estate – mortgage –home equity loans / lines of credit  22   31   —   91 
Real estate – mortgage –commercial and other  3,475   4,237   —   3,670 
Installment loans to individuals  —   —   —   — 
Total impaired loans with no allowance $8,918   10,329   —   11,888 
                 
Impaired loans with an allowance recorded:                
                 
Commercial, financial, and agricultural $386   387   226   422 
Real estate – mortgage – construction, land development & other land loans  860   864   134   385 
Real estate – mortgage – residential (1-4 family) first mortgages  7,765   7,904   955   8,963 
Real estate – mortgage –home equity loans / lines of credit  274   275   48   184 
Real estate – mortgage –commercial and other  6,050   6,054   906   5,911 
Installment loans to individuals  —   —   —   2 
Total impaired loans with allowance $15,335   15,484   2,269   15,867 

 
($ in thousands)		Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment
Impaired loans with no related allowance recorded:    
Commercial, financial, and agricultural$310 310 — 957 
Real estate – mortgage – construction, land development & other land loans485 803 — 2,366 
Real estate – mortgage – residential (1-4 family) first mortgages4,626 4,948 — 4,804 
Real estate – mortgage –home equity loans / lines of credit22 31 — 91 
Real estate – mortgage –commercial and other3,475 4,237 — 3,670 
Consumer loans0 0 — 0 
Total impaired loans with no allowance$8,918 10,329 — 11,888 
Impaired loans with an allowance recorded:
Commercial, financial, and agricultural$386 387 226 422 
Real estate – mortgage – construction, land development & other land loans860 864 134 385 
Real estate – mortgage – residential (1-4 family) first mortgages7,765 7,904 955 8,963 
Real estate – mortgage –home equity loans / lines of credit274 275 48 184 
Real estate – mortgage –commercial and other6,050 6,054 906 5,911 
Consumer loans0 0 0 2 
Total impaired loans with allowance$15,335 15,484 2,269 15,867 
Interest income recorded on impaired loans during the year ended December 31, 2018 was insignificant.

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

 

($ in thousands)

 Recorded
Investment		  Unpaid
Principal
Balance		  Related
Allowance		  Average
Recorded
Investment		 
Impaired loans with no related allowance recorded:                
                 
Commercial, financial, and agricultural $183   425   —   276 
Real estate – mortgage – construction, land development & other land loans  2,743   3,941   —   2,846 
Real estate – mortgage – residential (1-4 family) first mortgages  5,205   5,728   —   7,067 
Real estate – mortgage –home equity loans / lines of credit  368   387   —   129 
Real estate – mortgage –commercial and other  3,066   3,321   —   3,143 
Installment loans to individuals  —   —   —   — 
Total impaired loans with no allowance $11,565   13,802   —   13,461 
                 
Impaired loans with an allowance recorded:                
                 
Commercial, financial, and agricultural $396   396   215   214 
Real estate – mortgage – construction, land development & other land loans  232   241   18   503 
Real estate – mortgage – residential (1-4 family) first mortgages  9,595   9,829   1,099   10,077 
Real estate – mortgage –home equity loans / lines of credit  —   —   —   66 
Real estate – mortgage –commercial and other  5,427   5,427   232   5,369 
Installment loans to individuals  —   —   —   — 
Total impaired loans with allowance $15,650   15,893   1,564   16,229 

Interest$1.5 million, and reflects interest income recorded on impairednonaccrual loans during the year ended December 31, 2017 was insignificant.

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prior to them being placed on nonaccrual status and interest income recorded on accruing TDRs.
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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.

102
The following describes the Company’s internal risk grades in ascending order of likelihood of loss:

Risk GradeDescription
Pass:Risk GradeDescription
Pass:1
1Loans with virtually no risk, including cash secured loans.
2Loans 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.
3Loans 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.
4Loans 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.  
5Loans that represent above average risk due to minor weaknesses and warrant closer scrutiny by management.  Collateral is generally available 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:
6Existing loans with defined weaknesses in primary source of repayment that, if not corrected, could cause a loss to the Bank.
Classified:
7An 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.
8Loans 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.
9Loans 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.  

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

($ in thousands)   
  Pass  Special Mention
Loans		  Classified
Accruing Loans		  Classified
Nonaccrual
Loans		  Total 
                
Commercial, financial, and agricultural $452,373   3,056   459   919   456,807 
Real estate – construction, land development & other land loans  509,251   5,668   1,614   2,265   518,798 
Real estate – mortgage – residential (1-4 family) first mortgages  1,004,457   12,238   21,113   10,115   1,047,923 
Real estate – mortgage – home equity loans / lines of credit  348,792   1,688   6,653   1,685   358,818 
Real estate – mortgage – commercial and other  1,750,810   14,484   4,140   7,452   1,776,886 
Installment loans to individuals  70,357   231   413   139   71,140 
Purchased credit impaired  8,355   5,214   3,824   —   17,393 
  Total $4,144,395   42,579   38,216   22,575   4,247,765 
Unamortized net deferred loan costs                  1,299 
            Total loans                  4,249,064 

2020.

($ in thousands)PassSpecial Mention
Loans		Classified
Accruing Loans		Classified
Nonaccrual
Loans		Total
Commercial, financial, and agricultural$762,091 9,553 1,087 9,681 782,412 
Real estate – construction, land development & other land loans560,845 7,877 1,157 643 570,522 
Real estate – mortgage – residential (1-4 family) first mortgages943,455 7,609 11,039 6,048 968,151 
Real estate – mortgage – home equity loans / lines of credit297,795 1,468 5,560 1,333 306,156 
Real estate – mortgage – commercial and other1,988,684 34,588 4,801 17,191 2,045,264 
Consumer loans53,488 80 169 180 53,917 
Purchased credit impaired6,901 85 1,605 0 8,591 
Total$4,613,259 61,260 25,418 35,076 4,735,013 
Unamortized net deferred loan (fees) costs(3,698)
Total loans4,731,315 
103
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 
                
Commercial, financial, and agricultural $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 
Real estate – mortgage – residential (1-4 family) first mortgages  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 
Real estate – mortgage – commercial and other  1,647,725   23,335   9,190   3,345   1,683,595 
Installment loans to individuals  73,379   222   216   75   73,892 
Purchased credit impaired  6,541   12,309   4,315   —   23,165 
  Total $3,891,038   72,915   58,434   20,968   4,043,355 
Unamortized net deferred loan fees                  (986)
            Total loans                  4,042,369 

2019.

($ in thousands)PassSpecial Mention
Loans		Classified
Accruing Loans		Classified
Nonaccrual
Loans		Total
Commercial, financial, and agricultural$486,081 7,998 4,461 5,518 504,058 
Real estate – construction, land development & other land loans522,767 4,075 2,791 1,067 530,700 
Real estate – mortgage – residential (1-4 family) first mortgages1,063,735 13,187 15,197 7,552 1,099,671 
Real estate – mortgage – home equity loans / lines of credit328,903 1,258 5,741 1,797 337,699 
Real estate – mortgage – commercial and other1,873,594 20,800 7,436 8,820 1,910,650 
Consumer loans55,203 413 355 112 56,083 
Purchased credit impaired8,098 2,590 1,976 0 12,664 
Total$4,338,381 50,321 37,957 24,866 4,451,525 
Unamortized net deferred loan (fees) costs1,941 
Total loans4,453,466 
Troubled Debt Restructurings

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

As previously discussed, under the CARES Act and banking regulator guidance, which the Company has applied, modifications deemed to be COVID-19-related are not considered a TDR if the loan was not more than 30 days past due as of December 31, 2019 and the deferral was executed between March 1, 2020 and the earlier of 60 days after the date of termination of the COVID-19 national emergency or December 31, 2020. In December 2020, this provision was extended to December 31, 2021. The Company's COVID-19 payment deferral program began in late-March 2020, with the payment deferrals limited to 90 days and deferrals were granted to substantially all borrowers who requested it. As the initial 90 day deferrals began to expire, the Company approved subsequent deferral requests of another 90 days based on the circumstances of each borrower. Most of the Company's borrowers who were granted payment deferrals began making payments again in the second half of 2020. As of December 31, 2020, the Company had payment deferrals for 38 loans with an aggregate loan balance of $16.6 million, which are not included in the TDR's disclosed in this report. The Company continues to accrue interest on these loans during the deferral period.

The vast majority of the Company’s troubled debt restructuringsTDRs modified during the years ended December 31, 20182020, 2019, and 20172018 related to interest rate reductions combined with restructured amortization schedules.extension of terms. The Company does not generally grant principal forgiveness.

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

104
The following table presents information related to loans modified in a troubled debt restructuringTDR during the yearsyear ended December 31, 2018 and 2017.

($ in thousands) For the year ended
December 31, 2018		  For the year ended
December 31, 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  2   254   273   —   —   — 
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  3   340   350   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  6  $655  $684   10  $4,452  $4,414 
                         

2020.

($ in thousands)For the year ended December 31, 2020
 Number of
Contracts		Pre-
Modification
Restructured
Balances		Post-
Modification
Restructured
Balances
TDRs – Accruing   
Commercial, financial, and agricultural2 $143 $143 
Real estate – construction, land development & other land loans1 67 67 
Real estate – mortgage – residential (1-4 family) first mortgages2 75 78 
Real estate – mortgage – home equity loans / lines of credit0 0 0 
Real estate – mortgage – commercial and other0 0 0 
Consumer loans1 4 4 
TDRs – Nonaccrual
Commercial, financial, and agricultural1 72 72 
Real estate – construction, land development & other land loans0 0 0 
Real estate – mortgage – residential (1-4 family) first mortgages0 0 0 
Real estate – mortgage – home equity loans / lines of credit0 0 0 
Real estate – mortgage – commercial and other5 5,977 5,977 
Consumer loans0 0 0 
Total TDRs arising during period12 $6,338 $6,341 

The following table presents information related to loans modified in a TDR during the year ended December 31, 2019.
($ in thousands)For the year ended December 31, 2019
 Number of
Contracts		Pre-
Modification
Restructured
Balances		Post-
Modification
Restructured
Balances
TDRs – Accruing   
Commercial, financial, and agricultural2 $395 $395 
Real estate – construction, land development & other land loans0 0 0 
Real estate – mortgage – residential (1-4 family) first mortgages3 387 391 
Real estate – mortgage – home equity loans / lines of credit0 0 0 
Real estate – mortgage – commercial and other1 274 274 
Consumer loans0 0 0 
TDRs – Nonaccrual
Commercial, financial, and agricultural0 0 0 
Real estate – construction, land development & other land loans0 0 0 
Real estate – mortgage – residential (1-4 family) first mortgages0 0 0 
Real estate – mortgage – home equity loans / lines of credit0 0 0 
Real estate – mortgage – commercial and other0 0 0 
Consumer loans0 0 0 
Total TDRs arising during period6 $1,056 $1,060 

105
The following table presents information related to loans modified in a TDR during the year ended December 31, 2018.
($ in thousands)For the year ended December 31, 2018
 Number of
Contracts		Pre-
Modification
Restructured
Balances		Post-
Modification
Restructured
Balances
TDRs – Accruing   
Commercial, financial, and agricultural0 $0 $0 
Real estate – construction, land development & other land loans0 0 0 
Real estate – mortgage – residential (1-4 family) first mortgages2 254 273 
Real estate – mortgage – home equity loans / lines of credit0 0 0 
Real estate – mortgage – commercial and other0 0 0 
Consumer loans0 0 0 
TDRs – Nonaccrual
Commercial, financial, and agricultural0 0 0 
Real estate – construction, land development & other land loans1 61 61 
Real estate – mortgage – residential (1-4 family) first mortgages3 340 350 
Real estate – mortgage – home equity loans / lines of credit0 0 0 
Real estate – mortgage – commercial and other0 0 0 
Consumer loans0 0 0 
Total TDRs arising during period6 $655 $684 
Accruing restructured loansTDRs that were modified in the previous 12 months and that defaulted during the years ended December 31, 20182020, 2019, and 20172018 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 year ended
December 31, 2018		  For the year ended
December 31, 2017		 
  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  $60   2   880 
Real estate – mortgage – commercial and other  3   1,333   —   — 
                 
Total accruing TDRs that subsequently defaulted  4  $1,393   2  $880 

114 

($ in thousands)For the Year Ended December 31, 2020For the Year Ended December 31, 2019For the Year Ended December 31, 2018
 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)0 $0 1 $93 1 $60 
Real estate – mortgage – commercial and other1 274 0 0 3 1,333 
Total accruing TDRs that subsequently defaulted1 $274 1 $93 4 $1,393 








106

Note 5. Premises and Equipment

Premises and equipment at December 31, 20182020 and 20172019 consisted of the following:

($ in thousands) 2018  2017 
       
Land $38,647   38,821 
Buildings  93,794   92,337 
Furniture and equipment  36,115   35,532 
Leasehold improvements  2,404   2,409 
    Total cost  170,960   169,099 
Less accumulated depreciation and amortization  (51,960)  (52,866)
    Net book value of premises and equipment $119,000   116,233 

Note 6. FDIC Indemnification Asset

As discussed previously in Note 4 – Loans and Asset Quality Information, the Company terminated all loss share agreements with the FDIC effective September 22, 2016. As a result, the remaining balance in the FDIC Indemnification Asset, which represented the estimated amount to be received from the FDIC under the loss share agreements, was written off as indemnification asset expense as of the termination date.

The following presents a rollforward of the FDIC indemnification asset from January 1, 2016 through the date of termination.

($ in thousands)   
    
Balance at January 1, 2016 $8,439 
Increase (decrease) related to unfavorable (favorable) changes in loss estimates  (2,246)
Increase related to reimbursable expenses  205 
Cash paid  1,554 
Decrease related to accretion of loan discount  (2,005)
Other  (236)
Write off of asset balance upon termination of FDIC loss share agreements effective September 22, 2016  (5,711)
Balance at December 31, 2016 $— 

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($ in thousands)20202019
Land$38,584 38,164 
Buildings103,232 93,738 
Furniture and equipment30,097 33,110 
Leasehold improvements3,054 2,195 
Total cost174,967 167,207 
Less accumulated depreciation and amortization(54,465)(52,348)
Total premises and equipment$120,502 114,859 

Note 7.6. Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of December 31, 20182020 and December 31, 20172019 and the carrying amount of unamortizable intangible assets as of those same dates.

  December 31, 2018  December 31, 2017 
($ in thousands) Gross Carrying
Amount		  Accumulated
Amortization		  Gross Carrying
Amount		  Accumulated
Amortization		 
Amortizable intangible assets:                
   Customer lists $6,013   1,637   6,013   1,090 
   Core deposit intangibles  28,440   16,469   28,280   11,475 
   SBA servicing asset  5,472   1,053   2,194   207 
   Other  1,303   957   1,303   581 
        Total $41,228   20,116   37,790   13,353 
                 
Unamortizable intangible assets:                
   Goodwill $234,368       233,070     

Activity related to transactions since January 1, 2017 includes the following:

(1)In connection with the Carolina Bank acquisition on March 3, 2017, the Company recorded a net increase of $66,540,000 in goodwill and $8,790,000 in a core deposit intangible.
(2)In connection with the September 1, 2017 acquisition of Bear Insurance Service, the Company recorded $5,330,000 in goodwill, $3,644,000 in a customer list intangible, and $271,000 in other amortizable intangible assets.
(3)In connection with the Asheville Savings Bank acquisition on October 1, 2017, the Company recorded a net increase of $88,677,000 in goodwill and $9,880,000 in a core deposit intangible.

In addition to the above acquisition related activity, the Company recorded $3,278,000 and $1,779,000 in

 December 31, 2020December 31, 2019
($ in thousands)Gross Carrying
Amount		Accumulated
Amortization		Gross Carrying
Amount		Accumulated
Amortization
Amortizable intangible assets:    
Customer lists$7,613 2,814 6,013 2,185 
Core deposit intangibles28,440 23,832 28,440 20,610 
SBA servicing asset9,976 4,188 7,776 2,393 
Other1,403 1,232 1,303 1,127 
Total$47,432 32,066 43,532 26,315 
Unamortizable intangible assets:
Goodwill$239,272 234,368 
SBA servicing assets associated with the guaranteed portion of SBA loans originated and sold during 2018 and 2017, respectively. During 2018 and 2017, the Company recorded $846,000 and $207,000, respectively, in related amortization expense. Servicing assets are recorded for loans, orthe portions thereof,of SBA loans that the Company has sold but continue to service for a fee. Servicing assets are initially recorded at fair value and amortized over the expected lives of the related loans and are tested for impairment on a quarterly basis.

SBA servicing asset amortization expense is recorded within noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions, and fees." As derived from the table above, the Company had a SBA servicing asset at December 31, 2020 with a remaining book value of $5,788,000. The Company recorded $2,200,000 and $2,304,000 in servicing assets associated with the guaranteed portion of SBA loans sold during 2020 and 2019, respectively. During 2020, 2019, and 2018, the Company recorded $1,795,000, $1,340,000, and $846,000, respectively, in related amortization expense. At December 31, 2020 and 2019, the Company serviced for others SBA loans totaling $395.4 million and $316.7 million, respectively.

In connection with the September 1, 2020 acquisition of a business financing company, the Company recorded goodwill of $4.9 million and $1.6 million in other amortizable intangible assets, each of which is deductible for tax purposes over 15 years. See Note 2 for additional discussion of this acquisition.
Amortization expense of all other intangible assets, excluding the SBA servicing asset, totaled $6,763,000, $4,240,000$3,956,000, $4,858,000 and $1,211,000$5,917,000 for the years ended December 31, 2020, 2019 and 2018, 2017 and 2016, respectively.

Goodwill is evaluated for impairment on at least an annual basis, with the annual evaluation occurring on October 31 of each year – see Note 1(s). For each1 for additional discussion. The annual reviews in October 2018 and October 2019, which were primarily of a qualitative nature, indicated that none of the years presented,Company's goodwill was impaired. The onset of the Company’s evaluation indicatedCOVID-19 pandemic in March 2020 resulted in economic turmoil and market volatility that thereresulted in a substantial decrease in the Company's stock price and market capitalization. Management believed such decreases were triggering indicators requiring indicating the need for interim analysis. Accordingly, during each quarter of 2020, the Company reviewed its goodwill for impairment. For the first and third quarters of 2020, the Company performed an interim step-one goodwill impairment quantitative analysis. For the second quarter of 2020
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and the annual fourth quarter 2020 review, management reviewed its goodwill for impairment primarily qualitatively by reviewing the factors and assumptions used in the analysis for the preceding quarter. The conclusion of each 2020 review was nothat 0ne of the Company's goodwill impairment.

was impaired.

The following table presents the estimated amortization expense schedule related to acquisition-related amortizable intangible assets for each of the five calendar years ending December 31, 20232025 and the estimated amount amortizable thereafter. These amounts will be recorded as "Intangibles amortization expense" within the noninterest expense section of the Consolidated Statements of Income. These estimates are subject to change in future periods to the extent management determines it is necessary to make adjustments to the carrying value or estimated useful lives of amortizable intangible assets.

($ in thousands) Estimated
Amortization Expense		 
2019 $5,649 
2020  4,549 
2021  3,549 
2022  2,459 
2023  1,398 
Thereafter  3,508 
         Total $21,112 

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($ in thousands)Estimated
Amortization Expense
2021$3,272 
20222,367 
20231,386 
2024741 
2025562 
Thereafter1,250 
Total$9,578 

Note 8.7. Income Taxes

Total income taxes for the years ended December 31, 2018, 2017, and 2016 were allocated as follows:

($ In thousands) 2018  2017  2016 
          
Allocated to net income $24,189   21,767   14,624 
Allocated to stockholders’ equity, for unrealized holding gain/loss on
debt and equity securities for financial reporting purposes		  (2,379)  321   (685)
Allocated to stockholders’ equity, for tax benefit of pension liabilities  (5)  668   (36)
    Total income taxes $21,805   22,756   13,903 

The components of income tax expense for the years ended December 31, 2018, 2017,2020, 2019, and 20162018 are as follows:

($ In thousands) 2018  2017  2016 
          
Current - Federal $19,188   11,286   12,827 
  - State  3,187   1,996   1,679 
Deferred  - Federal  1,658   7,742   16 
  - State  156   743   102 
     Total $24,189   21,767   14,624 

($ in thousands)202020192018
Current - Federal$27,799 19,920 19,188 
  - State3,909 2,499 3,187 
Deferred  - Federal(8,893)1,572 1,658 
  - State(1,161)239 156 
Total$21,654 24,230 24,189 
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The sources and tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at December 31, 20182020 and 20172019 are presented below:

($ In thousands) 2018  2017 
       
Deferred tax assets:        
     Allowance for loan losses $4,917   5,448 
     Excess book over tax pension plan cost  92   — 
     Deferred compensation  367   1,220 
     Federal & state net operating loss and tax credit carryforwards  631   2,125 
     Accruals, book versus tax  3,036   2,546 
     Pension liability adjustments  752   748 
     Foreclosed real estate  715   740 
     Basis differences in assets acquired in FDIC transactions  1,121   1,311 
     Nonqualified stock options  240   248 
     Partnership investments  208   232 
     Unrealized gain on securities available for sale  2,895   517 
     SBA servicing asset  310   139 
     All other  42   42 
        Gross deferred tax assets  15,326   15,316 
         Less: Valuation allowance  (36)  (44)
              Net deferred tax assets  15,290   15,272 
Deferred tax liabilities:        
     Loan fees  (2,484)  (1,880)
     Excess book over tax pension plan cost  —   (95)
     Depreciable basis of fixed assets  (4,278)  (3,122)
     Amortizable basis of intangible assets  (7,921)  (7,915)
     FHLB stock dividends  (721)  (658)
     Trust preferred securities  (528)  (616)
     Purchase accounting adjustments  (122)  (2,133)
     All other  —   (28)
          Gross deferred tax liabilities  (16,054)  (16,447)
          Net deferred tax asset (liability) - included in other assets $(764)  (1,175)

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($ in thousands)20202019
Deferred tax assets:  
Allowance for loan losses$12,031 4,916 
Excess book over tax pension plan cost367 241 
Deferred compensation257 293 
Federal & state net operating loss and tax credit carryforwards282 376 
Accruals, book versus tax3,232 2,833 
Pension liability adjustments418 710 
Foreclosed real estate123 87 
Basis differences in assets acquired in FDIC transactions647 416 
Equity compensation661 370 
Partnership investments258 254 
Leases120 0 
SBA servicing asset358 400 
All other3 3 
Gross deferred tax assets18,757 10,899 
Less: Valuation allowance(14)(40)
Net deferred tax assets18,743 10,859 
Deferred tax liabilities:
Loan fees(1,011)(2,428)
Depreciable basis of fixed assets(4,809)(4,995)
Amortizable basis of intangible assets(7,965)(7,844)
FHLB stock dividends(236)(472)
Trust preferred securities(473)(548)
Purchase accounting adjustments0 (84)
Unrealized gain on securities available for sale(4,699)(2,239)
Gross deferred tax liabilities(19,193)(18,610)
Net deferred tax liability - included in other liabilities$(450)(7,751)

A portion of the annual change in the net deferred tax asset relates to unrealized gains and losses on securities available for sale. The related 20182020 and 20172019 deferred tax expense (benefit) of approximately ($2,379,000)$2,460,000 and $321,000$5,135,000 respectively, has been recorded directly to shareholders’ equity. Additionally, a portion of the annual change in the net deferred tax asset relates to pension adjustments. The related 20182020 and 20172019 deferred tax expense (benefit) of ($5,000)$292,000 and $668,000$42,000 respectively, has been recorded directly to shareholders’ equity. The change in the net deferred tax liability was also impacted by the recording of a net deferred tax liability of approximately $159,000 relating to adjustments made to acquisition transactions that occurred during the prior year. The balance of the 20182020 increase in the net deferred tax liability of $1,814,000$10,054,000 is reflected as deferred income tax expense, and the balance of the 20172019 increase in the net deferred tax liability of $8,485,000$1,811,000 is reflected as deferred income tax expense in the consolidated statement of income.

The valuation allowances for 20182020 and 20172019 relate primarily to state net operating loss carryforwards. It is management’s belief that the realization of the remaining net deferred tax assets is more likely than not. The Company adjusted its net deferred income tax asset as a result of reductions in the North Carolina income tax rate, which reduced the state income tax rate to 3%2.5% effective January 1, 2017.

2019.

The Company had no significant uncertain tax positions, and thus no reserve for uncertain tax positions has been recorded. Additionally, the Company determined that it has no material unrecognized tax benefits that if recognized would affect the effective tax rate. The Company’s general policy is to record tax penalties and interest as a component of “other operating expenses”.

The Company is subject to routine audits of its tax returns by the Internal Revenue Service and various state taxing authorities.  The Company’s tax returns are subject to income tax audit by federal and state agencies beginning with the year 2015.2017. There are no indications of any material adjustments relating to any examination currently being conducted by any taxing authority.

Retained earnings at December 31, 20182020 and 20172019 include approximately $6,869,000 representing pre-1988 tax bad debt reserve base year amounts for which no deferred income tax liability has been provided since these
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reserves are not expected to reverse or may never reverse. Circumstances that would require an accrual of a portion or all of this unrecorded tax liability are a reduction in qualifying loan levels relative to the end of 1987, failure to meet the definition of a bank, dividend payments in excess of accumulated tax earnings and profits, or other distributions in dissolution, liquidation or redemption of the Bank’s stock.

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The following is a reconcilement of federal income tax expense at the statutory rate of 21% at December 31, 20182020 and 35% at December 31, 20172019 and 2016,December 31, 2018, to the income tax provision reported in the financial statements.

($ In thousands) 2018  2017  2016 
          
Tax provision at statutory rate $23,830   23,709   14,746 
Increase (decrease) in income taxes resulting from:            
   Tax-exempt interest income  (1,117)  (1,461)  (1,202)
   Low income housing and AMT tax credits  (698)  (596)  (192)
   Non-deductible interest expense  27   24   16 
   State income taxes, net of federal benefit  2,639   1,780   1,158 
   Change in valuation allowance  (8)  (1)  (24)
   Impact of tax reform  —   (1,269)  — 
   Other, net  (484)  (419)  122 
     Total $24,189   21,767   14,624 

On December 22, 2017, the Tax Cut and Jobs Act was signed into law. Among other things, this Act permanently reduced the corporate tax rate to 21% from the prior maximum rate of 35%, effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate tax rate to 21%, companies were required to revalue their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the fourth quarter of 2017. Accordingly, during the fourth quarter of 2017, the Company recorded $1.3 million in tax benefit as a result of this revaluation.

($ in thousands)202020192018
Tax provision at statutory rate$21,657 24,418 23,830 
Increase (decrease) in income taxes resulting from:
Tax-exempt interest income(1,050)(1,186)(1,117)
Low income housing tax credits(772)(756)(698)
Bank-owned life insurance income(532)(538)(532)
Non-deductible interest expense23 43 27 
State income taxes, net of federal benefit2,117 2,178 2,639 
Change in valuation allowance(20)4 (8)
Impact of tax reform0 (73)0 
Other, net231 140 48 
Total$21,654 21654000$24,230 $24,189 

Note 9.8. Time Deposits and Related Party Deposits

At December 31, 2018,2020, the scheduled maturities of time deposits were as follows:

($ in thousands)    
     
2019 $753,537 
2020  117,229 
2021  48,477 
2022  21,726 
2023  13,136 
Thereafter  817 
  $954,922 

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($ in thousands) 
2021$681,719 
202263,423 
202321,070 
20248,217 
202515,829 
Thereafter674 
$790,932 

Deposits received from executive officers and directors and their associates totaled approximately $1.0$4.4 million and $3.8$1.3 million at December 31, 20182020 and 2017,2019, respectively. These deposit accounts have substantially
Deposit overdrafts of approximately $0.5 million and $0.7 million at December 31, 2020 and 2019 are included within "Loans" on the same terms, including interest rates, as those prevailing at the time for comparable transactions with other non-related depositors.

Consolidated Balance Sheets.

As of December 31, 20182020 and 2017,2019, the Company held $503.1$375.7 million and $405.1$442.2 million, respectively, in time deposits of $250,000 or more (which is the current FDIC insurance limit for insured deposits as of December 31, 2018)2020). Included in these deposits were brokered deposits of $239.9$20.2 million and $234.0$86.1 million at December 31, 20182020 and 2017,2019, respectively.

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Note 10.9. Borrowings and Borrowings Availability

The following tables present information regarding the Company’s outstanding borrowings at December 31, 20182020 and 2017:

Description – 2018 Due date Call Feature 2018
Amount		  Interest Rate
          
FHLB Term Note 1/10/2019 None $68,000,000  2.47% fixed
FHLB Term Note 1/17/2019 None  135,000,000  2.49% fixed
FHLB Term Note 1/24/2019 None  20,000,000  2.54% fixed
FHLB Term Note 1/31/2019 None  20,000,000  2.53% fixed
FHLB Term Note 1/31/2019 None  10,000,000  2.53% fixed
FHLB Term Note 4/18/2019 None  50,000,000  2.36% fixed
FHLB Term Note 5/29/2020 None  40,000,000  1.62% fixed
FHLB Principal Reducing Credit 7/24/2023 None  210,000  1.00% fixed
FHLB Principal Reducing Credit 12/22/2023 None  1,065,000  1.25% fixed
FHLB Principal Reducing Credit 1/15/2026 None  7,500,000  1.98% fixed
FHLB Principal Reducing Credit 6/26/2028 None  255,000  0.25% fixed
FHLB Principal Reducing Credit 7/17/2028 None  61,000  0.00% fixed
FHLB Principal Reducing Credit 8/18/2028 None  188,000  1.00% fixed
FHLB Principal Reducing Credit 8/22/2028 None  188,000  1.00% fixed
FHLB Principal Reducing Credit 12/20/2028 None  379,000  0.50% fixed
Trust Preferred Securities 1/23/2034 Quarterly by Company
beginning 1/23/2009		  20,620,000  5.22% at 12/31/2018
adjustable rate
3 month LIBOR + 2.70%
Trust Preferred Securities 6/15/2036 Quarterly by Company
beginning 6/15/2011		  25,774,000  4.18% at 12/31/2018
adjustable rate
3 month LIBOR + 1.39%
Trust Preferred Securities 1/07/2035 Quarterly by Company
beginning 1/7/2010		  10,310,000  4.44% at 12/31/2018
adjustable rate
3 month LIBOR + 2.00%
Total borrowings / weighted average rate as of December 31, 2018 $409,550,000  2.68%
Unamortized discount on acquired borrowings   (2,941,000)  
Total borrowings     $406,609,000   

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2019 - dollars are in thousands:
Description – 2020Due dateCall Feature2020 AmountInterest Rate
FHLB Principal Reducing Credit7/24/2023None124 1.00% fixed
FHLB Principal Reducing Credit12/22/2023None991 1.25% fixed
FHLB Principal Reducing Credit1/15/2026None5,500 1.98% fixed
FHLB Principal Reducing Credit6/26/2028None235 0.25% fixed
FHLB Principal Reducing Credit7/17/2028None49 0.00% fixed
FHLB Principal Reducing Credit8/18/2028None174 1.00% fixed
FHLB Principal Reducing Credit8/22/2028None174 1.00% fixed
FHLB Principal Reducing Credit12/20/2028None355 0.50% fixed
Other Borrowing4/7/2022None103 1.00% fixed
Trust Preferred Securities1/23/2034Quarterly by Company
beginning 1/23/2009		20,620 2.91% at 12/31/2020
adjustable rate
3 month LIBOR + 2.70%
Trust Preferred Securities6/15/2036Quarterly by Company
beginning 6/15/2011		25,774 1.61% at 12/31/2020
adjustable rate
3 month LIBOR + 1.39%
Trust Preferred Securities1/7/2035Quarterly by Company
beginning 1/7/2010		10,310 2.24% at 12/31/2020
adjustable rate
3 month LIBOR + 2.00%
Total borrowings / weighted average rate as of December 31, 2020$64,409 2.22%
Unamortized discount on acquired borrowings(2,580)
Total borrowings$61,829 
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Description – 2017 Due date Call Feature 2017
Amount		  Interest Rate
          
FHLB Term Note 1/05/2018 None $135,000,000  1.36% fixed
FHLB Term Note 1/29/2018 None  68,000,000  1.41% fixed
FHLB Term Note 4/18/2018 None  50,000,000  1.25% fixed
FHLB Term Note 6/26/2018 None  20,000,000  1.67% fixed
FHLB Term Note 9/28/2018 None  10,000,000  1.52% fixed
FHLB Term Note 12/24/2018 None  20,000,000  1.57% fixed
FHLB Term Note 5/29/2020 None  40,000,000  1.62% fixed
FHLB Principal Reducing Credit 7/24/2023 None  250,000  1.00% fixed
FHLB Principal Reducing Credit 12/22/2023 None  1,100,000  1.25% fixed
FHLB Principal Reducing Credit 1/15/2026 None  8,500,000  1.98% fixed
FHLB Principal Reducing Credit 6/26/2028 None  264,000  0.25% fixed
FHLB Principal Reducing Credit 7/17/2028 None  66,000  0.00% fixed
FHLB Principal Reducing Credit 8/18/2028 None  195,000  1.00% fixed
FHLB Principal Reducing Credit 8/22/2028 None  195,000  1.00% fixed
FHLB Principal Reducing Credit 12/20/2028 None  391,000  1.50% fixed
Trust Preferred Securities 1/23/2034 Quarterly by Company
beginning 1/23/2009		  20,620,000  4.08% at 12/31/2017
adjustable rate
3 month LIBOR + 2.70%
Trust Preferred Securities 6/15/2036 Quarterly by Company
beginning 6/15/2011		  25,774,000  2.98% at 12/31/2017
adjustable rate
3 month LIBOR + 1.39%
Trust Preferred Securities 1/07/2035 Quarterly by Company
beginning 1/7/2010		  10,310,000  3.36% at 12/31/2017
adjustable rate
3 month LIBOR + 2.00%
Total borrowings / weighted average rate as of December 31, 2017 $410,665,000  1.72%
Unamortized discount on acquired borrowings  (3,122,000)  
Total borrowings     $407,543,000   

Description – 2019Due dateCall Feature2019 AmountInterest Rate
FHLB Term Note1/30/2020None$100,000 1.70% fixed
FHLB Term Note1/31/2020None68,000 1.70% fixed
FHLB Term Note1/31/2020None30,000 1.70% fixed
FHLB Term Note5/29/2020None40,000 1.62% fixed
FHLB Principal Reducing Credit7/24/2023None168 1.00% fixed
FHLB Principal Reducing Credit12/22/2023None1,029 1.25% fixed
FHLB Principal Reducing Credit1/15/2026None6,500 1.98% fixed
FHLB Principal Reducing Credit6/26/2028None245 0.25% fixed
FHLB Principal Reducing Credit7/17/2028None55 0.00% fixed
FHLB Principal Reducing Credit8/18/2028None181 1.00% fixed
FHLB Principal Reducing Credit8/22/2028None181 1.00% fixed
FHLB Principal Reducing Credit12/20/2028None367 0.50% fixed
Trust Preferred Securities1/23/2034Quarterly by Company
beginning 1/23/2009		20,620 4.64% at 12/31/2019
adjustable rate
3 month LIBOR + 2.70%
Trust Preferred Securities6/15/2036Quarterly by Company
beginning 6/15/2011		25,774 3.28% at 12/31/2019
adjustable rate
3 month LIBOR + 1.39%
Trust Preferred Securities1/7/2035Quarterly by Company
beginning 1/7/2010		10,310 3.99% at 12/31/2019
adjustable rate
3 month LIBOR + 2.00%
Total borrowings / weighted average rate as of December 31, 2019$303,430 2.68%
Unamortized discount on acquired borrowings(2,759)
Total borrowings$300,671 
All outstanding FHLB borrowings may be accelerated immediately by the FHLB in certain circumstances, including material adverse changes in the condition of the Company or if the Company’s qualifying collateral amounts to less than that required under the terms of the FHLB borrowing agreement.

In the above table for December 31, 2019, borrowings of $253.0 million at December 31, 2019 were considered short-term as their original maturity terms were for less than 3 months. There were no short-term borrowings at December 31, 2020.
In the above tables, the $20.6 million in borrowings due on January 23, 2034 relate to borrowings structured as trust preferred capital securities that were issued by First Bancorp Capital Trusts II and III ($10.3 million by each trust), which are unconsolidated subsidiaries of the Company, on December 19, 2003 and qualify as capital for regulatory capital adequacy requirements. These unsecured debt securities became callable by the Company at par on any quarterly interest payment date beginning on January 23, 2009. The interest rate on these debt securities adjusts on a quarterly basis at a rate of three-month LIBOR plus 2.70%.

In the above tables, the $25.8 million in borrowings due on June 15, 2036 relate to borrowings structured as trust preferred capital securities that were issued by First Bancorp Capital Trust IV, an unconsolidated subsidiary of the Company, on April 13, 2006 and qualify as capital for regulatory capital adequacy requirements. These unsecured debt securities became callable by the Company at par on any quarterly interest payment date beginning on June 15, 2011. The interest rate on these debt securities adjusts on a quarterly basis at a rate of three-month LIBOR plus 1.39%.

In the above tables, the $10.3 million in borrowings due on January 7, 2035 relate to borrowings structured as trust preferred capital securities that were issued by Carolina Capital Trust, an unconsolidated subsidiary of the Company. The Company acquired Carolina Bank Holdings, Inc. and its subsidiary, Carolina Capital Trust, on March 3, 2017. These unsecured debt securities qualify as capital for regulatory capital adequacy requirements and
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became callable by the Company at par on any quarterly interest payment date beginning on January 7, 2010. The interest rate on these debt securities adjusts on a quarterly basis at a rate of three-month LIBOR plus 2.00%.

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At December 31, 2018,2020, the Company had three sources of readily available borrowing capacity – 1) an approximately $1.04$1.02 billion line of credit with the FHLB, of which $353$8 million was outstanding at December 31, 20182020 and $354$247 million was outstanding at December 31, 2017,2019, 2) a $35$100 million federal funds line of credit with a correspondent bank, of which noneNaN was outstanding at December 31, 20182020 or 2017,2019, and 3) an approximately $127$134 million line of credit through the Federal Reserve Bank of Richmond’s (FRB) discount window, of which noneNaN was outstanding at December 31, 20182020 or 2017.

2019.

The Company’s line of credit with the FHLB totaling approximately $1.04$1.02 billion can be structured as either short-term or long-term borrowings, depending on the particular funding or liquidity needs and is secured by the Company’s FHLB stock and a blanket lien on most of its real estate loan portfolio. The borrowing capacity was reduced by $190 million and $198 million at December 31, 2018 and 2017, respectively, as a result of the Company pledging letters of credit for public deposits at each of those dates. Accordingly, the Company’s unused FHLB line of credit was $502 million at December 31, 2018 and $384 million at December 31, 2017.

The Company’s correspondent bank relationship allows the Company to purchase up to $35$100 million in federal funds on an overnight, unsecured basis (federal funds purchased). The Company had no0 borrowings outstanding under this line at December 31, 20182020 or 2017.

2019.

The Company has a line of credit with the FRB discount window. This line is secured by a blanket lien on a portion of the Company’s commercial and consumer loan portfolio (excluding real estate). Based on the collateral owned by the Company as of December 31, 2018,2020, the available line of credit was approximately $127$134 million. The Company had no0 borrowings outstanding under this line of credit at December 31, 20182020 or 2017.

2019.

Note 11.10. Leases

Certain bank premises

The Company enters into leases in the normal course of business. As of December 31, 2020, the Company leased 9 branch offices for which the land and buildings are leased and 8 branch offices for which the land is leased but the building is owned. The Company also leases office space for several operational departments. All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from January 2021 through May 2076, some of which include options for multiple five- and ten-year extensions. The weighted average remaining life of the lease term for these leases was 21.0 years as of December 31, 2020. The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. As permitted by applicable accounting standards, the Company has elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's Consolidated Balance Sheets.
Leases are classified as either operating or finance leases at the lease commencement date, and as previously noted, all of the Company's leases have been determined to be operating leases. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
The Company uses its incremental borrowing rate, on a collateralized basis, at lease commencement to calculate the present value of lease payments when the rate implicit in the lease is not known. The weighted average discount rate for leases was 3.27% as of December 31, 2020.
The right-of-use assets and lease liabilities were $17.5 million and $17.9 million as of December 31, 2020, respectively, and were $19.7 million and $19.9 million as of December 31, 2019, respectively. Prior to 2019, the accounting standards did not require assets or liabilities to be recorded for operating leases.
Total operating lease agreements. Generally, operating leases contain renewal options on substantially the same basis as current rental terms. Rent expense charged to operations under all operating lease agreements was $2.9 million in 2020, $2.6 million in 2019, and $2.3 million in 2018, $2.3 million in 2017, and $1.5 million in 2016.

2018.

Future obligationsundiscounted lease payments for minimum rentals under noncancelable operating leases atwith initial terms of one year or more as of December 31, 20182020 are as follows:

($ in thousands)
 
Year ending December 31:    
2019 $2,268 
2020  1,973 
2021  1,344 
2022  869 
2023  768 
  Thereafter  4,082 
       Total $11,304 
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($ in thousands)
Year ending December 31: 
2021$2,245 
20221,832 
20231,673 
20241,472 
20251,242 
Thereafter18,272 
Total undiscounted lease payments26,736 
Less effect of discounting(8,868)
Present value of estimated lease payments (lease liability)$17,868 

Note 12.11. Employee Benefit Plans

401(k) Plan. The Company sponsors a retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code.Code ("IRC"). New employees who have met the age requirement are automatically enrolled in the plan at a 5% deferral rate. The automatic deferral can be modified by the employee at any time. An eligible employee may contribute up to 15% of annual salary to the plan. For 2017 and 2016, the Company contributed an amount equalplan, not to the sum of 1)exceed IRC limits. The Company’s matches 100% of the employee’s salary contributed up to 3% and 2) 50% of the employee’s salary contributed between 3% and 5%. Effective January 1, 2018, the Company’s matching contribution was increased to 100% of the employee’s salary contribution up to 6%. The Company’s matching contribution expense was $3.6$4.3 million, $2.3$4.2 million and $1.6$3.6 million for the years ended December 31, 2018, 20172020, 2019 and 2016,2018, respectively. Although discretionary contributions by the Company are permitted by the plan, the Company did not make any such contributions in 2018, 2017 or 2016.the years presented. The Company’s matching and discretionary contributions are made according to the same investment elections each participant has established for their deferral contributions.

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Pension Plan. Historically, the Company offered a noncontributory defined benefit retirement plan (the “Pension Plan”) that qualified under Section 401(a) of the Internal Revenue Code. The Pension Plan provided for a monthly payment, at normal retirement age of 65, equal to one-twelfth of the sum of (i) 0.75% of Final Average Annual Compensation (five(5 highest consecutive calendar years’ earnings out of the last ten years of employment) multiplied by the employee’s years of service not in excess of 40 years, and (ii) 0.65% of Final Average Annual Compensation in excess of the average social security wage base multiplied by years of service not in excess of 35 years. Benefits were fully vested after five years of service. Effective December 31, 2012, the Company froze the Pension Plan for all participants.

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. As discussed below, the contributions are invested to provide for benefits under the Pension Plan. The Company did not make any contributions to the Pension Plan in 2018, 2017 or 2016.for the years presented. The Company also does not expect to contribute to the Pension Plan in 2019.

2021.

The following table reconciles the beginning and ending balances of the Pension Plan’s benefit obligation, as computed by the Company’s independent actuarial consultants, and its plan assets, with the difference between the two amounts representing the funded status of the Pension Plan as of the end of the respective year.

($ in thousands) 2018  2017  2016 
Change in benefit obligation            
Benefit obligation at beginning of year $38,150   36,840   36,164 
Service cost  —   —   — 
Interest cost  1,312   1,449   1,502 
Actuarial (gain) loss  (1,160)  1,941   1,288 
Benefits paid  (1,948)  (2,080)  (2,114)
Benefit obligation at end of year  36,354   38,150   36,840 
Change in plan assets            
Plan assets at beginning of year  41,306   36,950   35,489 
Actual return on plan assets  (188)  6,436   3,575 
Employer contributions  —   —   — 
Benefits paid  (1,948)  (2,080)  (2,114)
Plan assets at end of year  39,170   41,306   36,950 
             
Funded status at end of year $2,816   3,156   110 

114
($ in thousands)202020192018
Change in benefit obligation   
Benefit obligation at beginning of year$41,592 36,354 38,150 
Service cost0 0 0 
Interest cost1,223 1,482 1,312 
Actuarial loss (gain)3,788 5,492 (1,160)
Benefits paid(1,853)(1,736)(1,948)
Benefit obligation at end of year44,750 41,592 36,354 
Change in plan assets
Plan assets at beginning of year43,824 39,170 41,306 
Actual return on plan assets6,196 6,390 (188)
Employer contributions0 0 0 
Benefits paid(1,853)(1,736)(1,948)
Plan assets at end of year48,167 43,824 39,170 
Funded status at end of year$3,417 2,232 2,816 
The accumulated benefit obligation related to the Pension Plan was $36,354,000, $38,150,000,$44,750,000, $41,592,000, and $36,840,000$36,354,000 at December 31, 2020, 2019, and 2018, 2017, and 2016, respectively.

The following table presents information regarding the amounts recognized in the consolidated balance sheets at December 31, 20182020 and 20172019 as it relates to the Pension Plan, excluding the related deferred tax assets.

($ in thousands) 2018  2017 
       
Other assets $2,816   3,156 
Other liabilities  —   — 
  $2,816   3,156 

($ in thousands)20202019
Other assets$3,417 2,232 
The following table presents information regarding the amounts recognized in accumulated other comprehensive income (loss) (“AOCI”) at December 31, 20182020 and 2017,2019, as it relates to the Pension Plan.

($ in thousands) 2018  2017 
       
Net gain (loss) $(4,034)  (3,925)
Prior service cost  —   — 
Amount recognized in AOCI before tax effect  (4,034)  (3,925)
Tax (expense) benefit  943   1,452 
Net amount recognized as increase (decrease) to AOCI $(3,091)  (2,473)

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($ in thousands)20202019
Net loss$(1,771)(3,721)
Prior service cost0 0 
Amount recognized in AOCI before tax effect(1,771)(3,721)
Tax benefit407 855 
Net amount recognized as decrease to AOCI$(1,364)(2,866)

The following table reconciles the beginning and ending balances of AOCI at December 31, 20182020 and 2017,2019, as it relates to the Pension Plan:

($ in thousands) 2018  2017 
       
Accumulated other comprehensive loss at beginning of fiscal year $(2,909)  (3,692)
Net gain (loss) arising during period  (143)  1,686 
Amortization of unrecognized actuarial loss  34   244 
Tax (expense) benefit of changes during the year, net  (73)  (711)
Accumulated other comprehensive gain (loss)  (3,091)  (2,473)
Reclassification from AOCI to Retained Earnings due to statutory tax changes  —   (436)
Accumulated other comprehensive gain (loss) at end of fiscal year $(3,091)  (2,909)

($ in thousands)20202019
Accumulated other comprehensive loss at beginning of fiscal year$(2,866)(3,091)
Net gain (loss) arising during period1,107 (664)
Amortization of unrecognized actuarial loss843 977 
Tax benefit of changes during the year, net(448)(88)
Accumulated other comprehensive loss at end of fiscal year$(1,364)(2,866)




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The following table reconciles the beginning and ending balances of the prepaid pension cost related to the Pension Plan:

($ in thousands) 2018  2017 
       
Prepaid pension cost as of beginning of fiscal year $7,082   5,965 
Net periodic pension income (cost) for fiscal year  (231)  1,117 
Actual employer contributions  —   — 
Prepaid pension asset as of end of fiscal year $6,851   7,082 

($ in thousands)20202019
Prepaid pension cost as of beginning of fiscal year$5,954 6,851 
Net periodic pension cost for fiscal year(766)(897)
Actual employer contributions0 0 
Prepaid pension asset as of end of fiscal year$5,188 5,954 
Net pension (income) cost for the Pension Plan included the following components for the years ended December 31, 2018, 2017,2020, 2019, and 2016:

($ in thousands) 2018  2017  2016 
          
Service cost – benefits earned during the period $—   —   — 
Interest cost on projected benefit obligation  1,312   1,449   1,502 
Expected return on plan assets  (1,115)  (2,810)  (2,698)
Net amortization and deferral  34   244   238 
     Net periodic pension (income) cost $231   (1,117)  (958)

2018:

($ in thousands)202020192018
Service cost – benefits earned during the period$0 0 0 
Interest cost on projected benefit obligation1,223 1,482 1,312 
Expected return on plan assets(1,300)(1,562)(1,115)
Net amortization and deferral843 977 34 
Net periodic pension cost$766 897 231 
The estimated net loss for the Pension Plan that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $590,000.
The following table is an estimate of the benefits that will be paid in accordance with the Pension Plan during the indicated time periods, assuming the Pension Plan is operated on an ongoing basis.

($ in thousands) Estimated
benefit
payments		 
Year ending December 31, 2019 $1,735 
Year ending December 31, 2020  1,792 
Year ending December 31, 2021  1,898 
Year ending December 31, 2022  1,957 
Year ending December 31, 2023  2,000 
Years ending December 31, 2024-2028  10,582 

($ in thousands)Estimated
benefit
payments
Year ending December 31, 2021$1,843 
Year ending December 31, 20221,918 
Year ending December 31, 20231,977 
Year ending December 31, 20242,021 
Year ending December 31, 20252,085 
Years ending December 31, 2026-203010,891 
The investment objective of the Company’s Pension Plan is to ensure that there are sufficient assets to fund regular pension benefits payable to employees over the long-term life of the plan. The Plan seeks to allocate plan assets in a manner that is closely duration-matched with the actuarial projected cash flows of the Plan liabilities, consistent with prudent standards for preservation of capital, tolerance of investment risk, and maintenance of liquidity. Assets of the Plan are held by Fidelity Investments (the “Trustee”).

In 2018, the Plan adopted a liability-driven investment (“LDI”) approach to help meet these objectives. The LDI strategy employs a structured fixed-income portfolio designed to reduce volatility in the Plan’s future funding requirements and funding status. This is accomplished by using a blend of high quality corporate and government fixed-income securities, with both intermediate and long-term durations. Generally, the value of these fixed income securities is inversely correlated to changes in market interest rates, which substantially offsets changes in the value of the pension benefit obligation caused by changes in the interest rate used to discount plan liabilities.

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In the fourth quarter 2017, in anticipation of anticipated changes in investment objectives, the Company liquidated all investments and shifted the assets into a money market fund.

The fair values of the Company’s pension plan assets at December 31, 2018,2020, by asset category, were as follows:

($ in thousands)      
  Total Fair Value at
December 31,
2018		  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		  Significant Other
Observable Inputs
(Level 2)		  Significant
Unobservable
Inputs
(Level 3)		 
             
Cash and cash equivalents $267   267   —   — 
                 
Investment funds                
    Fixed income funds  38,903   —   38,903   — 
      Total $39,170   267   38,903   — 

($ in thousands)Total Fair Value at December 31,
2020		Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents$337 0 337 0 
Investment funds
Fixed income funds47,830 0 47,830 0 
Total$48,167 0 48,167 0 
The fair values of the Company’s pension plan assets at December 31, 2017,2019, by asset category, were as follows:

($ in thousands)      
  Total 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)		 
             
Cash and cash equivalents (money market fund) $41,306   —   41,306   — 
          Total $41,306   —   41,306   — 

($ in thousands)Total Fair Value at December 31,
2019		Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant Other
Observable Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents$274 0 274 0 
Investment funds
    Fixed income funds43,550 0 43,550 0 
      Total$43,824 0 43,824 0 
The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 20182020 and 2017.

-Cash and cash equivalents (money market fund): Valued at net asset value (“NAV”), which can be validated with a sufficient level of observable activity (i.e. purchases and sales at NAV), and therefore, the funds were classified within Level 2 of the fair value hierarchy.
-Fixed income funds consist of commingled funds that primarily include investments in U.S. government securities and corporate bonds. The commingled funds also include an insignificant portion of investments in other asset-based securities, municipal securities, etc. The commingled funds are valued at the NAV for the units in the fund. The NAV, as provided by the Trustee, is used as practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund.

2019.

-    Cash and cash equivalents: Valued at net asset value (“NAV”), which can be validated with a sufficient level of observable activity (i.e. purchases and sales at NAV), and therefore, the funds were classified within Level 2 of the fair value hierarchy.
-    Fixed income funds consist of commingled funds that primarily include investments in U.S. government securities and corporate bonds. The commingled funds also include an insignificant portion of investments in other asset-based securities, municipal securities, etc. The commingled funds are valued at the NAV for the units in the fund. The NAV, as provided by the Trustee, is used as practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund.
Supplemental Executive Retirement Plan. Historically, the Company sponsored a Supplemental Executive Retirement Plan (the “SERP”) for the benefit of certain senior management executives of the Company. The purpose of the SERP was to provide additional monthly pension benefits to ensure that each such senior management executive would receive lifetime monthly pension benefits equal to 3% of his or her final average compensation multiplied by his or her years of service (maximum of 20 years) to the Company or its subsidiaries, subject to a maximum of 60% of his or her final average compensation. The amount of a participant’s monthly SERP benefit is reduced by (i) the amount payable under the Company’s qualified Pension Plan (described above), and (ii) 50% of the participant’s primary social security benefit. Final average compensation means the average of the five5 highest consecutive calendar years of earnings during the last ten years of service prior to termination of employment. The SERP is an unfunded plan. Payments are made from the general assets of the Company. Effective December 31, 2012, the Company froze the SERP to all participants.

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The following table reconciles the beginning and ending balances of the SERP’s benefit obligation, as computed by the Company’s independent actuarial consultants:

($ in thousands) 2018  2017  2016 
Change in benefit obligation            
Projected benefit obligation at beginning of year $5,970   5,910   5,778 
Service cost  124   118   106 
Interest cost  200   227   238 
Actuarial (gain) loss  (102)  85   145 
Benefits paid  (398)  (370)  (357)
Projected benefit obligation at end of year  5,794   5,970   5,910 
Plan assets  —   —   — 
Funded status at end of year $(5,794)  (5,970)  (5,910)

($ in thousands)202020192018
Change in benefit obligation   
Projected benefit obligation at beginning of year$5,638 5,794 5,970 
Service cost0 0 124 
Interest cost158 219 200 
Actuarial (gain) loss517 23 (102)
Benefits paid(331)(398)(398)
Projected benefit obligation at end of year5,982 5,638 5,794 
Plan assets0 0 0 
Funded status at end of year$(5,982)(5,638)(5,794)
The accumulated benefit obligation related to the SERP was $5,794,000, $5,970,000,$5,982,000, $5,638,000, and $5,910,000$5,794,000 at December 31, 2020, 2019, and 2018, 2017, and 2016, respectively.

The following table presents information regarding the amounts recognized in the consolidated balance sheets at December 31, 20182020 and 20172019 as it relates to the SERP, excluding the related deferred tax assets.

($ in thousands) 2018  2017 
       
Other assets – prepaid pension asset (liability) $(6,608)  (6,695)
Other assets (liabilities)  814   725 
  $(5,794)  (5,970)

($ in thousands)20202019
Other liabilities$(5,982)(5,638)
The following table presents information regarding the amounts recognized in AOCI at December 31, 20182020 and 2017,2019, as it relates to the SERP:

($ in thousands) 2018  2017 
       
Net gain (loss) $814   725 
Prior service cost  —   — 
Amount recognized in AOCI before tax effect  814   725 
Tax (expense) benefit  (190)  (268)
Net amount recognized as increase (decrease) to AOCI $624   457 

($ in thousands)20202019
Net (loss) gain$(46)629 
Prior service cost0 0 
Amount recognized in AOCI before tax effect(46)629 
Tax expense11 (145)
Net amount recognized as (decrease) increase to AOCI$(35)484 
The following table reconciles the beginning and ending balances of AOCI at December 31, 20182020 and 2017,2019, as it relates to the SERP:

($ in thousands) 2018  2017 
       
Accumulated other comprehensive income at beginning of fiscal year $457   533 
Net gain (loss) arising during period  102   (85)
Prior service cost  —   — 
Amortization of unrecognized actuarial loss  (13)  (34)
Amortization of prior service cost and transition obligation  —   — 
Tax benefit (expense) related to changes during the year, net  78   43 
Accumulated other comprehensive income (loss) at end of fiscal year $624   457 

126 

($ in thousands)20202019
Accumulated other comprehensive income (loss) at beginning of fiscal year$484 624 
Net (loss) gain arising during period(517)(22)
Prior service cost0 0 
Amortization of unrecognized actuarial gain(157)(163)
Amortization of prior service cost and transition obligation0 0 
Tax expense related to changes during the year, net155 45 
Accumulated other comprehensive income (loss) at end of fiscal year$(35)484 






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The following table reconciles the beginning and ending balances of the prepaid pension cost related to the SERP:

($ in thousands) 2018  2017 
       
Prepaid pension cost (liability) as of beginning of fiscal year $(6,695)  (6,754)
Net periodic pension cost for fiscal year  (311)  (311)
Benefits paid  398   370 
Prepaid pension cost (liability) as of end of fiscal year $(6,608)  (6,695)

($ in thousands)20202019
Accrued liability as of beginning of fiscal year$(6,266)(6,608)
Net periodic pension cost for fiscal year(1)(56)
Benefits paid331 398 
Accrued liability as of end of fiscal year$(5,936)(6,266)
Net pension cost for the SERP included the following components for the years ended December 31, 2018, 2017,2020, 2019, and 2016:

($ in thousands) 2018  2017  2016 
          
Service cost – benefits earned during the period $124   118   106 
Interest cost on projected benefit obligation  200   227   238 
Net amortization and deferral  (13)  (34)  (35)
     Net periodic pension cost $311   311   309 

2018:

($ in thousands)202020192018
Service cost – benefits earned during the period$0 0 124 
Interest cost on projected benefit obligation158 219 200 
Net amortization and deferral(157)(163)(13)
Net periodic pension cost$1 56 311 
The estimated net loss for the SERP that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $15,000.
The following table is an estimate of the benefits that will be paid in accordance with the SERP during the indicated time periods:

 

($ in thousands)

 

 Estimated
benefit
payments		 
Year ending December 31, 2019 $411 
Year ending December 31, 2020  408 
Year ending December 31, 2021  401 
Year ending December 31, 2022  391 
Year ending December 31, 2023  380 
Years ending December 31, 2024-2028  1,970 

Assumptions used

($ in thousands)
Estimated
benefit
payments
Year ending December 31, 2021$330 
Year ending December 31, 2022326 
Year ending December 31, 2023322 
Year ending December 31, 2024318 
Year ending December 31, 2025340 
Years ending December 31, 2026-20301,719 
Applicable to both Plans
The components of net periodic benefit cost other than the service cost component are included in both Plans

the line item "Other operating expenses" in the Consolidated Statements of Income.


The following assumptions were used in determining the actuarial information for the Pension Plan and the SERP for the years ended December 31, 2018, 2017,2020, 2019, and 2016:

  2018  2017  2016 
  Pension
Plan		  SERP  Pension
Plan		  SERP  Pension
Plan		  SERP 
Discount rate used to determine net periodic pension cost  3.46%   3.46%   3.97%   3.97%   4.17%   4.17% 
Discount rate used to calculate end of year liability disclosures  4.08%   3.92%   3.46%   3.46%   3.97%   3.97% 
Expected long-term rate of return on assets  2.75%   n/a   7.75%   n/a   7.75%   n/a 
Rate of compensation increase  n/a   n/a   n/a   n/a   n/a   n/a 

2018:

 202020192018
 Pension
Plan		SERPPension
Plan		SERPPension
Plan		SERP
Discount rate used to determine net periodic pension cost3.03 %2.89 %4.08 %3.92 %3.46 %3.46 %
Discount rate used to calculate end of year liability disclosures2.24 %2.04 %3.03 %2.89 %4.08 %3.92 %
Expected long-term rate of return on assets3.03 %n/a4.08 %n/a2.75 %n/a
Rate of compensation increasen/an/an/an/an/an/a
The Company’s discount rate policy for the Pension Plan is based on a calculation of the Company’s expected pension payments, with those payments discounted using the FTSE yield curve (formerly called the Citigroup Pension Index yield curve.

For each ofcurve) that matches the years ended December 31, 2017 and 2016, the Company used anspecific expected long-term rate of return on assets assumption of 7.75%. The Company arrived at this rate based primarily on a third-party investment consulting firm’s historical analysis of investment returns, which indicated that the mixcash flows of the Pension Plan’s assets (generally 75% equities and 25% fixed income) could be expectedPlan. The discount rate policy for the SERP is to return approximately 7.75% on a long term basis.

As discussed previously, in 2018,use the Company changed investment strategies, which resulted inFTSE yield curve that matches the expected return on assets being adjusted to 2.75% forcash flows of the year.

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119

Note 13.12. Commitments, Contingencies, and Concentrations of Credit Risk

See Note 1110 with respect to future obligations under noncancelable operating leases.

In the normal course of the Company’s business, there are various outstanding commitments and contingent liabilities such as commitments to extend credit that are not reflected in the financial statements. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment. Commitments may expire without being used. The following table presents the Company’s outstanding loan commitments at December 31, 2018.

($ in thousands)         
          
Type of Commitment Fixed Rate  Variable Rate  Total 
Outstanding closed-end loan commitments $209,726   460,377   670,103 
Unfunded commitments on revolving lines of credit, credit cards and home equity loans  149,898   468,793   618,691 
     Total $359,624   929,170   1,288,794 

2020 and December 31, 2019.

($ in thousands)December 31, 2020December 31, 2019
Type of CommitmentFixed RateVariable RateTotalFixed RateVariable RateTotal
Loan commitments$238,745 94,218 332,963 263,775 123,169 386,944 
Unused lines of credit188,014 900,046 1,088,060 169,278 766,450 935,728 
Total$426,759 994,264 1,421,023 433,053 889,619 1,322,672 
At December 31, 20182020 and 2017,2019, the Company had $15.7$14.1 million and $15.2$12.0 million, respectively, in standby letters of credit outstanding. The Company has no carrying amount for these standby letters of credit at either of those dates. The nature of the standby letters of credit is a stand-alone obligation made on behalf of the Company’s customers to suppliers of the customers to guarantee payments owed to the supplier by the customer. The standby letters of credit are generally for terms for one year, at which time they may be renewed for another year if both parties agree. The payment of the guarantees would generally be triggered by a continued nonpayment of an obligation owed by the customer to the supplier. The maximum potential amount of future payments (undiscounted) the Company could be required to make under the guarantees in the event of nonperformance by the parties to whom credit or financial guarantees have been extended is represented by the contractual amount of the standby letter of credit. In the event that the Company is required to honor a standby letter of credit, a note, already executed with the customer, is triggered which provides repayment terms and any collateral. Over the past two years, the Company has only had to honor a minimal amount of standby letters of credit, which have been or are being repaid by the borrower without any loss to the Company. Management expects any draws under existing commitments to be funded through normal operations.

The Company is not involved in any legal proceedings which, in management’s opinion, could have a material effect on the consolidated financial position of the Company.

The Bank grants primarily commercial and installment loans to customers throughout its market area, which consists of Alamance, Beaufort, Bladen, Brunswick, Buncombe, Cabarrus, Carteret, Chatham, Columbus, Cumberland, Dare, Davidson, Duplin, Forsyth, Guilford, Harnett, Henderson, Iredell, Lee, Madison, McDowell, Mecklenburg, Montgomery, Moore, New Hanover, Onslow, Pitt, Randolph, Richmond, Robeson, Rockingham, Rowan, Scotland, Stanly, Transylvania and Wake Countiesbranch locations in 36 counties across all regions of North Carolina and Chesterfield, Dillon, and Florence Counties3 counties in northeastern South Carolina. The real estate loan portfolio can be affected by the condition of the local real estate market. The commercial and installment loan portfolios can be affected by local economic conditions.

The Company’s loan portfolio is not concentrated in loans to any single borrower or to a relatively small number of borrowers. Additionally, management is not aware of any concentrations of loans to classes of borrowers or industries that would be similarly affected by economic conditions.

In addition to monitoring potential concentrations of loans to particular borrowers or groups of borrowers, industries and geographic regions, the Company monitors exposure to credit risk that could arise from potential concentrations of lending products and practices such as loans that subject borrowers to substantial payment increases (e.g. principal deferral periods, loans with initial interest-only periods, etc.), and loans with high loan-to-value ratios. Additionally, there are industry practices that could subject the Company to increased credit risk should economic conditions change over the course of a loan’s life. For example, the Bank makes variable rate loans and fixed rate principal-amortizing loans with maturities prior to the loan being fully paid (i.e. balloon payment loans). These loans are underwritten and monitored to manage the associated risks. The Company has determined that there is no concentration of credit risk associated with its lending policies or practices.

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The Company’s investment portfolio consists principally of obligations of government-sponsored enterprises, mortgage-backed securities guaranteed by government-sponsored enterprises, corporate bonds, and general obligation municipal securities. The Company also holds stock with the Federal Reserve Bank and the Federal Home Loan Bank as a requirement for membership in the system. The following are the fair values at December 31, 20182020 of securities to any one issuer/guarantor that exceed $5.0 million, with such amounts representing the maximum amount of credit risk that the Company would incur if the issuer did not repay the obligation.

($ in thousands)

Issuer

 Amortized Cost  Fair Value 
Fannie Mae – mortgage-backed securities $191,839   186,735 
Ginnie Mae – mortgage-backed securities  127,358   123,593 
Freddie Mac – mortgage-backed securities  98,608   95,285 
Federal Home Loan Bank System - bonds  70,495   70,421 
Small Business Administration securities  26,878   25,977 
Federal Home Loan Bank of Atlanta -  common stock  20,036   20,036 
Federal Reserve Bank  - common stock  17,432   17,432 
Bank of America corporate bonds  7,000   6,879 
Citigroup, Inc. corporate bonds  6,028   5,921 
Goldman Sachs Group Inc. corporate bond  5,073   4,937 
JP Morgan Chase corporate bond  5,018   4,904 
Federal Farm Credit Bank – bond  5,000   4,921 
Fannie Mae – bond  5,000   4,871 

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($ in thousands)
Issuer
Amortized CostFair Value
Fannie Mae – mortgage-backed securities$571,245 585,035 
Freddie Mac – mortgage-backed securities549,811 552,830 
Ginnie Mae – mortgage-backed securities234,780 237,159 
Federal Farm Credit Bank – bonds40,015 40,356 
Federal Home Loan Bank system - bonds30,000 29,850 
Small Business Administration securities22,150 22,436 
Federal Reserve Bank  - common stock17,671 17,671 
First Citizens Bank – corporate bonds11,000 10,999 
Bank of America corporate bonds7,000 7,409 
Citigroup, Inc. corporate bonds6,014 6,346 
Federal Home Loan Bank of Atlanta -  common stock5,855 5,855 
Loudoun County, Virginia - municipal bond5,599 5,735 
Goldman Sachs Group Inc. corporate bond5,037 5,319 
JP Morgan Chase corporate bond5,009 5,294 
The Company also periodically invests in limited partnerships, limited liability companies (“LLCs”), and other privately held companies. As of December 31, 2020, the Company had a remaining funding commitments of $6.3 million related to these investments.
The Company primarily places its deposits and correspondent accounts with the Federal Home Loan Bank of Atlanta, the FRB,Federal Reserve Bank, and Pacific Coast Bankers Bank (“PCBB”). At December 31, 2018,2020, the Company had deposits in the Federal Home Loan Bank of Atlanta totaling $135.4$42.6 million, deposits of $246.2$230.7 million in the Federal Reserve Bank, and deposits of $0.2$2.8 million in PCBB. None of the deposits held at the Federal Home Loan Bank of Atlanta or the Federal Reserve Bank are FDIC-insured, however the Federal Reserve Bank is a government entity and therefore risk of loss is minimal. The deposits held at PCBB are FDIC-insured up to $250,000.

Note 14.13. Fair Value of Financial Instruments

Relevant accounting guidance establishes

Fair value is the exchange price that would be received for an asset or paid to transfer a fair value hierarchy which requiresliability (exit price) in the principal and most advantageous market for the asset or liability in an entity to maximizeorderly transaction between market participants on the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describesmeasurement date. There are three levels of inputs that may be used to measure fair value:

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

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

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

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

($ in thousands)      
Description of Financial Instruments Fair Value at
December 31,
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 $82,662   —   82,662   — 
Mortgage-backed securities  385,551   —   385,551   — 
Corporate bonds  33,138   —   33,138   — 
Total available for sale securities $501,351   —   501,351   — 
                 
Nonrecurring                
     Impaired loans $13,071   —   —   13,071 
     Foreclosed real estate  7,440   —   —   7,440 

2020.

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($ in thousands)  
Description of Financial InstrumentsFair Value at December 31,
2020		Quoted Prices in
Active Markets
for Identical
Assets (Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Recurring    
Securities available for sale:    
Government-sponsored enterprise securities$70,206 0 70,206 0 
Mortgage-backed securities1,337,706 0 1,337,706 0 
Corporate bonds45,220 0 45,220 0 
Total available for sale securities$1,453,132 0 1,453,132 0 
Presold mortgages in process of settlement$42,271 42,271 0 0 
Nonrecurring
Impaired loans$22,142 0 0 22,142 
Foreclosed real estate1,484 0 0 1,484 
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.

($ 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 

2019.

($ in thousands)  
Description of Financial InstrumentsFair Value at December 31,
2019		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$20,009 0 20,009 0 
Mortgage-backed securities767,285 0 767,285 0 
Corporate bonds34,651 0 34,651 0 
Total available for sale securities$821,945 0 821,945 0 
Presold mortgages in process of settlement$19,712 19,712 0 0 
Nonrecurring
Impaired loans$16,215 0 0 16,215 
Foreclosed real estate1,830 0 0 1,830 
The following is a description of the valuation methodologies used for instruments measured at fair value.

Presold Mortgages in Process of Settlement - The fair value is based on the committed price that an investor has agreed to pay for the loan and is considered a Level 1 input.
Securities Available for Sale — When quoted market prices are available in an active market, the securities are classified as Level 1 in the valuation hierarchy. If quoted market prices are not available, but fair values can be estimated by observing quoted prices of securities with similar characteristics, the securities are classified as Level 2 on the valuation hierarchy. Most of the fair values for the Company’s Level 2 securities are determined by our third-party bond accounting provider using matrix pricing. Matrix pricing is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. For the Company, Level 2 securities include mortgage-backed securities, commercial mortgage-backed obligations, government-sponsored enterprise securities, and corporate
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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.

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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 December 31, 2018,2020, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands)

Description

Fair Value at
December 31,
2018

Valuation
Technique

Significant Unobservable
Inputs

General Range
of Significant
Unobservable
Input Values

Impaired loans$         13,071Appraised value; PV of expected cash flowsDiscounts to reflect current market conditions, ultimate collectability, and estimated costs to sell0-10%
Foreclosed real estate7,440Appraised value; List or contract priceDiscounts to reflect current market conditions and estimated costs to sell0-10%

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($ in thousands)  
DescriptionFair Value at December 31,
2020		Valuation
Technique		Significant Unobservable
Inputs		Range (Weighted Average)
Impaired loans - valued at collateral value$16,000 Appraised valueDiscounts applied for estimated costs to sell10%
Impaired loans - valued at PV of expected cash flows$6,142 PV of expected cash flowsDiscount rates used in the calculation of PV of expected cash flows4-11% (6.21%)
Foreclosed real estate1,484 Appraised valueDiscounts for estimated costs to sell10%


For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2017,2019, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands)

Description

Fair Value at
December 31,
2017

Valuation
Technique

Significant Unobservable
Inputs

General Range
of Significant
Unobservable
Input Values

Impaired loans$         14,086Appraised value; PV of expected cash flowsDiscounts to reflect current market conditions, ultimate collectability,
($ in thousands)  
DescriptionFair Value at December 31,
2019		Valuation
Technique		Significant Unobservable
Inputs		Range (Weighted Average)
Impaired loans - valued at collateral value$10,718 Appraised valueDiscounts applied for estimated costs to sell10%
Impaired loans - valued at PV of expected cash flows$5,497 PV of expected cash flowsDiscount rates used in the calculation of PV of expected cash flows4-11% (6.50%)
Foreclosed real estate1,830 Appraised valueDiscounts for estimated costs to sell10%
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The carrying amounts and estimated costs to sell
0-10%
Foreclosed real estate12,571Appraised value; List or contract priceDiscounts to reflect current market conditions and estimated costs to sell0-10%

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 years ended December 31, 2018 or 2017.

For the year ended December 31, 2018, the decrease in the fair value of securities available for sale was $10,179,000, and for the year ended December 31, 2017, the increase in the fair value of securities available for sale was $639,000, which is included in other comprehensive income (net of tax benefit of $2,379,000 and tax expense of $234,000, for 2018 and 2017, respectively). Fair value measurement methods at December 31, 2018 and 2017 are consistent with those used in prior reporting periods.

As discussed in Note 1(r), the Company is required to disclose estimated fair values for itsof financial instruments. Fairinstruments not carried at fair value estimates as of December 31, 20182020 and 2017 and limitations thereon2019 are set forth below for the Company’s financial instruments. See as follows:

 December 31, 2020December 31, 2019
 
($ in thousands)		Level in
Fair Value
Hierarchy		Carrying
Amount		Estimated
Fair Value		Carrying
Amount		Estimated
Fair Value
Cash and due from banks, noninterest-bearingLevel 1$93,724 93,724 64,519 64,519 
Due from banks, interest-bearingLevel 1273,566 273,566 166,783 166,783 
Securities held to maturityLevel 2167,551 170,734 67,932 68,333 
    SBA loans held for saleLevel 26,077 7,465 0 0 
Total loans, net of allowanceLevel 34,678,927 4,661,197 4,432,068 4,407,610 
Accrued interest receivableLevel 120,272 20,272 16,648 16,648 
Bank-owned life insuranceLevel 1106,974 106,974 104,441 104,441 
SBA servicing assetLevel 35,788 6,569 5,383 5,649 
DepositsLevel 26,273,596 6,275,329 4,931,355 4,930,751 
BorrowingsLevel 261,829 53,321 300,671 295,399 
Accrued interest payableLevel 2904 904 2,154 2,154 
Note 1(r) for a discussion of fair value methods and assumptions, as well as fair value information for off-balance sheet financial instruments.

    December 31, 2018  December 31, 2017 

 

($ in thousands)

 Level in
Fair Value
Hierarchy		 Carrying
Amount		  Estimated
Fair Value		  Carrying
Amount		  Estimated
Fair Value		 
               
Cash and due from banks, noninterest-bearing Level 1 $56,050   56,050   114,301   114,301 
Due from banks, interest-bearing Level 1  406,848   406,848   375,189   375,189 
Securities available for sale Level 2  501,351   501,351   343,270   343,270 
Securities held to maturity Level 2  101,237   99,906   118,503   118,998 
Presold mortgages in process of settlement Level 1  4,279   4,279   12,459   12,459 
Total loans, net of allowance Level 3  4,228,025   4,181,139   4,019,071   4,010,551 
Accrued interest receivable Level 1  16,004   16,004   14,094   14,094 
Bank-owned life insurance Level 1  101,878   101,878   99,162   99,162 
SBA Servicing Asset Level 3  4,419   4,617   1,987   1,987 
                   
Deposits Level 2  4,659,339   4,653,522   4,406,955   4,401,757 
Borrowings Level 2  406,609   402,556   407,543   397,903 
Accrued interest payable Level 2  1,976   1,976   1,235   1,235 

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.

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14. Stock-Based Compensation
Table of Contents

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

Note 15. Equity-Based Compensation Plans

The Company recorded total stock-based compensation expense of $1,569,000, $1,095,000$2,540,000, $2,270,000 and $714,000$1,569,000 for the years ended December 31, 2020, 2019, and 2018, 2017, and 2016, respectively. Of the $1,569,000 in expense that was recorded in 2018, approximately $352,000 related to the June 1, 2018 director grants discussed below, and is classified as “other operating expenses” in the Consolidated Statements of Income. The remaining $1,217,000 in expense relates to the employee 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 $367,000, $405,000,$584,000, $522,000, and $264,000$367,000 of income tax benefits related to stock basedstock-based compensation expense in the income statement for the years ended December 31, 2020, 2019, and 2018, 2017, and 2016, respectively.

At December 31, 2018,2020, the sole equity-based compensation plan for the Company had the following equity-based compensation plans:is the First Bancorp 2014 Equity Plan and the First Bancorp 2007 Equity Plan. The Company’s shareholders(the "Equity Plan), which was approved each plan. The First Bancorp 2014 Equity Plan became effective upon the approval ofby shareholders on May 8, 2014. As of December 31, 2018,2020, the First Bancorp 2014 Equity Plan was the only plan that had shares available for future grants, and there were 750,707549,876 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 plans’ 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 grantsawards to employees have been in the form of shares of restricted stock with service vesting conditions only. Compensation expense for these grants is recorded over the requisite service periods. No compensation cost is recognized for grants that do not vest andUpon forfeiture, any previously recognized compensation cost is reversed at forfeiture. The Company issues new shares of common stock when optionsreversed. Upon a change in control (as defined in the Equity Plan), unless the awards remain outstanding or substitute equivalent awards are exercised.

provided, the awards become immediately vested.

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

As it relates to director equity grants, the The Company typically grantsissues new shares of common stock when options are exercised.

In addition to employee equity awards, the Company's practice is to grant common shares, valued at approximately $32,000, to each non-employee director (currently 11 in total) in June of each year. Compensation expense associated with these director awards is recognized on the date of the award since there are no vesting conditions. On June 1, 2018,2020, the Company granted 8,39314,146 shares of common stock to non-employee directors (763(1,286 shares per director), at a fair market value of $41.93$24.87 per share, which was the closing price of the Company’s common stock on that date, which resulted in $352,000 in expense. On June 1, 2017,2019, the Company granted 11,1909,030 shares of common stock to non-employee directors (1,119(903 shares per director), at a fair market value of $28.59$35.41 per share, which was the closing price of the Company’s common stock on that date, which resulted in $320,000 in expense.

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The Company’s senior officers receive their annual bonus 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 54,529 shares of restricted stock have been granted related to performance in the preceding fiscal years (net of an immaterial amount of forfeitures). Total compensation expense associated with thosedirector grants was $1,410,000 and is being recognized overclassified as "other operating expense" in the respective vesting periods. The Company recorded $293,000, $282,000 and $220,000, for the years ended December 31, 2018, 2017 and 2016, respectively.

In the last three years, the Compensation CommitteeConsolidated Statements of the Company’s Board of Directors also granted 117,704 shares of stock to various employees of the Company to promote retention. The total value associated with these grants amounted to $3,621,000, and is being recorded as expense over their three year vesting periods. For 2018, 2017, and 2016, total compensation expense related to these grants was $924,000, $491,000, and $366,000, respectively. All grants were issued based on the closing price of the Company’s common stock on the date of the grant.

Based on the vesting schedules of the shares of restricted stock currently outstanding, the Company expects to record $1,218,000 in stock-based compensation expense in 2019.

Income.

The following table presents information regarding the activity during 2016, 2017,2018, 2019, and 20182020 related to the Company’s outstanding restricted stock:

  Long-Term Restricted Stock 
       
Nonvested at January 1, 2016  55,329  $17.31 
         
Granted during the period  65,255   19.40 
Vested during the period  (28,794)  17.79 
Forfeited or expired during the period  —   — 
         
Nonvested at December 31, 2016  91,790  $18.65 
         
Granted during the period  48,322   31.05 
Vested during the period  (28,514)  20.05 
Forfeited or expired during the period  (8,535)  18.34 
         
Nonvested at December 31, 2017  103,063  $24.08 
         
Granted during the period  66,060   40.04 
Vested during the period  (35,703)  22.82 
Forfeited or expired during the period  (4,169)  29.99 
         
Nonvested at December 31, 2018  129,251  $32.39 

In years prior

 Long-Term Restricted Stock
SharesGrant Date Fair Value
Nonvested at January 1, 2018103,063 $24.08 
Granted during the period66,060 40.04 
Vested during the period(35,703)22.82 
Forfeited or expired during the period(4,169)29.99 
Nonvested at December 31, 2018129,251 $32.39 
Granted during the period82,826 36.36 
Vested during the period(51,757)25.02 
Forfeited or expired during the period(954)41.93 
Nonvested at December 31, 2019159,366 $36.79 
Granted during the period68,704 26.96 
Vested during the period(55,965)33.91 
Forfeited or expired during the period0 0 
Nonvested at December 31, 2020172,105 $33.80 
Total unrecognized compensation expense as of December 31, 2020 amounted to $2,554,000 with a weighted average remaining term of 1.8 years. The Company expects to record $1,577,000 of compensation expense in the next twelve months related to these nonvested awards that are outstanding at December 31, 2020.
Prior to 2010, stock options were the primary form of equity grantstock-based compensation utilized by the Company. The stock options had a term of ten years. In 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 December 31, 2018,2019 and 2020, there were 9,0000 stock options outstanding related to the Company’s two equity-based plans, all with an exercise price of $14.35 and an exercise date of June 1, 2019.

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outstanding.
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The following table presents information regarding the activity since January 1, 20162018 related to all of the Company’s stock options outstanding:

  Options Outstanding 
  Number of
Shares		  Weighted-
Average
Exercise
Price		  Weighted-
Average
Contractual
Term (years)		  Aggregate
Intrinsic
Value		 
             
Balance at January 1, 2016  117,408  $18.12         
                 
   Granted  —   —         
   Exercised  (23,710)  15.84      $81,894 
   Forfeited  —   —         
   Expired  (33,750)  21.39         
                 
Balance at December 31, 2016  59,948  $17.18         
                 
   Granted  —   —         
   Exercised  (21,259)  19.16      $236,584 
   Forfeited  —   —         
   Expired  —   —         
                 
Balance at December 31, 2017  38,689  $16.09         
                 
   Granted  —   —         
   Exercised  (29,689)  16.61      $659,743 
   Forfeited  —   —         
   Expired  —   —         
                 
Outstanding at December 31, 2018  9,000  $14.53   0.42  $163,038 
                 
Exercisable at December 31, 2018  9,000  $14.53   0.42  $163,038 

 Options Outstanding
 Number of
Shares		Weighted-
Average
Exercise
Price		Weighted-
Average
Contractual
Term (years)		Aggregate
Intrinsic
Value
Balance at January 1, 201838,689 $16.09 
Granted0 0 
Exercised(29,689)16.61 $659,743 
Forfeited0 0 
Expired0 0 
Balance at December 31, 20189,000 $14.35 
Granted0 0 
Exercised(9,000)14.35 $203,963 
Forfeited0 0 
Expired0 0 
Balance at December 31, 20190 $0 
Granted0 0 
Exercised0 0 $0 
Forfeited0 0 
Expired0 0 
Outstanding at December 31, 20200 $0 — $0 
Exercisable at December 31, 20200 $0 — $0 
In 2018, 20172019 and 2016,2018, the Company received $324,000, $287,000$129,000 and $375,000,$324,000, respectively, as a result of stock option exercises.

Note 16.15. Regulatory Restrictions

The Company is regulated by the Board of Governors of the FRBFederal Reserve and is subject to securities registration and public reporting regulations of the Securities and Exchange Commission. The Bank is regulated by the FRBFederal Reserve and the North Carolina Commissioner of Banks.

The primary source of funds for the payment of dividends by the Company is dividends received from its subsidiary, the Bank. The Bank, as a North Carolina banking corporation, may declare dividends so long as such dividends do not reduce its capital below its applicable required capital (typically, the level of capital required to be deemed “adequately capitalized.”) As of December 31, 2018,2020, approximately $582,000,000$590,672,000 of the Company’s investment in the Bank is restricted as to transfer to the Company without obtaining prior regulatory approval.

The average reserve balance maintained by the Bank under the requirements of the FRB was approximately $3,553,000$1,099,000 for the year ended December 31, 2018.

2020.

The Company and the Bank must comply with regulatory capital requirements established by the FRB. 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 the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

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In 2013, the FRB approved final rules implementing the Basel Committee on Banking Supervision capital guidelines, referred to a “Basel III.” The final rules established a new “Common Equity Tier I” ratio; new higher

126
capital ratio requirements, including a capital conservation buffer; narrowed the definitions of capital; imposed new operating restrictions on banking organizations with insufficient capital buffers; and increased the risk weighting of certain assets. The final rules became effective January 1, 2015 for the Company. The capital conservation buffer requirement was phased in beginning January 1, 2016, at 0.625% of risk weighted assets, and will increaseincreased each year until fully implemented at 2.5% in January 1, 2019. The capital conservation buffer requirement at December 31, 20182020 was 1.875%2.5%.

As of December 31, 2018,2020, the capital standards require the Company to maintain minimum ratios of “Common Equity Tier I” capital to total risk-weighted assets, “Tier I” 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 I 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 I capital is comprised of Common Equity Tier I capital plus Additional Tier I Capital, which for the Company includes non-cumulative perpetual preferred stock and trust preferred securities. Total capital is comprised of Tier I 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 FRBFederal Reserve and FDIC regulations.

In addition to the risk-based capital requirements described above, the Company and the Bank are subject to a leverage capital requirement, which calls for a minimum ratio of Tier I 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 FRBFederal Reserve has not advised the Company of any requirement specifically applicable to it.

In addition to the minimum capital requirements described above, the regulatory framework for prompt corrective action also contains specific capital guidelines applicable to banks for classification as “well capitalized,” which are presented with the minimum ratios, the Company’s ratios and the Bank’s ratios as of December 31, 20182020 and 20172019 in the following table. Based on the most recent notification from its regulators, the Bank is well capitalized under the framework. There are no conditions or events since that notification that management believes have changed the Company’s classification.

Also see Note 19 for discussion of preferred stock transactions that have affected the Company’s capital ratios.

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127

  Actual  Fully Phased-In Regulatory
Guidelines Minimum		  To Be Well Capitalized
Under Current Prompt
Corrective Action Provisions		 
($ in thousands) Amount  Ratio  Amount  Ratio  Amount  Ratio 
        (must equal or exceed)  (must equal or exceed) 
As of December 31, 2018                        
Common Equity Tier I Capital Ratio                        
    Company $535,566   12.28%  $305,287   7.00%  $ N/A   N/A 
    Bank  586,053   13.44%   305,163   7.00%   283,366   6.50% 
Total Capital Ratio                        
    Company  609,428   13.97%   457,930   10.50%    N/A   N/A 
    Bank  607,717   13.94%   457,745   10.50%   435,948   10.00% 
Tier I Capital Ratio                        
    Company  587,764   13.48%   370,705   8.50%   N/A   N/A 
     Bank  586,053   13.44%   370,555   8.50%   348,758   8.00% 
Leverage Ratio                        
    Company  587,764   10.47%   224,014   4.00%   N/A   N/A 
    Bank  586,053   10.45%   224,406   4.00%   280,508   5.00% 
                         
                         
As of December 31, 2017                        
Common Equity Tier I Capital Ratio                        
    Company $456,826   10.72%  $298,406   7.00%  $ N/A   N/A 
    Bank  507,496   11.91%   298,277   7.00%   276,972   6.50% 
Total Capital Ratio                        
    Company  532,907   12.50%   447,609   10.50%    N/A   N/A 
    Bank  531,612   12.48%   447,416   10.50%   426,111   10.00% 
Tier I Capital Ratio                        
    Company  508,791   11.94%   362,350   8.50%   N/A   N/A 
     Bank  507,496   11.91%   362,194   8.50%   340,889   8.00% 
Leverage Ratio                        
    Company  508,791   9.58%   212,536   4.00%   N/A   N/A 
    Bank  507,496   9.57%   212,224   4.00%   265,281   5.00% 
 ActualFully Phased-In Regulatory
Guidelines Minimum		To Be Well Capitalized
Under Current Prompt
Corrective Action Provisions
($ in thousands)AmountRatioAmountRatioAmountRatio
   (must equal or exceed)(must equal or exceed)
As of December 31, 2020
Common Equity Tier I Capital Ratio
Company$639,369 13.19 %$339,251 7.00 %$ N/AN/A
Bank682,312 14.08 %339,125 7.00 %314,902 6.50 %
Total Capital Ratio
Company744,835 15.37 %508,876 10.50 %N/AN/A
Bank735,282 15.18 %508,688 10.50 %484,465 10.00 %
Tier I Capital Ratio
Company691,865 14.28 %411,947 8.50 %N/AN/A
Bank682,312 14.08 %411,795 8.50 %387,572 8.00 %
Leverage Ratio
Company691,865 9.88 %280,039 4.00 %N/AN/A
Bank682,312 9.75 %280,003 4.00 %350,004 5.00 %
As of December 31, 2019
Common Equity Tier I Capital Ratio
Company$610,642 13.28 %$321,994 7.00 %$ N/AN/A
Bank661,234 14.38 %321,866 7.00 %298,875 6.50 %
Total Capital Ratio
Company684,931 14.89 %482,991 10.50 %N/AN/A
Bank683,178 14.86 %482,799 10.50 %459,808 10.00 %
Tier I Capital Ratio
Company662,987 14.41 %390,993 8.50 %N/AN/A
Bank661,234 14.38 %390,837 8.50 %367,846 8.00 %
Leverage Ratio
Company662,987 11.19 %236,904 4.00 %N/AN/A
Bank661,234 11.17 %236,700 4.00 %295,875 5.00 %

Note 17.16. Supplementary Income Statement Information

Components of other noninterest income/expense exceeding 1% of total incomerevenue for any of the years ended December 31, 2018, 2017,2020, 2019, and 20162018 are as follows:

($ in thousands) 2018  2017  2016 
          
Other service charges, commissions, and fees – debit card interchange income $10,466   7,732   6,564 
Other service charges, commissions, and fees – other interchange income  4,140   3,722   3,018 
             
Other operating expenses – dues and subscriptions (includes software subscriptions)  3,431   1,889   1,604 
Other operating expenses – credit/debit card processing expense  3,411   2,797   2,296 
Other operating expenses – data processing expense  3,234   2,910   2,010 
Other operating expenses – marketing  3,065   2,549   1,999 
Other operating expenses – telephone and data line expense  3,024   2,470   2,311 
Other operating expenses – stationery and supplies  2,582   2,399   2,066 
Other operating expenses – FDIC insurance expense  2,333   2,350   2,009 
Other operating expenses – outside consultants  1,820   2,511   1,700 
Other operating expenses – repossession and collection  1,366   1,736   1,842 

137 

($ in thousands)202020192018
Other service charges, commissions, and fees – interchange fees, net$14,142 13,814 11,995 
Other operating expenses – dues and subscriptions (includes software subscriptions)4,764 4,250 3,431 
Other operating expenses – data processing expense3,157 3,130 3,234 
Other operating expenses – telephone and data line expense2,893 3,057 3,024 
Other operating expenses – marketing1,960 2,727 3,065 




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Note 18.17. Condensed Parent Company Information

Condensed financial data for First Bancorp (parent company only) follows:

CONDENSED BALANCE SHEETS As of December 31, 
($ in thousands) 2018  2017 
Assets      
Cash on deposit with bank subsidiary $5,544   4,535 
Investment in wholly-owned subsidiaries, at equity  816,648   745,669 
Premises and Equipment  7   7 
Other assets  —   — 
         Total assets  822,199   750,211 
         
Liabilities and shareholders’ equity        
Trust preferred securities  53,902   53,758 
Other liabilities  4,067   3,474 
     Total liabilities  57,969   57,232 
         
Shareholders’ equity  764,230   692,979 
         
         Total liabilities and shareholders’ equity $822,199   750,211 

CONDENSED STATEMENTS OF INCOME Year Ended December 31, 
($ in thousands) 2018  2017  2016 
          
Dividends from wholly-owned subsidiaries $15,525   52,732   9,000 
Earnings of wholly-owned subsidiaries, net of dividends  77,050   (4,793)  20,517 
Interest expense  (2,498)  (1,867)  (1,216)
All other income and expenses, net  (788)  (100)  (792)
          Net income  89,289   45,972   27,509 
             
          Preferred stock dividends  —   —   (175)
             
          Net income available to common shareholders $89,289   45,972   27,334 

CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31, 
($ in thousands) 2018  2017  2016 
          
Operating Activities:            
     Net income $89,289   45,972   27,509 
     Excess of dividends over earnings of subsidiaries (Equity in undistributed earnings of subsidiaries)  (77,050)  4,793   (20,517)
     Decrease (increase) in other assets  (13)  283   15 
     Increase (decrease) in other liabilities  146   (67)  130 
          Total – operating activities  12,372   50,981   7,137 
             
Investing Activities:            
      Downstream cash investment to subsidiary  —   (9,000)  — 
      Note receivable proceeds received  —   3,054   — 
      Proceeds from sales of investments  —   174   — 
      Net cash paid in acquisitions  —   (37,664)  — 
          Total - investing activities  —   (43,436)  — 
             
             
Financing Activities:            
      Payment of preferred and common cash dividends  (11,281)  (7,596)  (6,632)
      Proceeds from issuance of common stock  324   287   375 
      Stock withheld for payment of taxes  (406)  (231)  (166)
          Total - financing activities  (11,363)  (7,540)  (6,423)
Net increase (decrease) in cash  1,009   5   714 
Cash, beginning of year  4,535   4,530   3,816 
Cash, end of year $5,544   4,535   4,530 
             

138 

CONDENSED BALANCE SHEETSAs of December 31,
($ in thousands)20202019
Assets
Cash on deposit with bank subsidiary$15,284 2,014 
Investment in wholly-owned subsidiaries, at equity938,294 904,924 
Premises and Equipment7 7 
Other assets(164)5,642 
Total assets953,421 912,587 
Liabilities and shareholders’ equity
Trust preferred securities54,200 54,049 
Other liabilities5,800 6,137 
Total liabilities60,000 60,186 
Shareholders’ equity893,421 852,401 
Total liabilities and shareholders’ equity$953,421 912,587 

CONDENSED STATEMENTS OF INCOMEYear Ended December 31,
($ in thousands)202020192018
Dividends from wholly-owned subsidiaries$63,100 29,800 15,525 
Earnings of wholly-owned subsidiaries, net of dividends20,899 65,555 77,050 
Interest expense(1,743)(2,648)(2,498)
All other income and expenses, net(779)(661)(788)
Net income$81,477 92,046 89,289 

CONDENSED STATEMENTS OF CASH FLOWSYear Ended December 31,
($ in thousands)202020192018
Operating Activities:   
Net income$81,477 92,046 89,289 
Equity in undistributed earnings of subsidiaries(20,899)(65,555)(77,050)
Decrease (increase) in other assets5,806 (5,850)(13)
(Decrease) increase in other liabilities(3)64 146 
Total – operating activities66,381 20,705 12,372 
Financing Activities:
Payment of common stock cash dividends(20,936)(13,662)(11,281)
   Repurchases of common stock(31,868)(10,000)0 
Proceeds from issuance of common stock0 129 324 
Stock withheld for payment of taxes(307)(702)(406)
Total - financing activities(53,111)(24,235)(11,363)
Net increase (decrease) in cash13,270 (3,530)1,009 
Cash, beginning of year2,014 5,544 4,535 
Cash, end of year$15,284 2,014 5,544 
129

Note 19.18. Shareholders’ Equity

Stock Issuance

On December 21, 2012, the Company issued 2,656,294 shares of its common stock and 728,706 shares of the Company’s Series C Preferred Stock to certain accredited investors, each at the price of $10.00 per share, pursuant to a private placement transaction. Net proceeds from this sale of common and preferred stock were $33.8 million and were used to strengthen and remove risk from the Company’s balance sheet in anticipation of a planned disposition of certain classified loans and write-down of foreclosed real estate.

On December 22, 2016, the Company and the holder of the Series C Preferred Stock entered into an agreement to convert the preferred stock into common stock. The Company exchanged 728,706 shares of preferred stock for the same number of shares of the Company’s common stock. As a result of the exchange, the Company has no shares of preferred stock currently outstanding.

The Series C Preferred Stock qualified as Tier 1 capital and was Convertible Perpetual Preferred Stock, with dividend rights equal to the Company’s common stock. The Series C Preferred Stock was non-voting, except in limited circumstances.

The Series C Preferred Stock paid a dividend per share equal to that of the Company’s common stock. The Company accrued approximately $175,000 in preferred dividend payments for the Series C Preferred Stock during 2016.

Rabbi Trust Obligation

With the acquisition of Carolina Bank in March 2017, the Company assumed a deferred compensation plan for certain members of Carolina Bank’s board of directors that is fully funded by Company stock, which was valued at $7.7 million on the date of acquisition. Subsequent to the acquisition in 2017, approximately $4.5$5.5 million of the deferred compensation has been paid to the plan participants. The balances of the related asset and liability were each $3.2$2.2 million and $2.6 million at December 31, 2018,2020 and December 31, 2019, respectively, both of which are presented as components of shareholders’ equity.

Equity Issuances
On May 5, 2016, the Company acquired SBA Complete, Inc. (“SBA Complete”), a firm that provides services to financial institutions across the country related to Small Business Administration (“SBA”) loan origination and servicing. Per the terms of the acquisition agreement, the former owners of SBA Complete were eligible for a contingent earn-out payment to be paid in shares of Company stock based on achieving predetermined profitability goals over a cumulative three year period. The Company initially valued the earn-out at $3.0 million and adjusted the value quarterly thereafter based on updated estimates. On May 5, 2019, the three year earn-out period concluded, and based on the terms of the earn-out, the Company issued 78,353 shares of common stock with a value of $3.1 million, which increased shareholders' equity and decreased a previously recorded liability.
On September 1, 2020, the Company completed the acquisition of Magnolia Financial, Inc., a business financing company headquartered in Spartanburg, South Carolina, that makes loans throughout the southeastern United States. In the transaction, the Company acquired $14.6 million in loans and $0.5 million of other assets, and assumed $11.7 million in borrowings, substantially all of which was paid off subsequent to the closing. The transaction value was approximately $10.0 million with the Company paying $9.5 million in cash and issuing 24,096 shares of its common stock, which had a value of approximately $0.5 million.

Stock Repurchases

During 2020, the Company repurchased approximately 1,117,208 shares of the Company’s common stock at an average price of $28.53, which totaled $31.9 million, under a $40 million repurchase authorization publicly announced in November 2019. During 2019, the Company repurchased approximately 282,000 shares of the Company’s common stock at an average price of $35.51, which totaled $10 million, under a $25 million repurchase authorization publicly announced in February 2019. As of December 31, 2020, the Board of Directors has authorized a continuation of its share repurchase program with a maximum repurchase amount of $20 million and an expiration date of December 31, 2021.


Note 19. Earnings Per Share
The following is a reconciliation of the numerators and denominators used in computing Basic and Diluted Earnings Per Common Share:
130
 For Years Ended December 31,
 202020192018
($ 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
Basic EPS:
Net income$81,477 $92,046 $89,289 
Less: income allocated to participating securities$(398)$(450)$0 
Basic EPS per common share$81,079 28,839,866 $2.81 $91,596 29,547,851 $3.10 $89,289 29,566,259 $3.02 
Diluted EPS:
Net income$81,477 28,839,866 $92,046 29,547,851 $89,289 29,566,259 
Effect of Dilutive Securities0 141,701 0 172,648 0 141,172 
Diluted EPS per common share$81,477 28,981,567 $2.81 $92,046 29,720,499 $3.10 $89,289 29,707,431 $3.01 
For the years ended December 31, 2020, 2019, and 2018, there were 0 options that were anti-dilutive.

Note 20. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) for the Company are as follows:
($ in thousands)December 31,
2020		December 31,
2019		December 31,
2018
Unrealized gain (loss) on securities available for sale$20,448 9,743 (12,390)
Deferred tax (liability) asset(4,699)(2,239)2,896 
Net unrealized gain (loss) on securities available for sale15,749 7,504 (9,494)
Postretirement plans asset (liability)(1,817)(3,092)(3,220)
Deferred tax asset (liability)418 711 753 
Net postretirement plans asset (liability)(1,399)(2,381)(2,467)
Total accumulated other comprehensive income (loss)$14,350 5,123 (11,961)
131
The following table discloses the changes in accumulated other comprehensive income (loss) for the years ended December 31, 2020, 2019, and 2018 (all amounts are net of tax).
($ in thousands)Unrealized Gain
(Loss) on Securities
Available for Sale		Postretirement Plans Asset
(Liability)		Total
Beginning balance at January 1, 2018$(1,694)(2,452)(4,146)
Other comprehensive income (loss) before reclassifications(7,800)(31)(7,831)
Amounts reclassified from accumulated other comprehensive income0 16 16 
Net current-period other comprehensive income (loss)(7,800)(15)(7,815)
Ending balance at December 31, 2018(9,494)(2,467)(11,961)
Other comprehensive income (loss) before reclassifications17,073 (528)16,545 
Amounts reclassified from accumulated other comprehensive income(75)614 539 
Net current-period other comprehensive income (loss)16,998 86 17,084 
Ending balance at Ending balance at December 31, 20197,504 (2,381)5,123 
Other comprehensive income (loss) before reclassifications14,425 454 14,879 
Amounts reclassified from accumulated other comprehensive income(6,180)528 (5,652)
Net current-period other comprehensive income (loss)8,245 982 9,227 
Ending balance at December 31, 2020$15,749 (1,399)14,350 

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

Note 20.21. Revenue from Contracts with Customers

All of the Company’s revenues that are in the scope of the “Revenue from Contracts with Customers” accounting standard (“ASC 606”) are recognized within noninterest income. The following table presents the Company’s sources of noninterest income for years ended December 31, 2018, 2017,2020, 2019, and 2016.2018. Items outside the scope of ASC 606 are noted as such.

  For the Years Ended December 31, 
($ in thousands) 2018  2017  2016 
          
Service charges on deposit accounts $12,690   11,862   10,571 
Other service charges, commissions, and fees:            
      Interchange income  14,606   11,454   9,582 
      Other fees  5,339   3,156   2,331 
Fees from presold mortgage loans (1)  2,735   5,695   2,033 
Commissions from sales of insurance and financial products:            
      Insurance income  6,038   3,148   1,763 
      Wealth management income  2,693   2,152   2,027 
SBA consulting fees  4,675   4,024   3,199 
SBA loan sale gains (1)  10,366   5,479   1,433 
Bank-owned life insurance income (1)  2,534   2,321   2,052 
Foreclosed property gains (losses), net  (565)  (531)  (625)
FDIC indemnification asset income (expense), net (1)  —   —   (10,255)
Securities gains (losses), net (1)  —   (235)  3 
Gain on branch sale (1)  —   —   1,466 
Other gains (losses), net (1)  723   383   (29)
     Total noninterest income $61,834   48,908   25,551 
             
(1) Not within the scope of ASC 606.         

139 

132

 For the Years Ended December 31,
($ in thousands)202020192018
Noninterest Income
 In-scope of Topic 606:
Service charges on deposit accounts$11,098 12,970 12,690 
Other service charges, commissions, and fees:
Interchange income14,142 13,814 11,995 
Other fees5,955 5,667 4,493 
Commissions from sales of insurance and financial products:
Insurance income5,353 5,289 6,038 
Wealth management income3,495 3,206 2,693 
SBA consulting fees8,644 3,872 4,675 
Noninterest income (in-scope of Topic 606)48,687 44,818 42,584 
Noninterest income (out-of-scope of Topic 606)32,659 14,711 16,358 
Total noninterest income$81,346 59,529 58,942 
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. Interchange expenses were presented on a gross basis prior to the adoption of ASC 606 and are presented on a net basis. The 2018 income for this item was originally reported on a gross basis, but is presented net of $2.6 million in interchange expenses in these financial statements. 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.

133
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 During 2020, the saleCompany's SBA subsidiary assisted its third-party clients in the origination of foreclosed property when controlPPP loans and charged and received fees for doing so. For several clients, the forgiveness piece of the property transfers toPPP process, which will occur at a future time, was included in the buyer, which generally occurs at the time of an executed deed. Whenfees charged. Accordingly, the Company financesrecorded deferred revenue for approximately one-half of the sale of foreclosed propertyfees received, which amounted to the buyer,$1.6 million. During 2020, the Company assesses whether the buyer is committedrealized approximately $0.2 million of this deferred revenue related to perform their obligations under the contract and whether collectabilityfulfilling a portion of the transaction price is probable. Once these criteriaforgiveness services. At December 31, 2020, the remaining amount of deferred revenue was $1.4 million. These fees will be recorded as income in the period in which the services associated with the forgiveness process 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.

rendered.

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

140 

134

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the




Report of Independent Registered Public Accounting Firm


Shareholders and the Board of Directors of
First Bancorp

Southern Pines, North Carolina

Opinion on the Consolidated Financial Statements


We have audited the accompanying consolidated balance sheets of First Bancorp and its subsidiaries (the “Company”) as of December 31, 20182020 and 2017,2019, the related consolidated statements of income, comprehensive income, shareholders'shareholders’ equity, and cash flows for each of the threetwo years in the period ended December 31, 2018,2020, and the related notes (collectively referred to as the consolidated“consolidated financial statements (collectively, the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofat December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 31, 2018,2020, in conformity with accounting principles generally accepted in the United States of America.


We also have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’sCompany's internal control over financial reporting as of December 31, 2018,2020, based on criteria established inInternal Control —– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013,(“COSO”) and our report dated March 1, 2019February 26, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

thereon.


Basis for Opinion


These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.


Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses

As described in Notes 1 and 4 to the Company's consolidated financial statements, the Company had a gross loan portfolio of approximately $4.7 billion and related allowance for loan losses of approximately $52.4 million as of December 31, 2020. The allowance for loan losses includes a reserve for loans collectively evaluated for impairment of approximately $45.7 million and loans individually evaluated for impairment of approximately $6.7
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million. In calculating the collectively evaluated component of the allowance for loan losses, management considers both quantitative and qualitative loss factors. The evaluation of the qualitative loss factors involves subjective estimates and assumptions, which require a high degree of management’s judgment. These estimates and assumptions are affected by changes in loan volume, evaluation of the loan portfolio, current economic conditions (including the impact of COVID-19), historical loan loss experience and other risk factors.

We identified management’s evaluation of the qualitative loss factors within the collectively evaluated component of the allowance for loan losses as a critical audit matter. Management’s assessment of the qualitative loss factors for collectively evaluated loans requires significant judgments related to current economic conditions, specifically local, state, and national economic outlooks (including the impact of COVID-19), trends in loan volume, mix and size of loans, levels and trends of delinquencies, industry concentrations, changes in property values, and credit administration practices. Auditing these judgments and assumptions involved especially challenging auditor judgment due to the nature and extent of effort required, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

•Testing the design and operating effectiveness of internal controls over management’s review of the qualitative risk factors, and the resulting reserve for loans collectively evaluated for impairment, including controls related to: (i) the accuracy of data inputs used in the determination of adjustments made to the qualitative loss factors, and (ii) management’s review of the conclusions reached related to the qualitative loss factors and the resulting allocation to the allowance.  

•Assessing the reasonableness of management’s assumptions related to current economic conditions (including the impact of COVID-19), evaluation of the loan portfolio and other risk factors used in identifying the qualitative risk factors for collectively evaluated loans and determining whether such assumptions were relevant, reliable, and reasonable for the purpose used.

•Evaluating the reasonableness of assumptions and data used by management in developing the qualitative factors by comparing these data points to internally developed and third-party sources, and other audit evidence gathered.



/s/ Elliott Davis, PLLC

BDO USA, LLP


We have served as the Company’sCompany's auditor since 2005.

Charlotte,2019.


Raleigh, North Carolina

March 1, 2019

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February 26, 2021





136

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the








Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of
First Bancorp

Southern Pines, North Carolina

Opinion on the Internal Control Overover Financial Reporting


We have audited First Bancorp and subsidiaries’Bancorp’s (the “Company”“Company’s”) internal control over financial reporting as of December 31, 20182020, based on criteria established inInternal Control —– Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.(the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 20182020, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

COSO criteria.


We also have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the CompanyFirst Bancorp and subsidiaries (the “Company”) as of December 31, 20182020 and 2017 and2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the threetwo years in the period ended December 31, 2018,2020, and the related notes to the consolidated financial statements and our report dated March 1, 2019February 26, 2021 expressed an unqualified opinion.

opinion thereon.


Basis for Opinion


The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report Onon Internal Control Overover Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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Definition and Limitations of Internal Control Overover Financial Reporting


A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
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become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/ BDO USA, LLP

Raleigh, North Carolina
February 26, 2021


138


Report of Independent Registered Public Accounting Firm


To the Shareholders and the Board of Directors of First Bancorp


Opinion on the Financial Statements
We have audited the accompanying consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the year ended December 31, 2018, and the related notes to the consolidated financial statements (collectively, the financial statements) of First Bancorp and its subsidiaries (the Company). In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.


/s/ Elliott Davis, PLLC


We served as the Company's auditor from 2005 to 2019.

Charlotte, North Carolina

March 1, 2019

143 



139

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, which are our controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports with the SEC is recorded, processed, summarized and reported within the required time periods.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is communicated to our management to allow timely decisions regarding required disclosure.  Based on the evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective in allowing timely decisions regarding disclosure to be made about material information required to be included in our periodic reports with the SEC.

Management’s Report On Internal Control Over Financial Reporting

Management of First Bancorp and its subsidiaries (the “Company”) is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Based on Management’s evaluation under the framework in Internal Control – Integrated Framework, management of the Company has concluded the Company maintained effective internal control over financial reporting, as such term is defined in Securities Exchange Act of 1934 Rules 13a-15(f), as of December 31, 2018.

2020.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management is also responsible for the preparation and fair presentation of the consolidated financial statements and other financial information contained in this report. The accompanying consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles and include, as necessary, best estimates and judgments by management.

Elliott Davis, PLLC,

BDO USA, LLP, an independent, registered public accounting firm, has audited the Company’s consolidated financial statements as of and for the year ended December 31, 2018,2020, and audited the Company’s effectiveness of internal control over financial reporting as of December 31, 2018,2020, as stated in their report, which is included in Item 8 hereof.

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Table of Contents

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during, or subsequent to, the fourth quarter of 20182020 that were reasonably likely to materially affect our internal control over financial reporting.

Item 9B. Other Information

Not applicable.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Incorporated herein by reference is the information under the captions “Directors, Nominees and Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Policies and Practices” and “Board Committees, Attendance and Compensation” from the Company’s definitive proxy statement to be filed pursuant to Regulation 14A.

Item 11. Executive Compensation

Incorporated herein by reference is the information under the captions “Executive Compensation” and “Board Committees, Attendance and Compensation” from the Company’s definitive proxy statement to be filed pursuant to Regulation 14A.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Incorporated herein by reference is the information under the captions “Principal Holders of First Bancorp Voting Securities” and “Directors, Nominees and Executive Officers” from the Company’s definitive proxy statement to be filed pursuant to Regulation 14A.

Additional Information Regarding the Registrant’s Equity Compensation Plans

At December 31, 2018,2020, the Company had twoone equity-based compensation plans. The Company’s 2014 Equity Plan is the only plan, under which new grants of equity-based awards are possible.

The following table presents information as of December 31, 20182020 regarding shares of the Company’s stock that may be issued pursuant to the Company’s equity-based compensation plans.plan. At December 31, 2018,2020, the Company had no warrants or stock appreciation rights outstanding under any compensation plans.

  As of December 31, 2018
  (a) (b) (c)
Plan category Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights		 Weighted-average
exercise price of
outstanding options,
warrants and rights		 Number of securities available for
future issuance under equity
compensation plans (excluding
securities reflected in column (a))
Equity compensation
plans approved by
security holders (1)		  9,000  $14.35   750,707 
Equity compensation
plans not approved by security holders		  —   —   — 
Total  9,000  $14.35   750,707 

As of December 31, 2020
(a)(b)(c)
Plan categoryNumber of securities to
be issued upon exercise
of outstanding options,
warrants and rights		Weighted-average
exercise price of
outstanding options,
warrants and rights		Number of securities available for
future issuance under equity
compensation plans (excluding
securities reflected in column (a))
Equity compensation plans approved by security holders (1)— $— 549,876 
Equity compensation plans not approved by security holders— — — 
Total— $— 549,876 
_________________

(1) Consists of (A) the Company’s 2014 Equity Plan, which is currently in effect; and (B) the Company’s 2007 Equity Plan, each of which was approved by our shareholders.

145 

effect.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Incorporated herein by reference is the information under the caption “Certain Transactions” and “Corporate Governance Policies and Practices” from the Company’s definitive proxy statement to be filed pursuant to Regulation 14A.

Item 14. Principal Accountant Fees and Services

Incorporated herein by reference is the information under the caption “Audit Committee Report” from the Company’s definitive proxy statement to be filed pursuant to Regulation 14A.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)1.
(a) 1.Financial Statements - SeeItem 8 and the Cross ReferenceIndex on page 3 for information concerning the Company’s consolidated financial statements and report of independent auditors.

2.2.Financial Statement Schedules - not applicable

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

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

2.a

2.b2.b

2.c2.c

2.d2.d

3.a3.a
Articles of Incorporation of the Company and amendments thereto were filed asExhibits 3.a.i through 3.a.v to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2002, and are incorporated herein by reference.  Articles of Amendment to the Articles of Incorporation were filed asExhibits 3.1 and3.2 to the Company’s Current Report on Form 8-K filed on January 13, 2009, and are incorporated herein by reference.  Articles of Amendment to the Articles of Incorporation were filed asExhibit 3.1.b to the Company’s Registration Statement on Form S-3D filed on June 29, 2010 (Commission File No. 333-167856), and are incorporated herein by reference.  Articles of Amendment to the Articles of Incorporation were filed asExhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 6, 2011, and are incorporated herein by reference.  Articles of Amendment to the Articles of Incorporation were filed asExhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 26, 2012, and are incorporated herein by reference.

146 

Table of Contents

3.b3.b

4.a4.a

4.b
10.a

10.b10.b

10.c10.c

10.d10.d

10.e10.e

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Table of Contents
10.f
10.f

10.g10.g

10.h10.h

10.i10.i

10.j10.j

10.k10.k

10.l10.l

147 

Table of Contents

10.m10.m

10.n10.nThe Company’s Annual Incentive Plan for certain employees and executive officers was filed as Exhibit 10(a) to the Company’s Current Report on Form 8-K filed on March 2, 2015, and is incorporated herein by reference. (*)

10.o

10.o10.p

10.p10.q

10.q
21

23.123

23.2
31.1

31.231.2

32.132.1

32.232.2

101101The following financial information from the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2020, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

___________________
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Table of Contents
______________
(b)Exhibits - see (a)(3) above.

(c)No financial statement schedules are filed herewith.

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

148 


Item 16. Form 10-K Summary

Not applicable.
144

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, FIRST BANCORP has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Southern Pines, and State of North Carolina, on the 1st26th day of March 2019.

First Bancorp

By:/s/ Richard H. Moore

Richard H. Moore 

Chief Executive Officer

February 2021.

First Bancorp
By: /s/ Richard H. Moore
Richard H. Moore
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on behalf of the Company by the following persons and in the capacities and on the dates indicated.

Executive Officers

Executive Officers
/s/ Richard H. Moore

Richard H. Moore

Chief Executive Officer

March 1, 2019

/s/ Eric P. Credle

Richard H. Moore
Chief Executive Officer
Eric P. Credle

Executive Vice President


EVP / Chief Financial Officer

February 26, 2021(Principal Accounting Officer)

March 1, 2019

February 26, 2021
Board of Directors

/s/ James C. Crawford, III

James C. Crawford, III

Chairman of the Board

Director

March 1, 2019

/s/ Michael G. Mayer

Michael G. Mayer

Director

March 1, 2019

/s/ Donald H. Allred

Donald H. Allred

Director

March 1, 2019

/s/ Richard H. Moore

James C. Crawford, III
Chairman of the Board
Director
Richard H. Moore


Director

March 1, 2019

February 26, 2021
February 26, 2021
/s/ Daniel T. Blue, Jr.

Daniel T. Blue, Jr.

Director

March 1, 2019

/s/ Thomas F. Phillips

Daniel T. Blue, Jr.
Director
Thomas F. Phillips


Director

March 1, 2019

February 26, 2021February 26, 2021

/s/ Mary Clara Capel

Mary Clara Capel

Director

March 1, 2019

/s/ O. Temple Sloan, III

Mary Clara Capel
Director
O. Temple Sloan, III


Director

March 1, 2019

February 26, 2021February 26, 2021

/s/ Suzanne DeFerie

Suzanne DeFerie

Director

March 1, 2019

/s/ Frederick L. Taylor II

Suzanne DeFerie
Director
Frederick L. Taylor II


Director

March 1, 2019

February 26, 2021

February 26, 2021
/s/ Abby J. Donnelly

Abby J. Donnelly

Director

March 1, 2019

/s/ Virginia C. Thomasson

Abby J. Donnelly
Director
Virginia C. Thomasson


Director

March 1, 2019

February 26, 2021February 26, 2021

/s/ John B. Gould

John B. Gould

Director

March 1, 2019

/s/ Dennis A. Wicker

John B. Gould
Director		Dennis A. Wicker


Director

March 1, 2019

February 26, 2021February 26, 2021
/s/ Michael G. Mayer
Michael G. Mayer
Director
February 26, 2021


145