UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~June 30, 2022

Commission File Number 0-15572

FIRST BANCORP

(Exact Name of Registrant as Specified in its Charter)

North Carolina

56-1421916

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

300 SW Broad St.,

Southern Pines

North Carolina

28387

(Address of Principal Executive Offices)

(Zip Code)

(Registrant's telephone number, including area code)

(910)

246-2500

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


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

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

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

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

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

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

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

The number of shares of the registrant's Common Stock outstanding on ~~April 30,~~July 31, 2022 was ~~35,639,889.~~35,683,595.

INDEX

FIRST BANCORP AND SUBSIDIARIES


			Page

Part I. Financial Information

Item 1 - Financial Statements
Consolidated Balance Sheets - ~~March 31, 202~~2 June 30, 2022 and December 31, 20 212021			4
Consolidated Statements of Income - For the Three and Six Months Ended ~~March 31, 202~~2 June 30, 2022 and ~~202~~1 2021			5
Consolidated Statements of Comprehensive Income - For the Three and Six Months Ended ~~March 31, 202~~2 June 30, 2022 and ~~202~~1 2021 and 2021			6
Consolidated Statements of Shareholders’ Equity - For the Three and Six Months Ended ~~March 31, 202~~2 June 30, 2022 and ~~202~~20211			7
Consolidated Statements of Cash Flows - For the ~~Three~~Six Months Ended ~~March 31, 202~~2 June 30, 2022 and ~~202~~20211			89
Notes to Consolidated Financial Statements			911
Item 2 – Management’s Discussion and Analysis of Consolidated Results of Operations and Financial Condition			3339
Item 3 – Quantitative and Qualitative Disclosures About Market Risk			4555
Item 4 – Controls and Procedures			4756

Part II. Other Information

Item 1 – Legal Proceedings			4758
Item 1A – Risk Factors			4758
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			4758
Item 6 – Exhibits			4959
Signatures			5061

Page 2

Index

FORWARD-LOOKING STATEMENTS

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

Page 3

Index

Part I. Financial Information

Item 1 - Financial Statements

First Bancorp and Subsidiaries

Consolidated Balance Sheets


($ in thousands)	($ in thousands)	March 31, 2022 (unaudited)		December 31, 2021	($ in thousands)	June 30, 2022 (unaudited)		December 31, 2021
ASSETS	ASSETS				ASSETS
Cash and due from banks, noninterest-bearing	Cash and due from banks, noninterest-bearing	$	124,785	128,228	Cash and due from banks, noninterest-bearing	$	85,139	128,228
Due from banks, interest-bearing	Due from banks, interest-bearing	440,974		332,934	Due from banks, interest-bearing	348,964		332,934
Total cash and cash equivalents	Total cash and cash equivalents	565,759		461,162	Total cash and cash equivalents	434,103		461,162

Securities available for sale	Securities available for sale	2,685,048		2,630,414	Securities available for sale	2,532,624		2,630,414
Securities held to maturity (fair values of $492,307 and $511,699)		546,090		513,825
Securities held to maturity (fair values of $452,658 and $511,699)					Securities held to maturity (fair values of $452,658 and $511,699)	546,410		513,825

Presold mortgages in process of settlement at fair value	Presold mortgages in process of settlement at fair value	5,672		19,257	Presold mortgages in process of settlement at fair value	4,655		19,257
SBA and other loans held for sale	SBA and other loans held for sale	3,630		61,003	SBA and other loans held for sale	638		61,003

Loans	Loans	6,064,698		6,081,715	Loans	6,243,170		6,081,715
Allowance for credit losses on loans	Allowance for credit losses on loans	(82,069)		(78,789)	Allowance for credit losses on loans	(82,181)		(78,789)
Net loans	Net loans	5,982,629		6,002,926	Net loans	6,160,989		6,002,926

Premises and equipment	Premises and equipment	135,482		136,092	Premises and equipment	135,143		136,092
Operating right-of-use lease assets	Operating right-of-use lease assets	20,380		20,719	Operating right-of-use lease assets	19,707		20,719
Accrued interest receivable	Accrued interest receivable	24,728		25,896	Accrued interest receivable	26,500		25,896
Goodwill	Goodwill	364,263		364,263	Goodwill	364,263		364,263
Other intangible assets	Other intangible assets	16,928		17,827	Other intangible assets	15,352		17,827
Foreclosed properties	Foreclosed properties	2,750		3,071	Foreclosed properties	658		3,071
Bank-owned life insurance	Bank-owned life insurance	164,273		165,786	Bank-owned life insurance	163,831		165,786
Other assets	Other assets	134,428		86,660	Other assets	161,342		86,660
Total assets	Total assets	$	10,652,060	10,508,901	Total assets	$	10,566,215	10,508,901

LIABILITIES	LIABILITIES				LIABILITIES
Deposits: Noninterest-bearing checking accounts	Deposits: Noninterest-bearing checking accounts	$	3,593,642	3,348,622	Deposits: Noninterest-bearing checking accounts	$	3,699,725	3,348,622
Interest-bearing checking accounts	Interest-bearing checking accounts	1,577,197		1,593,231	Interest-bearing checking accounts	1,537,487		1,593,231
Money market accounts	Money market accounts	2,636,913		2,562,283	Money market accounts	2,572,118		2,562,283
Savings accounts	Savings accounts	735,659		708,054	Savings accounts	747,272		708,054
Time deposits of $100,000 or more	Time deposits of $100,000 or more	543,542		613,414	Time deposits of $100,000 or more	521,853		613,414
Other time deposits	Other time deposits	298,194		299,025	Other time deposits	281,293		299,025
Total deposits	Total deposits	9,385,147		9,124,629	Total deposits	9,359,748		9,124,629
Borrowings	Borrowings	67,415		67,386	Borrowings	67,445		67,386
Accrued interest payable	Accrued interest payable	576		607	Accrued interest payable	648		607
Operating lease liabilities	Operating lease liabilities	20,903		21,192	Operating lease liabilities	20,280		21,192
Other liabilities	Other liabilities	60,529		64,512	Other liabilities	55,751		64,512
Total liabilities	Total liabilities	9,534,570		9,278,326	Total liabilities	9,503,872		9,278,326

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

SHAREHOLDERS’ EQUITY	SHAREHOLDERS’ EQUITY				SHAREHOLDERS’ EQUITY
Preferred stock, no par value per share. Authorized: 5,000,000 shares	Preferred stock, no par value per share. Authorized: 5,000,000 shares				Preferred stock, no par value per share. Authorized: 5,000,000 shares
Issued & outstanding: none as of March 31, 2022 and December 31, 2021		—		—
Common stock, no par value per share. Authorized: 40,000,000 shares
Issued & outstanding: 35,639,889 shares and 35,629,177 shares as of March 31, 2022 and December 31, 2021, respectively		723,441		722,671
Issued & outstanding: none as of June 30, 2022 and December 31, 2021					Issued & outstanding: none as of June 30, 2022 and December 31, 2021	—		—
Common stock, no par value per share. Authorized: 60,000,000 shares					Common stock, no par value per share. Authorized: 60,000,000 shares
Issued & outstanding: 35,683,595 shares and 35,629,177 shares as of June 30, 2022 and December 31, 2021, respectively					Issued & outstanding: 35,683,595 shares and 35,629,177 shares as of June 30, 2022 and December 31, 2021, respectively	723,956		722,671
Retained earnings	Retained earnings	559,004		532,874	Retained earnings	587,739		532,874
Stock in rabbi trust assumed in acquisition	Stock in rabbi trust assumed in acquisition	(1,814)		(1,803)	Stock in rabbi trust assumed in acquisition	(1,573)		(1,803)
Rabbi trust obligation	Rabbi trust obligation	1,814		1,803	Rabbi trust obligation	1,573		1,803
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(164,955)		(24,970)	Accumulated other comprehensive loss	(249,352)		(24,970)
Total shareholders’ equity	Total shareholders’ equity	1,117,490		1,230,575	Total shareholders’ equity	1,062,343		1,230,575
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	10,652,060	10,508,901	Total liabilities and shareholders’ equity	$	10,566,215	10,508,901

See accompanying notes to unaudited consolidated financial statements.

Page 4

Index

First Bancorp and Subsidiaries

Consolidated Statements of Income


		Three Months Ended March 31,			Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021
($ in thousands, except share data)		(unaudited)
($ in thousands, except share data - unaudited)						($ in thousands, except share data - unaudited)	2022		2021	2022	2021
INTEREST INCOME	INTEREST INCOME					INTEREST INCOME
Interest and fees on loans	Interest and fees on loans	$	64,202	51,073		Interest and fees on loans	$	65,077	52,295	129,279	103,368
Interest on investment securities:	Interest on investment securities:					Interest on investment securities:
Taxable interest income	Taxable interest income	13,210		5,913		Taxable interest income	13,385		7,789	26,595	13,702
Tax-exempt interest income	Tax-exempt interest income	1,048		323		Tax-exempt interest income	1,104		474	2,152	797
Other, principally overnight investments	Other, principally overnight investments	649		700		Other, principally overnight investments	881		581	1,530	1,281
Total interest income	Total interest income	79,109		58,009		Total interest income	80,447		61,139	159,556	119,148
INTEREST EXPENSE	INTEREST EXPENSE					INTEREST EXPENSE
Savings, checking and money market accounts	Savings, checking and money market accounts	1,185		1,314		Savings, checking and money market accounts	1,047		1,136	2,232	2,450
Time deposits of $100,000 or more	Time deposits of $100,000 or more	430		858		Time deposits of $100,000 or more	378		681	808	1,539
Other time deposits	Other time deposits	156		216		Other time deposits	160		182	316	398
Borrowings	Borrowings	460		383		Borrowings	592		381	1,052	764
Total interest expense	Total interest expense	2,231		2,771		Total interest expense	2,177		2,380	4,408	5,151

Net interest income	Net interest income	76,878		55,238		Net interest income	78,270		58,759	155,148	113,997
Provision for credit losses	Provision for credit losses	3,500		—		Provision for credit losses	—		—	3,500	—
Reversal of provision for unfunded commitments		(1,500)		—
Provision for (reversal of) unfunded commitments						Provision for (reversal of) unfunded commitments	—		1,939	(1,500)	1,939
Total provision for credit losses	Total provision for credit losses	2,000		—		Total provision for credit losses	—		1,939	2,000	1,939
Net interest income after provision for credit losses	Net interest income after provision for credit losses	74,878		55,238		Net interest income after provision for credit losses	78,270		56,820	153,148	112,058
NONINTEREST INCOME	NONINTEREST INCOME					NONINTEREST INCOME
Service charges on deposit accounts	Service charges on deposit accounts	3,541		2,733		Service charges on deposit accounts	3,700		2,824	7,241	5,557
Other service charges, commissions and fees		7,005		5,522
Other service charges and fees						Other service charges and fees	7,882		6,496	14,887	12,018
Fees from presold mortgage loans	Fees from presold mortgage loans	1,121		4,544		Fees from presold mortgage loans	454		2,274	1,575	6,818
Commissions from sales of insurance and financial products	Commissions from sales of insurance and financial products	945		2,190		Commissions from sales of insurance and financial products	1,151		2,466	2,096	4,656
SBA consulting fees	SBA consulting fees	780		2,764		SBA consulting fees	704		2,187	1,484	4,951
SBA loan sale gains	SBA loan sale gains	3,261		2,330		SBA loan sale gains	841		2,996	4,102	5,326
Bank-owned life insurance income	Bank-owned life insurance income	976		620		Bank-owned life insurance income	942		614	1,918	1,234

Other gains (losses), net		1,622		(34)
Other gains, net						Other gains, net	1,590		1,517	3,212	1,483
Total noninterest income	Total noninterest income	19,251		20,669		Total noninterest income	17,264		21,374	36,515	42,043
NONINTEREST EXPENSES	NONINTEREST EXPENSES					NONINTEREST EXPENSES
Salaries expense	Salaries expense	23,454		20,131		Salaries expense	23,799		21,187	47,253	41,318
Employee benefits expense	Employee benefits expense	5,578		4,574		Employee benefits expense	6,310		4,084	11,888	8,658
Total personnel expense	Total personnel expense	29,032		24,705		Total personnel expense	30,109		25,271	59,141	49,976
Occupancy expense	Occupancy expense	3,384		2,904		Occupancy expense	3,122		2,668	6,506	5,572
Equipment related expenses	Equipment related expenses	1,304		1,045		Equipment related expenses	1,514		1,053	2,818	2,098
Merger and acquisition expenses	Merger and acquisition expenses	3,484		—		Merger and acquisition expenses	737		411	4,221	411
Intangibles amortization expense	Intangibles amortization expense	1,017		897		Intangibles amortization expense	953		845	1,970	1,742
Foreclosed property (gains) losses, net		(80)		157
Foreclosed property gains, net						Foreclosed property gains, net	(292)		(173)	(372)	(16)
Other operating expenses	Other operating expenses	13,324		10,357		Other operating expenses	13,255		10,910	26,579	21,267
Total noninterest expenses	Total noninterest expenses	51,465		40,065		Total noninterest expenses	49,398		40,985	100,863	81,050

Income before income taxes	Income before income taxes	42,664		35,842		Income before income taxes	46,136		37,209	88,800	73,051
Income tax expense	Income tax expense	8,695		7,648		Income tax expense	9,551		7,924	18,246	15,572

Net income	Net income	$	33,969	28,194		Net income	$	36,585	29,285	70,554	57,479

Earnings per common share:	Earnings per common share:					Earnings per common share:
Basic	Basic	$	0.95	0.99		Basic	$	1.03	1.03	1.98	2.02
Diluted	Diluted	0.95		0.99		Diluted	1.03		1.03	1.98	2.02

Dividends declared per common share	Dividends declared per common share	$	0.22	0.20		Dividends declared per common share	$	0.22	0.20	0.44	0.40

Weighted average common shares outstanding:	Weighted average common shares outstanding:					Weighted average common shares outstanding:
Basic	Basic	35,433,739		28,357,809		Basic	35,474,664		28,331,456	35,476,902	28,344,633
Diluted	Diluted	35,640,978		28,537,853		Diluted	35,642,471		28,490,031	35,641,728	28,513,942

See accompanying notes to unaudited consolidated financial statements.

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Index

First Bancorp and Subsidiaries

Consolidated Statements of Comprehensive Income


		Three Months Ended March 31,			Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021
($ in thousands)		(unaudited)
($ in thousands - unaudited)						($ in thousands - unaudited)	2022		2021	2022	2021
Net income	Net income	$	33,969	28,194		Net income	$	36,585	29,285	70,554	57,479
Other comprehensive loss:
Unrealized losses on securities available for sale:
Unrealized holding losses arising during the period, pretax		(181,795)		(24,235)
Tax benefit		41,776		5,569
Other comprehensive (loss) income:						Other comprehensive (loss) income:
Unrealized (losses) gains on securities available for sale:						Unrealized (losses) gains on securities available for sale:
Unrealized holding (losses) gains arising during the period, pretax						Unrealized holding (losses) gains arising during the period, pretax	(109,623)		4,326	(291,418)	(19,909)
Tax benefit (expense)						Tax benefit (expense)	25,192		(994)	66,968	4,575

Postretirement Plans:	Postretirement Plans:					Postretirement Plans:
Amortization of unrecognized net actuarial loss	Amortization of unrecognized net actuarial loss	44		171		Amortization of unrecognized net actuarial loss	44		205	88	376
Tax benefit	Tax benefit	(10)		(40)		Tax benefit	(10)		(77)	(20)	(117)
Other comprehensive loss		(139,985)		(18,535)
Other comprehensive (loss) income						Other comprehensive (loss) income	(84,397)		3,460	(224,382)	(15,075)
Comprehensive (loss) income	Comprehensive (loss) income	$	(106,016)	9,659		Comprehensive (loss) income	$	(47,812)	32,745	(153,828)	42,404

See accompanying notes to unaudited consolidated financial statements.

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Index

First Bancorp and Subsidiaries

Consolidated Statements of Shareholders’ Equity


($ in thousands, except share data - unaudited)	($ in thousands, except share data - unaudited)	Common Stock			Retained Earnings		Stock in Rabbi Trust Assumed in Acquisition	Rabbi Trust Obligation		Accumulated Other Comprehensive Income (Loss)	Total Shareholders’ Equity	($ in thousands, except share data - unaudited)	Common Stock				Retained Earnings		Stock in Rabbi Trust Assumed in Acquisition		Rabbi Trust Obligation		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
		Shares	Amount						Shares				Amount
Three Months Ended March 31, 2021
Balances, January 1, 2021		28,579	$	400,582		478,489		(2,243)		2,243	14,350			893,421
Adoption of new accounting standard					(17,051)						(17,051)
Three Months Ended June 30, 2021												Three Months Ended June 30, 2021
Balances, April 1, 2021												Balances, April 1, 2021	28,489		$	397,094		483,944		(2,256)		2,256		(4,185)		876,853
Net income	Net income				28,194						28,194	Net income					29,285								29,285
Cash dividends declared ($0.20 per common share)	Cash dividends declared ($0.20 per common share)				(5,688)						(5,688)	Cash dividends declared ($0.20 per common share)					(5,698)								(5,698)
Change in Rabbi Trust obligation	Change in Rabbi Trust obligation						(13)	13			—	Change in Rabbi Trust obligation							328		(328)				—
Stock withheld for payment of taxes												Stock withheld for payment of taxes	(4)		(221)										(221)
Stock-based compensation												Stock-based compensation	7		831										831
Other comprehensive income												Other comprehensive income											3,460		3,460
Balances, June 30, 2021												Balances, June 30, 2021	28,492		$	397,704	507,531		(1,928)		1,928		(725)		904,510

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

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

Three Months Ended March 31, 2022
Balances, January 1, 2022		35,629	$	722,671	532,874		(1,803)	1,803		(24,970)	1,230,575
Three Months Ended June 30, 2022												Three Months Ended June 30, 2022
Balances, April 1, 2022												Balances, April 1, 2022	35,640		$	723,441	559,004		(1,814)		1,814		(164,955)		1,117,490
Net income	Net income				33,969						33,969	Net income					36,585								36,585
Cash dividends declared ($0.22 per common share)	Cash dividends declared ($0.22 per common share)				(7,839)						(7,839)	Cash dividends declared ($0.22 per common share)					(7,850)								(7,850)
Change in Rabbi Trust obligation	Change in Rabbi Trust obligation						(11)	11			—	Change in Rabbi Trust obligation							241		(241)				—

Stock withheld for payment of taxes	Stock withheld for payment of taxes	(3)	(117)								(117)	Stock withheld for payment of taxes	(14)		(486)										(486)
Stock-based compensation	Stock-based compensation	14	887								887	Stock-based compensation	58		1,001										1,001
Other comprehensive loss	Other comprehensive loss									(139,985)	(139,985)	Other comprehensive loss											(84,397)		(84,397)
Balances, March 31, 2022		35,640	$	723,441	559,004		(1,814)	1,814		(164,955)	1,117,490
Balances, June 30, 2022												Balances, June 30, 2022	35,684		$	723,956	587,739		(1,573)		1,573		(249,352)		1,062,343

See accompanying notes to unaudited consolidated financial statements.

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Index

First Bancorp and Subsidiaries

Consolidated Statements of Shareholders’ Equity


($ in thousands, except share data - unaudited)	Common Stock			Retained Earnings	Stock in Rabbi Trust Assumed in Acquisition	Rabbi Trust Obligation	Accumulated Other Comprehensive Income (Loss)	Total Shareholders’ Equity
	Shares	Amount
Six Months Ended June 30, 2021
Balances, January 1, 2021	28,579	$	400,582	478,489	(2,243)	2,243	14,350	893,421
Net income				57,479				57,479
Adoption of new accounting standard				(17,051)				(17,051)
Cash dividends declared ($0.40 per common share)				(11,386)				(11,386)
Change in Rabbi Trust Obligation					315	(315)		—
Stock repurchases	(107)	(4,036)						(4,036)
Stock withheld for payment of taxes	(7)	(324)						(324)
Stock-based compensation	27	1,482						1,482
Other comprehensive loss							(15,075)	(15,075)
Balances, June 30, 2021	28,492	$	397,704	507,531	(1,928)	1,928	(725)	904,510

Six Months Ended June 30, 2022
Balances, January 1, 2022	35,629	722,671		532,874	(1,803)	1,803	(24,970)	1,230,575
Net income				70,554				70,554
Cash dividends declared ($0.44 per common share)				(15,689)				(15,689)
Change in Rabbi Trust Obligation					230	(230)		—
Stock withheld for payment of taxes	(17)	(603)						(603)
Stock-based compensation	72	1,888						1,888
Other comprehensive loss							(224,382)	(224,382)
Balances, June 30, 2022	35,684	$	723,956	587,739	(1,573)	1,573	(249,352)	1,062,343

See accompanying notes to unaudited consolidated financial statements.

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Index

First Bancorp and Subsidiaries

Consolidated Statements of Cash Flows


		Three Months Ended March 31,				Six Months Ended June 30,
($ in thousands-unaudited)	($ in thousands-unaudited)	2022		2021	($ in thousands-unaudited)	2022		2021
Cash Flows From Operating Activities	Cash Flows From Operating Activities				Cash Flows From Operating Activities
Net income	Net income	$	33,969	28,194	Net income	$	70,554	57,479
Reconciliation of net income to net cash provided by operating activities:	Reconciliation of net income to net cash provided by operating activities:				Reconciliation of net income to net cash provided by operating activities:
Provision for credit losses		2,000		—
Provision for credit losses and unfunded commitments, net					Provision for credit losses and unfunded commitments, net	2,000		1,939
Net security premium amortization	Net security premium amortization	3,437		2,876	Net security premium amortization	6,579		6,342
Loan discount accretion	Loan discount accretion	(1,671)		(1,341)	Loan discount accretion	(3,216)		(4,972)
Other purchase accounting accretion and amortization, net	Other purchase accounting accretion and amortization, net	(172)		29	Other purchase accounting accretion and amortization, net	(276)		61
Foreclosed property (gains) losses and write-downs, net		(80)		157

Other (gains) losses, net		(1,622)		34
Foreclosed property gains and write-downs, net					Foreclosed property gains and write-downs, net	(372)		(16)
Other gains, net					Other gains, net	(3,212)		(1,483)
(Decrease) increase in net deferred loan fees	(Decrease) increase in net deferred loan fees	(776)		2,845	(Decrease) increase in net deferred loan fees	(901)		1,084
Bank-owned life insurance income	Bank-owned life insurance income	(976)		(620)	Bank-owned life insurance income	(1,918)		(1,234)
Depreciation of premises and equipment	Depreciation of premises and equipment	1,726		1,448	Depreciation of premises and equipment	3,436		2,928
Amortization of operating lease right-of-use assets	Amortization of operating lease right-of-use assets	339		517	Amortization of operating lease right-of-use assets	1,012		808
Repayments of lease obligations	Repayments of lease obligations	(289)		(416)	Repayments of lease obligations	(912)		(697)
Stock-based compensation expense	Stock-based compensation expense	547		397	Stock-based compensation expense	1,548		1,228
Amortization of intangible assets	Amortization of intangible assets	1,017		897	Amortization of intangible assets	1,970		1,742
Amortization of SBA servicing assets		626		470
Amortization and impairment of SBA servicing assets					Amortization and impairment of SBA servicing assets	1,531		1,014
Fees/gains from sale of presold mortgages and SBA loans	Fees/gains from sale of presold mortgages and SBA loans	(4,382)		(6,874)	Fees/gains from sale of presold mortgages and SBA loans	(5,677)		(12,144)
Origination of presold mortgage loans in process of settlement	Origination of presold mortgage loans in process of settlement	(46,488)		(112,592)	Origination of presold mortgage loans in process of settlement	(78,141)		(170,132)
Proceeds from sales of presold mortgage loans in process of settlement	Proceeds from sales of presold mortgage loans in process of settlement	60,860		127,346	Proceeds from sales of presold mortgage loans in process of settlement	94,052		204,588
Origination of SBA loans for sale	Origination of SBA loans for sale	(39,807)		(37,359)	Origination of SBA loans for sale	(52,701)		(60,135)
Proceeds from sales of SBA and other loans	Proceeds from sales of SBA and other loans	88,895		32,467	Proceeds from sales of SBA and other loans	101,801		55,380
Decrease in accrued interest receivable	Decrease in accrued interest receivable	1,168		1,620	Decrease in accrued interest receivable	(604)		(85)
Decrease (increase) in other assets		3,509		(5,242)
(Increase) decrease in other assets					(Increase) decrease in other assets	(24,857)		2,467
Decrease (increase) in net deferred income tax asset	Decrease (increase) in net deferred income tax asset	1,160		(4,596)	Decrease (increase) in net deferred income tax asset	26,341		(44)
Decrease in accrued interest payable		(31)		(163)
(Decrease) increase in other liabilities		(2,816)		639
Increase (decrease) in accrued interest payable					Increase (decrease) in accrued interest payable	41		(194)
Decrease in other liabilities					Decrease in other liabilities	(7,561)		(4,826)
Net cash provided by operating activities	Net cash provided by operating activities	100,143		30,733	Net cash provided by operating activities	130,517		81,098
Cash Flows From Investing Activities	Cash Flows From Investing Activities				Cash Flows From Investing Activities
Purchases of securities available for sale	Purchases of securities available for sale	(330,147)		(475,960)	Purchases of securities available for sale	(354,765)		(857,070)
Purchases of securities held to maturity	Purchases of securities held to maturity	(36,089)		(37,438)	Purchases of securities held to maturity	(39,004)		(133,916)
Proceeds from maturities/issuer calls of securities available for sale	Proceeds from maturities/issuer calls of securities available for sale	91,421		80,650	Proceeds from maturities/issuer calls of securities available for sale	156,874		169,819
Proceeds from maturities/issuer calls of securities held to maturity	Proceeds from maturities/issuer calls of securities held to maturity	2,684		5,780	Proceeds from maturities/issuer calls of securities held to maturity	4,102		8,718

(Purchases) redemptions of FRB and FHLB stock, net	(Purchases) redemptions of FRB and FHLB stock, net	(9,818)		1,836	(Purchases) redemptions of FRB and FHLB stock, net	(7,838)		1,836
Net decrease in loans		29,927		110,212
Net increase in loans					Net increase in loans	(143,223)		(40,288)
Proceeds from sales of foreclosed properties	Proceeds from sales of foreclosed properties	520		1,183	Proceeds from sales of foreclosed properties	2,904		2,462
Purchases of premises and equipment	Purchases of premises and equipment	(1,217)		(4,534)	Purchases of premises and equipment	(2,702)		(6,317)
Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	99		218	Proceeds from sales of premises and equipment	359		218

Net cash paid from sale of insurance operations					Net cash paid from sale of insurance operations	—		(555)
Bank-owned life insurance death benefits	Bank-owned life insurance death benefits	3,595		—	Bank-owned life insurance death benefits	5,827		—
Net cash used by investing activities	Net cash used by investing activities	(249,025)		(318,053)	Net cash used by investing activities	(377,466)		(855,093)
Cash Flows From Financing Activities	Cash Flows From Financing Activities				Cash Flows From Financing Activities
Net increase in deposits	Net increase in deposits	260,752		459,906	Net increase in deposits	235,521		897,789

Payments on long-term borrowings	Payments on long-term borrowings	(33)		(531)	Payments on long-term borrowings	(67)		(665)
Cash dividends paid – common stock	Cash dividends paid – common stock	(7,123)		(5,140)	Cash dividends paid – common stock	(14,961)		(10,833)
Repurchases of common stock	Repurchases of common stock	—		(4,036)	Repurchases of common stock	—		(4,036)

Payment of taxes related to stock withheld	Payment of taxes related to stock withheld	(117)		(103)	Payment of taxes related to stock withheld	(603)		(324)
Net cash provided by financing activities	Net cash provided by financing activities	253,479		450,096	Net cash provided by financing activities	219,890		881,931
Increase in cash and cash equivalents		104,597		162,776
(Decrease) increase in cash and cash equivalents					(Decrease) increase in cash and cash equivalents	(27,059)		107,936
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	461,162		367,290	Cash and cash equivalents, beginning of period	461,162		367,290
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	565,759	530,066	Cash and cash equivalents, end of period	$	434,103	475,226

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

(Continued)

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First Bancorp and Subsidiaries

Consolidated Statements of Cash Flows


	Six Months Ended June 30,
($ in thousands-unaudited)	2022		2021
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest	$	4,644	5,345
Cash paid during the period for income taxes	15,719		16,326
Non-cash: Unrealized loss on securities available for sale, net of taxes	(224,450)		(15,334)
Non-cash: Foreclosed loans transferred to other real estate	119		848
Non-cash: Accrued dividends at end of period	7,853		5,698
Non-cash: Initial recognition of operating lease right-of-use assets and operating lease liabilities	—		444
Non-cash: Receivable recorded related to sale of insurance operations	—		12,955
Non-cash: Derecognition of intangible assets related to sale of insurance operations	—		(10,229)

See accompanying notes to consolidated financial statements.

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First Bancorp and Subsidiaries

Notes to Consolidated Financial Statements

(unaudited)

Note 1 - Organization and Basis of Presentation

The consolidated financial statements include the accounts of First Bancorp (the “Company”) and its wholly owned subsidiary First Bank (the “Bank”). The Bank has ~~three~~3 wholly owned subsidiaries that are fully consolidated, SBA Complete, Inc. (“SBA Complete”), Magnolia Financial, Inc. ("Magnolia Financial"), and First Troy SPE, LLC. All significant intercompany accounts and transactions have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes necessary for complete financial statements in accordance with GAAP. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated financial position of the Company as of ~~March 31,~~June 30, 2022, the consolidated results of operations for the three and six months ended ~~March 31,~~June 30, 2022 and 2021, and the consolidated cash flows for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021. Any such adjustments were of a normal, recurring nature. These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes in the Annual Report on Form 10-K for the year ended December 31, 2021. Operating results for interim period are not necessarily indicative of the results that may be expected for the full year.

Reference is made to Note 1 of the 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for a discussion of accounting policies and other relevant information with respect to the financial statements. To maintain consistency and comparability, certain amounts from prior periods may have been reclassified to conform to current period presentation with no effect on net income or shareholders' equity as previously reported.

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

Impact of COVID-19

Our market areas and local economies continue to show signs of recovery from the impact of the COVID-19 pandemic. However, the current pandemic is ongoing and dynamic in nature, and there are many related uncertainties, including, among other things, its severity and new variants that have and may continue to arise; its ultimate duration and infection spikes that may occur; ~~the~~its impact on our customers, employees and vendors; ~~the~~its impact on the financial services and banking industry; and the ongoing impact on the economy as a whole. The extent to which the COVID-19 pandemic has a further impact on our business, results of operations, and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the COVID-19 pandemic.

Note 2 – Accounting Pronouncements

Accounting Standards Adopted in 2022

The Company did not adopt any accounting standards during the first ~~three~~six months of 2022.

Accounting Standards Pending Adoption

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

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currently evaluating the impact of adopting the new guidance on the consolidated financial statements but does not expect it to have a material effect on its financial statements.

ASU 2022-03, "Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions." This ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security, and, therefore, is not considered in measuring fair value. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating this ASU for impact on the consolidated financial statements but does not expect it to have a material effect on its financial statements.

Note 3 – Securities

The book values and approximate fair values of investment securities at ~~March 31,~~June 30, 2022 and December 31, 2021 are summarized as follows:


($ in thousands)	($ in thousands)	March 31, 2022							December 31, 2021						($ in thousands)	June 30, 2022							December 31, 2021
		Amortized Cost		Fair Value		Unrealized			Amortized Cost			Fair Value	Unrealized			Amortized Cost				Fair Value	Unrealized		Amortized Cost		Fair Value	Unrealized
					Gains		(Losses)				Gains		(Losses)					Gains			(Losses)			Gains		(Losses)
Securities available for sale:	Securities available for sale:																		Securities available for sale:
US Treasuries		$	149,534	149,391		—		(143)	$	—		—	—	—
U.S. Treasuries															U.S. Treasuries	$	174,236			172,195	—	(2,041)	—		—	—	—
Government-sponsored enterprise securities	Government-sponsored enterprise securities	71,953		64,168		—		(7,785)	71,951			69,179	—	(2,772)	Government-sponsored enterprise securities	71,954				60,917	—	(11,037)	71,951		69,179	—	(2,772)
Mortgage-backed securities	Mortgage-backed securities	2,632,054		2,425,911		349		(206,492)	2,545,150			2,514,805	9,489	(39,834)	Mortgage-backed securities	2,564,559				2,254,549	19	(310,029)	2,545,150		2,514,805	9,489	(39,834)
Corporate bonds	Corporate bonds	45,369		45,578		367		(158)	45,380			46,430	1,106	(56)	Corporate bonds	45,360				44,963	103	(500)	45,380		46,430	1,106	(56)
Total available for sale	Total available for sale	$	2,898,910	2,685,048		716		(214,578)	2,662,481			2,630,414	10,595	(42,662)	Total available for sale	$	2,856,109			2,532,624	122	(323,607)	2,662,481		2,630,414	10,595	(42,662)

Securities held to maturity:	Securities held to maturity:														Securities held to maturity:
Mortgage-backed securities	Mortgage-backed securities	$	18,662	18,513		1		(150)	20,260			20,845	585	—	Mortgage-backed securities	$	17,190			16,754	—	(436)	20,260		20,845	585	—
State and local governments	State and local governments	527,428		473,794		19		(53,653)	493,565			490,854	2,955	(5,666)	State and local governments	529,220				435,904	10	(93,326)	493,565		490,854	2,955	(5,666)
Total held to maturity	Total held to maturity	$	546,090	492,307		20		(53,803)	513,825			511,699	3,540	(5,666)	Total held to maturity	$	546,410			452,658	10	(93,762)	513,825		511,699	3,540	(5,666)

All of the Company’s mortgage-backed securities were issued by government-sponsored enterprises, except for private mortgage-backed securities with a fair value of ~~$0.9~~$0.8 million and $0.9 million as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

The following table presents information regarding securities with unrealized losses at ~~March 31,~~June 30, 2022:

Securities in an Unrealized
Loss Position for
Less than 12 Months Securities in an Unrealized
Loss Position for
More than 12 Months Total
($ in thousands) Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
US Treasuries $ 149,391 143 — — 149,391 143
Government-sponsored enterprise securities 19,855 2,104 44,313 5,681 64,168 7,785
Mortgage-backed securities 1,656,529 133,422 705,932 73,220 2,362,461 206,642
Corporate bonds 13,914 86 928 72 14,842 158
State and local governments 431,433 46,491 40,482 7,162 471,915 53,653
Total unrealized loss position $ 2,271,122 182,246 791,655 86,135 3,062,777 268,381


	Securities in an Unrealized Loss Position for Less than 12 Months			Securities in an Unrealized Loss Position for More than 12 Months		Total
($ in thousands)	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
U.S. Treasuries	$	172,195	2,041	—	—	172,195	2,041
Government-sponsored enterprise securities	18,850		3,109	42,067	7,928	60,917	11,037
Mortgage-backed securities	1,505,339		189,853	761,606	120,612	2,266,945	310,465
Corporate bonds	13,593		407	907	93	14,500	500
State and local governments	392,160		80,374	41,878	12,952	434,038	93,326
Total unrealized loss position	$	2,102,137	275,784	846,458	141,585	2,948,595	417,369

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


	Securities in an Unrealized Loss Position for Less than 12 Months			Securities in an Unrealized Loss Position for More than 12 Months		Total
($ in thousands)	Fair Value		Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Government-sponsored enterprise securities	$	21,436	522	47,743	2,250	69,179	2,772
Mortgage-backed securities	1,773,022		25,977	404,484	13,857	2,177,506	39,834
Corporate bonds	999		1	945	55	1,944	56
State and local governments	228,279		3,797	34,398	1,869	262,677	5,666
Total unrealized loss position	$	2,023,736	30,297	487,570	18,031	2,511,306	48,328

As of ~~March 31,~~June 30, 2022, ~~and~~the Company's securities portfolio held 669 securities of which 616 securities were in an unrealized loss position. As of December 31, 2021, the Company's ~~security~~securities portfolio held ~~600~~648 securities of which 371 securities were in an unrealized loss position. In the above tables, all of the securities that were in an unrealized loss position at ~~March 31,~~June 30, 2022 and December 31, 2021 are bonds that the Company has determined are in a loss position due primarily to interest rate factors and not credit quality concerns. In arriving at this conclusion, the Company reviewed third-party credit ratings and considered the severity of the impairment. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost.

At ~~March 31,~~June 30, 2022 and December 31, 2021, the Company determined that expected credit losses associated with held to maturity debt securities ~~was~~were insignificant.

The book values and approximate fair values of investment securities at ~~March 31,~~June 30, 2022, by contractual maturity, are summarized in the table below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


		Securities Available for Sale			Securities Held to Maturity			Securities Available for Sale			Securities Held to Maturity
($ in thousands)	($ in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value	($ in thousands)	Amortized Cost		Fair Value	Amortized Cost	Fair Value
Securities
Due within one year	Due within one year	$	26,102	26,381	436	440	Due within one year	$	26,094	26,149	435	436
Due after one year but within five years	Due after one year but within five years	152,051		151,996	—	—	Due after one year but within five years	176,752		174,759	998	907
Due after five years but within ten years	Due after five years but within ten years	87,703		79,832	17,141	15,988	Due after five years but within ten years	87,704		76,260	28,037	24,715
Due after ten years	Due after ten years	1,000		928	509,851	457,366	Due after ten years	1,000		907	499,750	409,846
Mortgage-backed securities	Mortgage-backed securities	2,632,054		2,425,911	18,662	18,513	Mortgage-backed securities	2,564,559		2,254,549	17,190	16,754
Total securities	Total securities	$	2,898,910	2,685,048	546,090	492,307	Total securities	$	2,856,109	2,532,624	546,410	452,658

At ~~March 31,~~June 30, 2022 and December 31, 2021 investment securities with carrying values of ~~$852.8~~$812.7 million and $951.4 million, respectively, were pledged as collateral for public deposits.

At ~~March 31,~~June 30, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than USU.S. Government and its agencies or ~~government sponsored~~government-sponsored enterprises, in an amount greater than 10% of shareholders equity.

Included in “Other assets” in the Consolidated Balance Sheets are investments in Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank of Richmond (“FRB”) stock totaling ~~$32.2~~$30.2 million and $22.3 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. These investments do not have readily determinable fair values. The FHLB stock had a cost and fair value of $5.3 million and $4.6 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, and serves as part of the collateral for the Company’s line of credit with the FHLB and is also a requirement for membership in the FHLB system. The FRB stock had a cost and fair value of ~~$26.8~~$24.9 million and $17.8 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, and is a requirement for FRB member bank qualification. Periodically, both the FHLB and FRB recalculate the Company’s required level of holdings, and the

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Company either buys more stock or redeems a portion of the stock at cost. The Company determined that neither stock was impaired at either period end.

~~Page 11~~

~~Index~~

The Company owns 12,356 Class B shares of Visa, Inc. (“Visa”) stock that were received upon Visa’s initial public offering. These shares are expected to convert into Class A Visa shares subsequent to the settlement of certain litigation against Visa, to which the Company is not a party. The Class B shares have transfer restrictions, and the conversion rate into Class A shares is periodically adjusted as Visa settles litigation. The conversion rate at ~~March 31,~~June 30, 2022 was approximately ~~1.62,~~1.61, which means the Company would ~~receive~~have received approximately ~~19,993~~19,843 Class A shares if the stock had converted on that date. This Class B stock does not have a readily determinable fair value and is carried at ~~zero.~~0. If a readily determinable fair value becomes available for the Class B shares, or upon ~~the~~their 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, Allowance for Credit Losses, and Asset Quality Information

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


($ in thousands)	($ in thousands)	March 31, 2022				December 31, 2021				($ in thousands)	June 30, 2022				December 31, 2021
		Amount		Percentage		Amount		Percentage			Amount		Percentage		Amount		Percentage
All loans:	All loans:									All loans:
Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	603,454	10	%	$	648,997	11	%	Commercial, financial, and agricultural	$	596,874	10	%	$	648,997	11	%
Real estate – construction, land development & other land loans	Real estate – construction, land development & other land loans	795,886		13	%	828,549		13	%	Real estate – construction, land development & other land loans	824,723		13	%	828,549		13	%
Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages	1,045,167		17	%	1,021,966		17	%	Real estate – mortgage – residential (1-4 family) first mortgages	1,097,810		18	%	1,021,966		17	%
Real estate – mortgage – home equity loans / lines of credit	Real estate – mortgage – home equity loans / lines of credit	329,348		6	%	331,932		5	%	Real estate – mortgage – home equity loans / lines of credit	325,617		5	%	331,932		5	%
Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other	3,234,949		53	%	3,194,737		53	%	Real estate – mortgage – commercial and other	3,338,322		53	%	3,194,737		53	%
Consumer loans	Consumer loans	56,822		1	%	57,238		1	%	Consumer loans	60,627		1	%	57,238		1	%
Subtotal	Subtotal	6,065,626		100	%	6,083,419		100	%	Subtotal	6,243,973		100	%	6,083,419		100	%
Unamortized net deferred loan fees	Unamortized net deferred loan fees	(928)				(1,704)				Unamortized net deferred loan fees	(803)				(1,704)
Total loans	Total loans	$	6,064,698			$	6,081,715			Total loans	$	6,243,170			$	6,081,715

Included in the line item "Commercial, financial, and agricultural" in the table above are Paycheck Protection Program ("PPP") loans totaling ~~$15.6~~$3.0 million and $39.0 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. PPP loans are fully guaranteed by the ~~SBA.~~small business administration ("SBA"). Included in unamortized net deferred loan fees are approximately ~~$1.3~~$0.3 million and $2.6 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, in unamortized net deferred loan fees associated with these PPP loans. These fees are being amortized under the effective interest method over the terms of the loans. Accelerated amortization is recorded in the periods in which principal amounts are forgiven in accordance with the terms of the ~~program.~~Program.

Included in the table above are credit card balances outstanding totaling ~~$38.8~~$40.8 million and $37.9 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. At ~~March 31,~~June 30, 2022, approximately ~~57%~~54% of total credit card balances ~~are~~were business credit cards included in "commercial, financial and agricultural" above and the remaining ~~43% are~~46% were personal credit cards included in consumer loans in the table above.

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


($ in thousands)	($ in thousands)	March 31, 2022		December 31, 2021	($ in thousands)	June 30, 2022		December 31, 2021
Guaranteed portions of non-PPP SBA loans included in table above	Guaranteed portions of non-PPP SBA loans included in table above	$	33,024	48,377	Guaranteed portions of non-PPP SBA loans included in table above	$	30,559	48,377
Unguaranteed portions of non-PPP SBA loans included in table above	Unguaranteed portions of non-PPP SBA loans included in table above	126,936		122,772	Unguaranteed portions of non-PPP SBA loans included in table above	120,168		122,772
Total non-PPP SBA loans included in the table above	Total non-PPP SBA loans included in the table above	$	159,960	171,149	Total non-PPP SBA loans included in the table above	$	150,727	171,149

Sold portions of SBA loans with servicing retained - not included in tables above	Sold portions of SBA loans with servicing retained - not included in tables above	$	426,601	414,240	Sold portions of SBA loans with servicing retained - not included in tables above	$	408,925	414,240

At ~~March 31,~~June 30, 2022 and December 31, 2021, there was a remaining unaccreted discount on the retained portion of sold non-PPP SBA loans amounting to ~~$5.9~~$5.4 million and $6.0 million, respectively.

Page 14

Index

Loans in the amount of ~~$5.4~~$5.0 billion and $4.3 billion were pledged as collateral for certain borrowings at ~~March 31,~~June 30, 2022 and December 31, 2021, ~~respectively.~~

~~Page 12~~

~~Index~~

respectively.

The loans above also include loans to executive officers and directors serving the Company at ~~March 31,~~June 30, 2022 and to their related persons, totaling approximately ~~$6.5~~$6.3 million and $0.6 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. ~~There~~For the six months ended June 30, 2022 there were $5.8 million in new loans due to the addition of new directors, ~~there was $36,000~~$66,000 in advances on loans, ~~in the first three months of 2022,~~ and repayments ~~amounted to $21,000.~~of $192,000. The loans were made on terms and conditions applicable to similarly situated borrowers and management does not believe these loans involve more than the normal risk of collectability or present other unfavorable features.

As of ~~March 31,~~June 30, 2022 and December 31, 2021, unamortized discounts on all acquired loans totaled ~~$15.6~~$14.0 million and $17.2 million, respectively. Loan discounts are generally amortized as yield adjustments over the respective lives of the loans, so long as the loans perform.

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


($ in thousands)	($ in thousands)	March 31, 2022		December 31, 2021	($ in thousands)	June 30, 2022		December 31, 2021
Nonaccrual loans	Nonaccrual loans	$	33,460	34,696	Nonaccrual loans	$	28,715	34,696
TDRs - accruing	TDRs - accruing	12,727		13,866	TDRs - accruing	11,771		13,866
Accruing loans > 90 days past due	Accruing loans > 90 days past due	—		1,004	Accruing loans > 90 days past due	—		1,004
Total nonperforming loans	Total nonperforming loans	46,187		49,566	Total nonperforming loans	40,486		49,566
Foreclosed real estate	Foreclosed real estate	2,750		3,071	Foreclosed real estate	658		3,071
Total nonperforming assets	Total nonperforming assets	$	48,937	52,637	Total nonperforming assets	$	41,144	52,637

At ~~March 31,~~June 30, 2022 and December 31, 2021, the Company had $1.0 million and $1.5 million, respectively, in residential mortgage loans in process of ~~foreclosure, respectively.~~foreclosure.

The following table is a summary of the Company’s nonaccrual loans by major categories as of ~~March 31,~~June 30, 2022.


($ in thousands)	($ in thousands)	Nonaccrual Loans with No Allowance		Nonaccrual Loans with an Allowance	Total Nonaccrual Loans	($ in thousands)	Nonaccrual Loans with No Allowance		Nonaccrual Loans with an Allowance	Total Nonaccrual Loans
Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	3,911	8,661	12,572	Commercial, financial, and agricultural	$	3,909	7,533	11,442
Real estate – construction, land development & other land loans	Real estate – construction, land development & other land loans	928		126	1,054	Real estate – construction, land development & other land loans	890		243	1,133
Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages	161		3,559	3,720	Real estate – mortgage – residential (1-4 family) first mortgages	159		3,120	3,279
Real estate – mortgage – home equity loans / lines of credit	Real estate – mortgage – home equity loans / lines of credit	—		807	807	Real estate – mortgage – home equity loans / lines of credit	—		797	797
Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other	8,351		6,865	15,216	Real estate – mortgage – commercial and other	6,333		5,587	11,920
Consumer loans	Consumer loans	—		91	91	Consumer loans	—		144	144
Total	Total	$	13,351	20,109	33,460	Total	$	11,291	17,424	28,715

~~Page 13~~

~~Index~~

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


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

Page 15

Index

There was no0 interest income recognized during the ~~three~~six month period ended ~~March 31,~~June 30, 2022 or the year ended December 31, 2021 on nonaccrual loans.The Company follows its nonaccrual policy of reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status.

The following table represents the accrued interest receivables written off by reversing interest income during each period ~~indicated:~~indicated.


($ in thousands)	($ in thousands)	For the Three Months Ended March 31, 2022		For the Year Ended December 31, 2021	For the Three Months Ended March 31, 2021	($ in thousands)	Six Months Ended June 30, 2022		For the Year Ended December 31, 2021	Six Months Ended June 30, 2021
Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	8	195	64	Commercial, financial, and agricultural	$	33	195	156
Real estate – construction, land development & other land loans	Real estate – construction, land development & other land loans	12		6	—	Real estate – construction, land development & other land loans	16		6	—
Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages	10		31	5	Real estate – mortgage – residential (1-4 family) first mortgages	25		31	15
Real estate – mortgage – home equity loans / lines of credit	Real estate – mortgage – home equity loans / lines of credit	2		14	4	Real estate – mortgage – home equity loans / lines of credit	6		14	7
Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other	100		453	220	Real estate – mortgage – commercial and other	102		453	390
Consumer loans	Consumer loans	—		—	—	Consumer loans	2		—	—
Total	Total	$	132	699	293	Total	$	184	699	568

The following table presents an analysis of the payment status of the Company’s loans as of ~~March 31,~~June 30, 2022.


($ in thousands)	($ in thousands)	Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due	Accruing 90 Days or More Past Due	Nonaccrual Loans	Accruing Current	Total Loans Receivable		($ in thousands)	Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due	Accruing 90 Days or More Past Due	Nonaccrual Loans	Accruing Current	Total Loans Receivable
Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	389	105	—	12,572	590,388	603,454		Commercial, financial, and agricultural	$	817	110	—	11,442	584,505	596,874
Real estate – construction, land development & other land loans	Real estate – construction, land development & other land loans	1,492		—	—	1,054	793,340	795,886		Real estate – construction, land development & other land loans	3,678		—	—	1,133	819,912	824,723
Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages	8,739		20	—	3,720	1,032,688	1,045,167		Real estate – mortgage – residential (1-4 family) first mortgages	2,202		974	—	3,279	1,091,355	1,097,810
Real estate – mortgage – home equity loans / lines of credit	Real estate – mortgage – home equity loans / lines of credit	891		36	—	807	327,614	329,348		Real estate – mortgage – home equity loans / lines of credit	879		172	—	797	323,769	325,617
Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other	2,294		—	—	15,216	3,217,439	3,234,949		Real estate – mortgage – commercial and other	688		—	—	11,920	3,325,714	3,338,322
Consumer loans	Consumer loans	103		134	—	91	56,494	56,822		Consumer loans	136		80	—	144	60,267	60,627
Total	Total	$	13,908	295	—	33,460	6,017,963	6,065,626		Total	$	8,400	1,336	—	28,715	6,205,522	6,243,973
Unamortized net deferred loan fees	Unamortized net deferred loan fees							(928)		Unamortized net deferred loan fees							(803)
Total loans	Total loans							$	6,064,698	Total loans							6,243,170

Page 1416

Index

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


($ 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	$	377	93	—	12,152	636,375	648,997
Real estate – construction, land development & other land loans	4,046		—	286	632	823,585	828,549
Real estate – mortgage – residential (1-4 family) first mortgages	6,571		1,488	—	4,898	1,009,009	1,021,966
Real estate – mortgage – home equity loans / lines of credit	489		124	718	694	329,907	331,932
Real estate – mortgage – commercial and other	164		1,496	—	16,231	3,176,846	3,194,737
Consumer loans	116		62	—	89	56,971	57,238
Total	$	11,763	3,263	1,004	34,696	6,032,693	6,083,419
Unamortized net deferred loan fees							(1,704)
Total loans							$	6,081,715

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

The following table presents an analysis of collateral-dependent loans of the Company as of ~~March 31,~~June 30, 2022.


($ in thousands)	($ in thousands)	Residential Property		Business Assets	Land	Commercial Property	Total Collateral-Dependent Loans	($ in thousands)	Residential Property		Business Assets	Land	Commercial Property	Total Collateral-Dependent Loans
Commercial, financial, and agricultural	Commercial, financial, and agricultural	$	—	9,508	—	—	9,508	Commercial, financial, and agricultural	$	—	8,516	—	—	8,516
Real estate – construction, land development & other land loans	Real estate – construction, land development & other land loans	—		—	928	—	928	Real estate – construction, land development & other land loans	—		—	890	—	890
Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages	161		—	—	—	161	Real estate – mortgage – residential (1-4 family) first mortgages	159		—	—	—	159

Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other	—		—	—	11,081	11,081	Real estate – mortgage – commercial and other	—		—	—	8,182	8,182

Total	Total	$	161	9,508	928	11,081	21,678	Total	$	159	8,516	890	8,182	17,747

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


($ in thousands)	Residential Property		Business Assets	Land	Commercial Property	Total Collateral-Dependent Loans
Commercial, financial, and agricultural	$	—	7,886	—	—	7,886
Real estate – construction, land development & other land loans	—		—	533	—	533
Real estate – mortgage – residential (1-4 family) first mortgages	871		—	—	—	871
Real estate – mortgage – commercial and other	—		—	—	10,743	10,743
Total	$	871	7,886	533	10,743	20,033

~~Page 15~~

~~Index~~

Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an

Page 17

Index

individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.

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

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

Page 1618

Index

The following table presents the activity in the ~~Allowance for Credit Losses ("ACL")~~ACL on loans for each of the periods indicated.


($ in thousands)	($ in thousands)	Commercial, Financial, and Agricultural		Real Estate – Construction, Land Development & Other Land Loans	Real Estate – Residential (1-4 Family) First Mortgages	Real Estate – Mortgage – Home Equity Lines of Credit	Real Estate – Mortgage – Commercial and Other	Consumer Loans	Unallocated	Total	($ in thousands)	Commercial, Financial, and Agricultural		Real Estate – Construction, Land Development & Other Land Loans	Real Estate – Residential (1-4 Family) First Mortgages	Real Estate – Mortgage – Home Equity Lines of Credit	Real Estate – Mortgage – Commercial and Other	Consumer Loans	Unallocated	Total
As of and for the three months ended March 31, 2022
As of and for the three months ended June 30, 2022											As of and for the three months ended June 30, 2022
Beginning balance	Beginning balance	$	16,249	16,519	8,686	4,337	30,342	2,656	—	78,789	Beginning balance	$	16,013	16,057	8,159	2,074	37,327	2,439	—	82,069
Charge-offs	Charge-offs	(790)		—	—	(41)	(45)	(167)	—	(1,043)	Charge-offs	(728)		—	—	—	(818)	(214)	—	(1,760)
Recoveries	Recoveries	247		137	4	233	155	47	—	823	Recoveries	223		130	11	128	1,300	80	—	1,872
Provisions / (Reversals)	Provisions / (Reversals)	307		(599)	(531)	(2,455)	6,875	(97)	—	3,500	Provisions / (Reversals)	(58)		(16)	480	(116)	(615)	325	—	—
Ending balance	Ending balance	$	16,013	16,057	8,159	2,074	37,327	2,439	—	82,069	Ending balance	$	15,450	16,171	8,650	2,086	37,194	2,630	—	82,181

As of and for the six months ended June 30, 2022											As of and for the six months ended June 30, 2022
Beginning balance											Beginning balance	$	16,249	16,519	8,686	4,337	30,342	2,656	—	78,789
Charge-offs											Charge-offs	(1,518)		—	—	(41)	(863)	(381)	—	(2,803)
Recoveries											Recoveries	470		267	15	361	1,455	127	—	2,695
Provisions / (Reversals)											Provisions / (Reversals)	249		(615)	(51)	(2,571)	6,260	228	—	3,500
Ending balance											Ending balance	$	15,450	16,171	8,650	2,086	37,194	2,630	—	82,181


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

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

Page 1719

Index


($ in thousands)	Commercial, Financial, and Agricultural		Real Estate – Construction, Land Development & Other Land Loans	Real Estate – Residential (1-4 Family) First Mortgages	Real Estate – Mortgage – Home Equity Lines of Credit	Real Estate – Mortgage – Commercial and Other	Consumer Loans	Unallocated	Total
As of and for the three months ended June 30, 2021
Beginning balance	$	13,606	10,134	8,996	4,309	26,507	2,297	—	65,849
Charge-offs	(550)		—	(76)	(8)	(1,324)	(173)	—	(2,131)
Recoveries	153		392	236	218	78	227	—	1,304
Provisions/(Reversals)	1,600		(422)	(505)	(782)	97	12	—	—
Ending balance	$	14,809	10,104	8,651	3,737	25,358	2,363	—	65,022

As of and for the six months ended June 30, 2021
Beginning balance	$	11,316	5,355	8,048	2,375	23,603	1,478	213	52,388
Adjustment for implementation of CECL	3,067		6,140	2,584	2,580	(257)	674	(213)	14,575
Charge-offs	(1,988)		(66)	(114)	(139)	(1,834)	(307)	—	(4,448)
Recoveries	667		686	323	229	340	262	—	2,507
Provisions/(Reversals)	1,747		(2,011)	(2,190)	(1,308)	3,506	256	—	—
Ending balance	$	14,809	10,104	8,651	3,737	25,358	2,363	—	65,022

Page 20

Index

Credit Quality Indicators

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

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


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

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

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

Page 1821

Index


		Term Loans by Year of Origination										Term Loans by Year of Origination
($ in thousands)	($ in thousands)	2022		2021	2020	2019	2018	Prior	Revolving	Total	($ in thousands)	2022		2021	2020	2019	2018	Prior	Revolving	Total
As of March 31, 2022
As of June 30, 2022											As of June 30, 2022
Commercial, financial, and agricultural	Commercial, financial, and agricultural										Commercial, financial, and agricultural
Pass	Pass	$	35,980	177,169	105,179	66,635	62,972	29,478	105,225	582,638	Pass	$	82,022	145,908	96,143	60,488	59,675	25,201	108,819	578,256
Special Mention	Special Mention	—		125	399	621	2,633	216	2,504	6,498	Special Mention	—		188	608	1,441	2,872	296	94	5,499
Classified	Classified	119		2,454	1,417	2,136	6,908	577	707	14,318	Classified	429		2,067	906	1,413	6,941	620	743	13,119
Total commercial, financial, and agricultural	Total commercial, financial, and agricultural	36,099		179,748	106,995	69,392	72,513	30,271	108,436	603,454	Total commercial, financial, and agricultural	82,451		148,163	97,657	63,342	69,488	26,117	109,656	596,874
Real estate – construction, land development & other land loans	Real estate – construction, land development & other land loans										Real estate – construction, land development & other land loans
Pass	Pass	113,568		488,287	94,674	59,914	9,256	12,619	9,836	788,154	Pass	273,339		420,336	62,604	34,122	5,946	10,861	9,839	817,047
Special Mention	Special Mention	—		38	726	4,117	107	98	5	5,091	Special Mention	109		36	618	4,084	104	—	—	4,951
Classified	Classified	1,416		148	45	944	71	17	—	2,641	Classified	1,013		422	40	927	67	113	143	2,725
Total real estate – construction, land development & other land loans	Total real estate – construction, land development & other land loans	114,984		488,473	95,445	64,975	9,434	12,734	9,841	795,886	Total real estate – construction, land development & other land loans	274,461		420,794	63,262	39,133	6,117	10,974	9,982	824,723
Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages										Real estate – mortgage – residential (1-4 family) first mortgages
Pass	Pass	53,280		277,391	206,074	114,970	76,281	290,677	8,318	1,026,991	Pass	121,779		308,026	199,903	106,905	69,983	267,244	7,421	1,081,261
Special Mention	Special Mention	—		512	448	328	201	3,331	96	4,916	Special Mention	—		333	378	317	110	3,196	100	4,434
Classified	Classified	136		391	480	895	940	9,410	1,008	13,260	Classified	375		669	251	487	888	8,504	941	12,115
Total real estate – mortgage – residential (1-4 family) first mortgages	Total real estate – mortgage – residential (1-4 family) first mortgages	53,416		278,294	207,002	116,193	77,422	303,418	9,422	1,045,167	Total real estate – mortgage – residential (1-4 family) first mortgages	122,154		309,028	200,532	107,709	70,981	278,944	8,462	1,097,810
Real estate – mortgage – home equity loans / lines of credit	Real estate – mortgage – home equity loans / lines of credit										Real estate – mortgage – home equity loans / lines of credit
Pass	Pass	306		2,258	410	299	1,254	2,244	315,092	321,863	Pass	814		2,256	389	274	883	1,995	311,230	317,841
Special Mention	Special Mention	48		187	—	—	—	18	1,112	1,365	Special Mention	47		183	—	—	—	18	1,116	1,364
Classified	Classified	18		163	96	75	—	327	5,441	6,120	Classified	16��		160	95	78	—	319	5,744	6,412
Total real estate – mortgage – home equity loans / lines of credit	Total real estate – mortgage – home equity loans / lines of credit	372		2,608	506	374	1,254	2,589	321,645	329,348	Total real estate – mortgage – home equity loans / lines of credit	877		2,599	484	352	883	2,332	318,090	325,617
Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other										Real estate – mortgage – commercial and other
Pass	Pass	275,364		1,315,875	716,571	307,705	184,889	337,011	57,982	3,195,397	Pass	603,662		1,249,549	644,611	312,994	162,805	266,653	62,875	3,303,149
Special Mention	Special Mention	521		2,042	4,737	4,849	3,708	3,103	1,340	20,300	Special Mention	2,069		1,195	4,418	4,753	4,042	2,468	1,046	19,991
Classified	Classified	124		4,979	249	2,953	5,910	4,832	205	19,252	Classified	235		4,191	119	2,701	4,837	2,894	205	15,182
Total real estate – mortgage – commercial and other	Total real estate – mortgage – commercial and other	276,009		1,322,896	721,557	315,507	194,507	344,946	59,527	3,234,949	Total real estate – mortgage – commercial and other	605,966		1,254,935	649,148	320,448	171,684	272,015	64,126	3,338,322
Consumer loans	Consumer loans										Consumer loans
Pass	Pass	5,115		29,404	6,453	2,313	1,407	923	10,998	56,613	Pass	10,109		29,684	5,087	1,814	1,207	701	11,822	60,424
Special Mention	Special Mention	—		—	—	—	—	—	—	—	Special Mention	—		—	—	—	—	—	—	—
Classified	Classified	—		141	11	1	—	17	39	209	Classified	6		129	2	1	—	15	50	203
Total consumer loans	Total consumer loans	5,115		29,545	6,464	2,314	1,407	940	11,037	56,822	Total consumer loans	10,115		29,813	5,089	1,815	1,207	716	11,872	60,627
Total	Total	$	485,995	2,301,564	1,137,969	568,755	356,537	694,898	519,908	6,065,626	Total	$	1,096,024	2,165,332	1,016,172	532,799	320,360	591,098	522,188	6,243,973
Unamortized net deferred loan fees	Unamortized net deferred loan fees									(928)	Unamortized net deferred loan fees									(803)
Total loans	Total loans									6,064,698	Total loans									6,243,170

Page 1922

Index


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

Page 2023

Index

Troubled Debt Restructurings

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

The vast majority of the Company’s TDRs modified during the periods ended ~~March 31,~~June 30, 2022 and ~~March 31,~~June 30, 2021 related to interest rate reductions combined with extension of terms. The Company does not generally grant principal forgiveness.

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

At ~~March 31,~~June 30, 2022, there were 23 loans with immaterial commitments to lend additional funds to debtors whose loans were modified as a TDR. At December 31, 2021, there were no0 commitments to lend additional funds to debtors whose loans were modified as a TDR.

The following table presents information related to loans modified in a TDR during the three months ended ~~March 31,~~June 30, 2022 and 2021.


($ in thousands)	($ in thousands)	For the three months ended March 31, 2022					For the three months ended March 31, 2021					($ in thousands)	For the three months ended June 30, 2022					For the three months ended June 30, 2021
		Number of Contracts	Pre- Modification Restructured Balances		Post- Modification Restructured Balances		Number of Contracts	Pre- Modification Restructured Balances		Post- Modification Restructured Balances			Number of Contracts	Pre- Modification Restructured Balances		Post- Modification Restructured Balances		Number of Contracts	Pre- Modification Restructured Balances		Post- Modification Restructured Balances
TDRs – Accruing	TDRs – Accruing											TDRs – Accruing
Commercial, financial, and agricultural												Commercial, financial, and agricultural	1	$	161	$	161	—	$	—	$	—
Real estate – construction, land development & other land loans												Real estate – construction, land development & other land loans	1	131		131		—	—		—
Real estate – mortgage – residential (1-4 family) first mortgages												Real estate – mortgage – residential (1-4 family) first mortgages	—	—		—		1	33		33
Real estate – mortgage – home equity loans / lines of credit												Real estate – mortgage – home equity loans / lines of credit	2	203		203		—	—		—

Real estate – mortgage – residential (1-4 family) first mortgages		1	36		36		—	—		—

Real estate – mortgage – commercial and other		—	—		—		1	160		160

TDRs – Nonaccrual	TDRs – Nonaccrual											TDRs – Nonaccrual
Commercial, financial, and agricultural	Commercial, financial, and agricultural	1	41		41		1	111		108		Commercial, financial, and agricultural	2	259		259		2	715		715

Real estate – construction, land development & other land loans												Real estate – construction, land development & other land loans	—	—		—		1	75		75
Real estate – mortgage – residential (1-4 family) first mortgages	Real estate – mortgage – residential (1-4 family) first mortgages	1	36		36		—	—		—		Real estate – mortgage – residential (1-4 family) first mortgages	—	—		—		1	263		263

Real estate – mortgage – commercial and other	Real estate – mortgage – commercial and other	1	540		540		—	—		—		Real estate – mortgage – commercial and other	1	244		244		3	1,569		1,569

Total TDRs arising during period	Total TDRs arising during period	4	$	653	$	653	2	$	271	$	268	Total TDRs arising during period	7	$	998	$	998	8	$	2,655	$	2,655

The following table presents information related to loans modified in a TDR during the six months ended June 30, 2022 and 2021.

Page 24

Index


($ in thousands)	For the six months ended June 30, 2022					For the six months ended June 30, 2021
	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	1	$	161	$	161	—	$	—	$	—
Real estate – construction, land development & other land loans	1	131		131		—	—		—
Real estate – mortgage – residential (1-4 family) first mortgages	1	36		36		1	33		33
Real estate – mortgage – home equity loans / lines of credit	2	203		203		—	—		—
Real estate – mortgage – commercial and other	—	—		—		1	160		160

TDRs – Nonaccrual
Commercial, financial, and agricultural	3	300		300		3	826		823
Real estate – construction, land development & other land loans	—	—		—		1	75		75
Real estate – mortgage – residential (1-4 family) first mortgages	1	36		36		1	263		263

Real estate – mortgage – commercial and other	2	784		784		3	1,569		1,569

Total TDRs arising during period	11	$	1,651	$	1,651	10	$	2,926	$	2,923

The Company considers a TDR loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to foreclosed real estate. There were no accruing TDRs that were modified in the previous twelve months and that defaulted during the three or six months ended ~~March 31,~~June 30, 2022 or 2021.

Concentration of Credit Risk

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

Allowance for Credit Losses - Unfunded Loan Commitments

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

~~Page 21~~

~~Index~~

expected to be funded over its estimated life, which are the same loss rates that are used in computing the ~~allowance for credit losses~~ACL on loans. The ~~allowance for credit losses~~ACL for unfunded loan commitments of $12.0 million and $13.5 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, is separately classified on the Consolidated Balance Sheets within "Other liabilities".

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the ~~three~~six months ended ~~March 31,~~June 30, 2022.

Page 25

Index


($ in thousands)	Total Allowance for Credit Losses - Unfunded Loan Commitments
Beginning balance at December 31, 2021	$	13,506
Charge-offs	—
Recoveries	—
Reversal of provision for unfunded commitments	(1,500)
Ending balance at ~~March 31,~~June 30, 2022	$	12,006

Allowance for Credit Losses - Securities Held to Maturity

The ~~allowance for credit losses~~ACL for securities held to maturity was immaterial at ~~March 31,~~June 30, 2022 and December 31, 2021.

Note 5 – Goodwill and Other Intangible Assets

The following is a summary of the gross carrying amount and accumulated amortization of amortizable intangible assets as of ~~March 31,~~June 30, 2022 and December 31, 2021, and the carrying amount of unamortized intangible assets as of those same dates.


		March 31, 2022			December 31, 2021			June 30, 2022			December 31, 2021
($ in thousands)	($ in thousands)	Gross Carrying Amount		Accumulated Amortization	Gross Carrying Amount	Accumulated Amortization	($ in thousands)	Gross Carrying Amount		Accumulated Amortization	Gross Carrying Amount	Accumulated Amortization
Amortizable intangible assets:	Amortizable intangible assets:						Amortizable intangible assets:
Customer lists	Customer lists	$	2,700	1,501	2,700	1,386	Customer lists	$	2,700	1,616	2,700	1,386
Core deposit intangibles	Core deposit intangibles	29,050		18,972	29,050	18,076	Core deposit intangibles	29,050		19,803	29,050	18,076
SBA servicing assets	SBA servicing assets	12,677		7,086	11,932	6,460	SBA servicing assets	12,958		7,991	11,932	6,460
Other	Other	100		40	100	33	Other	100		46	100	33
Total	Total	$	44,527	27,599	43,782	25,955	Total	$	44,808	29,456	43,782	25,955
Unamortizable intangible assets:	Unamortizable intangible assets:						Unamortizable intangible assets:
Goodwill	Goodwill	$	364,263		364,263		Goodwill	$	364,263		364,263

Amortization expense of all other intangible assets, excluding the SBA servicing assets, totaled $1.0 million and $0.8 million for the three months ended June 30, 2022 and 2021, respectively, and $2.0 million and $1.7 million for the six months ended June 30, 2022 and 2021, respectively.

SBA servicing assets are recorded for the portions of SBA loans that the Company has sold but continues to service for a fee. Servicing assets are initially recorded at fair value and amortized over the expected lives of the related loans and are tested for impairment on a quarterly basis. SBA servicing asset amortization expense is recorded within noninterest income as an offset to SBA servicing fees within the line item "Other service charges, commissions, and fees." ~~As derived from~~The following table presents the ~~table above,~~changes in the ~~Company had a~~ SBA servicing ~~asset at March 31, 2022 with a remaining book value of $5.6 million. The Company recorded $0.7 million~~assets for the three and ~~$0.6 million in new servicing assets associated with the guaranteed portion of SBA loans sold during the first three~~six months ofended June 30, 2022 and ~~2021, respectively. During the first three months of 2022 and 2021, the Company recorded $0.6 million and $0.5 million, respectively, in related servicing asset amortization expense.~~ 2021.


	Three months ended June 30,			Six months ended June 30,
($ in thousands)	2022		2021	2022	2021
Beginning balance, net	$	5,591	5,925	5,472	5,788
New servicing assets	281		708	1,026	1,315
Amortization and impairment expense	905		544	1,531	1,014
Ending balance, net	$	4,967	6,089	4,967	6,089

At ~~March 31,~~June 30, 2022 and December 31, 2021, the Company serviced SBA loans totaling ~~$426.6~~$408.9 million and $414.2 million, respectively, for others. There were no other loans serviced in any period presented.

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

There were no changes to the carrying amounts of goodwill for the ~~three~~six months ended ~~March 31,~~June 30, 2022.

Goodwill is evaluated for impairment on at least an annual basis, with the annual evaluation occurring as of October 31 of each year. The Company performed the required annual impairment testing in the fourth quarter of 2021.

Page 2226

Index

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

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


($ in thousands)	($ in thousands)	Estimated Amortization Expense		($ in thousands)	Estimated Amortization Expense
April 1, 2022 to December 31, 2022		$	2,666
July 1, 2022 to December 31, 2022				July 1, 2022 to December 31, 2022	$	1,713
2023	2023	2,545		2023	2,545
2024	2024	1,718		2024	1,718
2025	2025	1,358		2025	1,358
2026	2026	962		2026	962
Thereafter	Thereafter	2,088		Thereafter	2,088
Total	Total	$	11,337	Total	$	10,384

Note 6 - Borrowings

The following tables present information regarding the Company’s outstanding borrowings at ~~March 31,~~June 30, 2022 and December 31, 2021 ~~(dollars are~~($ in thousands):.

Description

Due date

Call Feature

March 31, 2022

Interest Rate

Description

Due date

Call Feature

June 30, 2022

Interest Rate

FHLB Principal Reducing Credit

7/24/2023

None

1.00% fixed

FHLB Principal Reducing Credit

7/24/2023

None

1.00% fixed

FHLB Principal Reducing Credit

12/22/2023

None

942

1.25% fixed

FHLB Principal Reducing Credit

12/22/2023

None

932

1.25% fixed

FHLB Principal Reducing Credit

6/26/2028

None

222

0.25% fixed

FHLB Principal Reducing Credit

6/26/2028

None

219

0.25% fixed

FHLB Principal Reducing Credit

7/17/2028

None

0.00% fixed

FHLB Principal Reducing Credit

7/17/2028

None

0.00% fixed

FHLB Principal Reducing Credit

8/18/2028

None

164

1.00% fixed

FHLB Principal Reducing Credit

8/18/2028

None

163

1.00% fixed

FHLB Principal Reducing Credit

8/22/2028

None

164

1.00% fixed

FHLB Principal Reducing Credit

8/22/2028

None

163

1.00% fixed

FHLB Principal Reducing Credit

12/20/2028

None

339

0.50% fixed

FHLB Principal Reducing Credit

12/20/2028

None

335

0.50% fixed

Trust Preferred Securities

1/23/2034

Quarterly by Company
beginning 1/23/2009

20,620

3.00% at 03/31/22

adjustable rate

3 month LIBOR + 2.70%

Trust Preferred Securities

1/23/2034

Quarterly by Company
beginning 1/23/2009

10,310

3.94% at 6/30/22

adjustable rate

3 month LIBOR + 2.65%

Trust Preferred Securities

6/15/2036

Quarterly by Company
beginning 6/15/2011

25,774

2.22% at 03/31/22

adjustable rate

3 month LIBOR + 1.39%

Trust Preferred Securities

1/23/2034

Quarterly by Company
beginning 1/23/2009

10,310

4.04% at 6/30/22 adjustable rate

3 month LIBOR + 2.75%

Trust Preferred Securities

1/7/2035

Quarterly by Company
beginning 1/7/2010

10,310

2.24% at 03/31/22

adjustable rate

3 month LIBOR + 2.00%

Trust Preferred Securities

9/20/2034

Quarterly by Company
beginning 9/20/2009

12,372

4.25% at 6/30/22

adjustable rate

3 month LIBOR + 2.15%

Trust Preferred Securities

9/20/2034

Quarterly by Company
beginning 9/20/2009

12,372

3.08% at 03/31/22

adjustable rate

3 month LIBOR + 2.15%

Trust Preferred Securities

1/7/2035

Quarterly by Company
beginning 1/7/2010

10,310

3.04% at 6/30/22

adjustable rate

3 month LIBOR + 2.00%

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

71,017

2.56%

Trust Preferred Securities

6/15/2036

Quarterly by Company
beginning 6/15/2011

25,774

3.22% at 6/30/22

adjustable rate

3 month LIBOR + 1.39%

Total borrowings / weighted average rate as of June 30, 2022

70,984

3.53%

Unamortized discount on acquired borrowings

(3,602)

Unamortized discount on acquired borrowings

(3,539)

Total borrowings

67,415

Total borrowings

67,445

Page 2327

Index

Description

Due date

Call Feature

December 31, 2021

Interest Rate

Description

Due date

Call Feature

December 31, 2021

Interest Rate

FHLB Principal Reducing Credit

7/24/2023

None

1.00% fixed

FHLB Principal Reducing Credit

7/24/2023

None

1.00% fixed

FHLB Principal Reducing Credit

12/22/2023

None

952

1.25% fixed

FHLB Principal Reducing Credit

12/22/2023

None

952

1.25% fixed

FHLB Principal Reducing Credit

6/26/2028

None

225

0.25% fixed

FHLB Principal Reducing Credit

6/26/2028

None

225

0.25% fixed

FHLB Principal Reducing Credit

7/17/2028

None

0.00% fixed

FHLB Principal Reducing Credit

7/17/2028

None

0.00% fixed

FHLB Principal Reducing Credit

8/18/2028

None

166

1.00% fixed

FHLB Principal Reducing Credit

8/18/2028

None

166

1.00% fixed

FHLB Principal Reducing Credit

8/22/2028

None

166

1.00% fixed

FHLB Principal Reducing Credit

8/22/2028

None

166

1.00% fixed

FHLB Principal Reducing Credit

12/20/2028

None

342

0.50% fixed

FHLB Principal Reducing Credit

12/20/2028

None

342

0.50% fixed

Trust Preferred Securities

1/23/2034

Quarterly by Company
beginning 1/23/2009

20,620

2.83% at 12/31/21

adjustable rate

3 month LIBOR + 2.70%

Trust Preferred Securities

1/23/2034

Quarterly by Company
beginning 1/23/2009

10,310

2.78% at 12/31/21

adjustable rate

3 month LIBOR + 2.65%

Trust Preferred Securities

6/15/2036

Quarterly by Company
beginning 6/15/2011

25,774

1.59% at 12/31/21

adjustable rate

3 month LIBOR + 1.39%

Trust Preferred Securities

1/23/2034

Quarterly by Company
beginning 1/23/2009

10,310

2.88% at 12/31/21

adjustable rate

3 month LIBOR + 2.75%

Trust Preferred Securities

1/7/2035

Quarterly by Company
beginning 1/7/2010

10,310

2.12% at 12/31/21

adjustable rate

3 month LIBOR + 2.00%

Trust Preferred Securities

9/20/2034

Quarterly by Company
beginning 9/20/2009

12,372

2.72% at 12/31/21

adjustable rate

3 month LIBOR + 2.15%

Trust Preferred Securities

9/20/2034

Quarterly by Company
beginning 9/20/2009

12,372

2.72% at 12/31/21

adjustable rate

3 month LIBOR + 2.15%

Trust Preferred Securities

1/7/2035

Quarterly by Company
beginning 1/7/2010

10,310

2.12% at 12/31/21

adjustable rate

3 month LIBOR + 2.00%

Trust Preferred Securities

6/15/2036

Quarterly by Company
beginning 6/15/2011

25,774

1.59% at 12/31/21

adjustable rate

3 month LIBOR + 1.39%

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

71,050

2.24%

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

71,050

2.24%

Unamortized discount on acquired borrowings

(3,664)

Unamortized discount on acquired borrowings

(3,664)

Total borrowings

67,386

Total borrowings

67,386

Note 7 – Leases

The Company enters into leases in the normal course of business. As of ~~March 31,~~June 30, 2022, the Company leased 1716 branch offices for which the land and buildings are leased and 9 branch offices for which the land is leased but the building is owned. The Company also leases office space for several operational departments. All of the Company’s leases are operating leases under applicable accounting standards and the lease agreements have maturity dates ranging from ~~April 2022~~July 2023 through May 2076, some of which include options for multiple five- and ten-year extensions. The weighted average remaining life of the lease term for these leases was ~~19.4~~19.5 years as of ~~March 31,~~June 30, 2022. Certain of the Company's lease agreements include variable lease payments based on changes in inflation, with the impact of that factor being insignificant to the Company's total lease expense. As permitted by applicable accounting standards, the Company has elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's Consolidated Balance Sheets. The short-term lease cost for each period presented was insignificant.

Leases are classified as either operating or finance leases at the lease commencement date, and as previously noted, all of 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 ~~2.88%~~2.92% as of ~~March 31,~~June 30, 2022.

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Index

Total operating lease expense was ~~$0.9~~$0.7 million and ~~$0.7~~$0.6 million for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, and $1.6 million and $1.3 million for the six months ended June 30, 2022 and 2021, respectively. The right-of-use assets and lease liabilities were ~~$20.4~~$19.7 million and ~~$20.9~~$20.3 million as of ~~March 31,~~June 30, 2022, respectively, and were $20.7 million and $21.2 million as of December 31, 2021, respectively.

~~Page 24~~

~~Index~~

Future undiscounted lease payments for operating leases with initial terms of one year or more as of ~~March 31,~~June 30, 2022 are as follows.


($ in thousands)	($ in thousands)			($ in thousands)
April 1, 2022 to December 31, 2022		$	1,747
July 1, 2022 to December 31, 2022				July 1, 2022 to December 31, 2022	$	1,167
2023	2023	2,360		2023	2,360
2024	2024	2,163		2024	2,163
2025	2025	1,706		2025	1,706
2026	2026	1,685		2026	1,685
Thereafter	Thereafter	19,988		Thereafter	19,988
Total undiscounted lease payments	Total undiscounted lease payments	29,649		Total undiscounted lease payments	29,069
Less effect of discounting	Less effect of discounting	(8,746)		Less effect of discounting	(8,789)
Present value of estimated lease payments (lease liability)	Present value of estimated lease payments (lease liability)	$	20,903	Present value of estimated lease payments (lease liability)	$	20,280

Note 8 – Pension Plans

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

The Company recorded periodic pension cost totaling $51,000 and ~~$191,000~~$126,000 for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, and $102,000 and $317,000 for the six months ended June 30, 2022 and 2021, respectively. The following ~~table contains~~tables contain the components of the pension cost.


		For the Three Months Ended March 31,								For the Three Months Ended June 30,
($ in thousands)	($ in thousands)	2022 Pension Plan		2021 Pension Plan	2022 SERP	2021 SERP	2022 Total Both Plans	2021 Total Both Plans	($ in thousands)	2022 Pension Plan		2021 Pension Plan	2022 SERP	2021 SERP	2022 Total Both Plans	2021 Total Both Plans
Service cost	Service cost	$	—	—	—	—	—	—	Service cost	$	—	—	—	—	—	—
Interest cost	Interest cost	267		306	28	39	295	345	Interest cost	267		104	28	20	295	124
Expected return on plan assets	Expected return on plan assets	(288)		(325)	—	—	(288)	(325)	Expected return on plan assets	(288)		(203)	—	—	(288)	(203)
Amortization of net (gain)/loss	Amortization of net (gain)/loss	180		210	(136)	(39)	44	171	Amortization of net (gain)/loss	180		158	(136)	47	44	205
Net periodic pension cost	Net periodic pension cost	$	159	191	(108)	—	51	191	Net periodic pension cost	$	159	59	(108)	67	51	126


	For the Six Months Ended June 30,
($ in thousands)	2022 Pension Plan		2021 Pension Plan	2022 SERP	2021 SERP	2022 Total Both Plans	2021 Total Both Plans
Service cost	$	—	—	—	—	—	—
Interest cost	534		410	56	59	590	469
Expected return on plan assets	(576)		(528)	—	—	(576)	(528)
Amortization of net (gain)/loss	360		368	(272)	8	88	376
Net periodic pension cost	$	318	250	(216)	67	102	317

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

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Index

The Company’s contributions to the Pension Plan are based on computations by independent actuarial consultants and are intended to be deductible for income tax purposes. The Company did not contribute to the Pension Plan in the first ~~three~~six months of 2022 and does not expect to contribute to the Pension Plan in the remainder of 2022.

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

Note 9 – Fair Value

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

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.

~~Page 25~~

~~Index~~

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

The following table summarizes the Company’s financial instruments that were measured at fair value on a recurring and nonrecurring basis at ~~March 31,~~June 30, 2022.


($ in thousands) Description of Financial Instruments	($ in thousands) Description of Financial Instruments	Fair Value at March 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	($ in thousands) Description of Financial Instruments	Fair Value at June 30, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Recurring	Recurring						Recurring
Securities available for sale:	Securities available for sale:						Securities available for sale:
US Treasury		$	149,391	—	149,391	—
U.S. Treasury							U.S. Treasury	$	172,195	—	172,195	—
Government-sponsored enterprise securities	Government-sponsored enterprise securities	64,168		—	64,168	—	Government-sponsored enterprise securities	60,917		—	60,917	—
Mortgage-backed securities	Mortgage-backed securities	2,425,911		—	2,425,911	—	Mortgage-backed securities	2,254,549		—	2,254,549	—
Corporate bonds	Corporate bonds	45,578		—	45,578	—	Corporate bonds	44,963		—	44,963	—
Total available for sale securities	Total available for sale securities	$	2,685,048	—	2,685,048	—	Total available for sale securities	$	2,532,624	—	2,532,624	—

Presold mortgages in process of settlement	Presold mortgages in process of settlement	$	5,672	5,672	—	—	Presold mortgages in process of settlement	$	4,655	4,655	—	—

Nonrecurring	Nonrecurring						Nonrecurring
Individually evaluated loans	Individually evaluated loans	$	12,590	—	—	12,590	Individually evaluated loans	$	10,333	—	—	10,333

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

Page 30

Index


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

Presold mortgages in process of settlement	$	19,257	19,257	—	—

Nonrecurring
Individually evaluated loans	$	11,583	—	—	11,583
Foreclosed real estate	364		—	—	364

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 onin 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

~~Page 26~~

~~Index~~

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

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

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

Page 31

Index

subsequent to foreclosure, any excess of the real estate recorded value over the fair value of the real estate is treated as a foreclosed real estate write-down on the Consolidated Statements of Income.

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of ~~March 31,~~June 30, 2022, the significant unobservable inputs used in the fair value measurements were as follows:

($ in thousands)

Fair Value at March 31, 2022

Valuation
Technique

Significant Unobservable
Inputs

Range (Weighted Average)

($ in thousands)

Fair Value at June 30, 2022

Valuation
Technique

Significant Unobservable
Inputs

Range (Weighted Average)

Individually evaluated loans - collateral-dependent

6,909

Appraised value

Discounts applied for estimated costs to sell

10%

Individually evaluated loans - collateral-dependent

5,557

Appraised value

Discounts applied for estimated costs to sell

10%

Individually evaluated loans - cash-flow dependent

5,681

PV of expected cash flows

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

4%-11% (6.50%)

Individually evaluated loans - cash-flow dependent

4,776

PV of expected cash flows

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

4%-11% (6.59%)

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

($ in thousands)

Fair Value at December 31, 2021

Valuation
Technique

Significant Unobservable
Inputs

Range (Weighted Average)

Individually evaluated loans - collateral-dependent

7,326

Appraised value

Discounts applied for estimated costs to sell

10%

Individually evaluated loans - cash-flow dependent

4,257

PV of expected cash flows

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

4%-11% (6.22%)

Foreclosed real estate

364

Appraised value

Discounts applied for estimated costs to sell

10%

The carrying amounts and estimated fair values of financial instruments not carried at fair value at ~~March 31,~~June 30, 2022 and December 31, 2021 ~~are~~were as follows:

~~Page 27~~

~~Index~~


			March 31, 2022			December 31, 2021				June 30, 2022			December 31, 2021
($ in thousands)	($ in thousands)	Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value	Carrying Amount	Estimated Fair Value	($ in thousands)	Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value	Carrying Amount	Estimated Fair Value
Cash and due from banks, noninterest-bearing	Cash and due from banks, noninterest-bearing	Level 1	$	124,785	124,785	128,228	128,228	Cash and due from banks, noninterest-bearing	Level 1	$	85,139	85,139	128,228	128,228
Due from banks, interest-bearing	Due from banks, interest-bearing	Level 1	440,974		440,974	332,934	332,934	Due from banks, interest-bearing	Level 1	348,964		348,964	332,934	332,934
Securities held to maturity	Securities held to maturity	Level 2	546,090		492,307	513,825	511,699	Securities held to maturity	Level 2	546,410		452,658	513,825	511,699
SBA and other loans held for sale	SBA and other loans held for sale	Level 2	3,630		4,010	61,003	62,044	SBA and other loans held for sale	Level 2	638		688	61,003	62,044
Total loans, net of allowance	Total loans, net of allowance	Level 3	5,982,629		5,957,829	6,002,926	5,990,235	Total loans, net of allowance	Level 3	6,160,989		6,086,338	6,002,926	5,990,235
Accrued interest receivable	Accrued interest receivable	Level 1	24,728		24,728	25,896	25,896	Accrued interest receivable	Level 1	26,500		26,500	25,896	25,896
Bank-owned life insurance	Bank-owned life insurance	Level 1	164,273		164,273	165,786	165,786	Bank-owned life insurance	Level 1	163,831		163,831	165,786	165,786
SBA Servicing Asset	SBA Servicing Asset	Level 3	5,591		5,667	5,472	5,546	SBA Servicing Asset	Level 3	4,967		5,302	5,472	5,546

Deposits	Deposits	Level 2	9,385,147		9,382,240	9,124,629	9,124,701	Deposits	Level 2	9,359,748		9,351,423	9,124,629	9,124,701
Borrowings	Borrowings	Level 2	67,415		59,593	67,386	61,295	Borrowings	Level 2	67,445		58,219	67,386	61,295
Accrued interest payable	Accrued interest payable	Level 2	576		576	607	607	Accrued interest payable	Level 2	648		648	607	607

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

Page 32

Index

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

Note 10 – Stock-Based Compensation

The Company recorded total stock-based compensation expense of ~~$547,000~~$0.6 million and ~~$397,000~~$0.8 million for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, and $1.2 million and $1.2 million for the six months ended June 30, 2022 and 2021, respectively. In addition, the Company recognized ~~$126,000~~$149,000 and ~~$91,000~~$191,000 of income tax benefits related to stock-based compensation expense for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, and $275,000 and $282,000 for the six months ended June 30, 2022 and 2021, respectively.

At ~~March 31,~~June 30, 2022, the sole equity-based compensation plan for the Company iswas the First Bancorp 2014 Equity Plan (the "Equity Plan"), which was approved by shareholders on May 8, 2014. As of ~~March 31,~~June 30, 2022, the Equity Plan had ~~431,852~~374,192 shares remaining available for grant.

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

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

~~Page 28~~

~~Index~~

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

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 1314 in total) in June of each year. Compensation expense associated with these director awards is recognized on the date of award since there are no vesting conditions.

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


		Long-Term Restricted Stock Awards				Long-Term Restricted Stock Awards
		Number of Units	Weighted-Average Grant-Date Fair Value			Number of Units	Weighted-Average Grant-Date Fair Value
Nonvested at January 1, 2022	Nonvested at January 1, 2022	206,331	$	35.25	Nonvested at January 1, 2022	206,331	$	35.25
Granted during the period	Granted during the period	20,494	45.88		Granted during the period	68,672	38.18
Vested during the period	Vested during the period	(6,997)	36.05		Vested during the period	(52,423)	35.70
Forfeited or expired during the period	Forfeited or expired during the period	(7,115)	31.50		Forfeited or expired during the period	(7,115)	31.50
Nonvested at March 31, 2022		212,713	$	36.33
Nonvested at June 30, 2022					Nonvested at June 30, 2022	215,465	$	36.18

Total unrecognized compensation expense as of ~~March 31,~~June 30, 2022 amounted to ~~$4.2~~$5.2 million with a weighted-average remaining term of ~~2.3~~2.4 years. For the nonvested awards that are outstanding at ~~March 31,~~June 30, 2022, the Company

Page 33

Index

expects to record ~~$2.1~~$2.5 million in compensation expense in the next twelve months, ~~$1.6~~$1.3 million of which is expected to be recorded in the remaining quarters of 2022.

Note 11 - Shareholders' Equity

Stock Repurchases

During the first ~~three~~six months of 2022, the Company did not repurchase any shares of the Company's common stock. The Company currently has a $40.0 million repurchase authorization that was announced on February 7, 2022, and expires December 31, 2022.

During the first ~~three~~six months of 2021, the Company repurchased approximately 106,744 shares of the Company's common stock at an average stock price of $37.81 per share, which totaled $4$4.0 million, under a ~~$20~~$20.0 million repurchase authorization announced publicly in January 2021.

~~Page 29~~

~~Index~~

Note 12 – Earnings Per Share

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


		For the Three Months Ended March 31,											For the Three Months Ended June 30,
		2022					2021						2022					2021
($ in thousands except per share amounts)	($ in thousands except per share amounts)	Income (Numerator)		Shares (Denominator)	Per Share Amount		Income (Numerator)		Shares (Denominator)	Per Share Amount		($ in thousands except per share amounts)	Income (Numerator)		Shares (Denominator)	Per Share Amount		Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic EPS:	Basic EPS:											Basic EPS:
Net income	Net income	$	33,969				$	28,194				Net income	$	36,585				$	29,285
Less: income allocated to participating securities	Less: income allocated to participating securities	(198)					(178)					Less: income allocated to participating securities	(172)					(163)
Basic EPS per common share	Basic EPS per common share	$	33,771	35,433,739	$	0.95	$	28,016	28,357,809	$	0.99	Basic EPS per common share	$	36,413	35,474,664	$	1.03	$	29,122	28,331,456	$	1.03

Diluted EPS:	Diluted EPS:											Diluted EPS:
Net income	Net income	$	33,969	35,433,739			$	28,194	28,357,809			Net income	$	36,585	35,474,664			$	29,285	28,331,456
Effect of Dilutive Securities		—		207,239			—		180,044
Effect of dilutive securities												Effect of dilutive securities	—		167,807			—		158,575
Diluted EPS per common share	Diluted EPS per common share	$	33,969	35,640,978	$	0.95	$	28,194	28,537,853	$	0.99	Diluted EPS per common share	$	36,585	35,642,471	$	1.03	$	29,285	28,490,031	$	1.03


	For the Six Months Ended June 30,
	2022					2021
($ in thousands except per share amounts)	Income (Numerator)		Shares (Denominator)	Per Share Amount		Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic EPS:
Net income	$	70,554				$	57,479
Less: income allocated to participating securities	(326)					(341)
Basic EPS per common share	$	70,228	35,476,902	$	1.98	$	57,138	28,344,633	$	2.02

Diluted EPS:
Net income	$	70,554	35,476,902			$	57,479	28,344,633
Effect of Dilutive Securities	—		164,826			—		169,309
Diluted EPS per common share	$	70,554	35,641,728	$	1.98	$	57,479	28,513,942	$	2.02

Page 34

Index

Note 13 – Accumulated Other Comprehensive Income (Loss)

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


($ in thousands)	($ in thousands)	March 31, 2022		December 31, 2021	($ in thousands)	June 30, 2022		December 31, 2021
Unrealized loss on securities available for sale	Unrealized loss on securities available for sale	$	(213,862)	(32,067)	Unrealized loss on securities available for sale	$	(323,485)	(32,067)
Deferred tax asset	Deferred tax asset	49,145		7,369	Deferred tax asset	74,337		7,369
Net unrealized loss on securities available for sale	Net unrealized loss on securities available for sale	(164,717)		(24,698)	Net unrealized loss on securities available for sale	(249,148)		(24,698)

Postretirement plans liability	Postretirement plans liability	(309)		(353)	Postretirement plans liability	(265)		(353)
Deferred tax asset	Deferred tax asset	71		81	Deferred tax asset	61		81
Net postretirement plans liability	Net postretirement plans liability	(238)		(272)	Net postretirement plans liability	(204)		(272)

Total accumulated other comprehensive loss	Total accumulated other comprehensive loss	$	(164,955)	(24,970)	Total accumulated other comprehensive loss	$	(249,352)	(24,970)

The following ~~table discloses~~tables disclose the changes in accumulated other comprehensive loss for the three and six months ended ~~March 31,~~June 30, 2022 and 2021 (all amounts are net of tax).


							For the Three Months Ended June 30, 2022
($ in thousands)	($ in thousands)	Unrealized Loss on Securities Available for Sale		Postretirement Plans Asset (Liability)	Total	($ in thousands)	Unrealized Loss on Securities Available for Sale		Postretirement Plans Asset (Liability)	Total
Beginning balance at January 1, 2022		$	(24,698)	(272)	(24,970)
Beginning balance						Beginning balance	$	(164,717)	(238)	(164,955)
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	(140,019)		—	(140,019)	Other comprehensive loss before reclassifications	(84,431)		—	(84,431)
Amounts reclassified from accumulated other comprehensive income	Amounts reclassified from accumulated other comprehensive income	—		34	34	Amounts reclassified from accumulated other comprehensive income	—		34	34
Net current-period other comprehensive (loss) income	Net current-period other comprehensive (loss) income	(140,019)		34	(139,985)	Net current-period other comprehensive (loss) income	(84,431)		34	(84,397)

Ending balance at March 31, 2022		$	(164,717)	(238)	(164,955)
Ending balance						Ending balance	$	(249,148)	(204)	(249,352)


	For the Three Months Ended June 30, 2021
($ in thousands)	Unrealized (Loss) Gain on Securities Available for Sale		Postretirement Plans Asset (Liability)	Total
Beginning balance	$	(2,917)	(1,268)	(4,185)
Other comprehensive income before reclassifications	3,332		—	3,332
Amounts reclassified from accumulated other comprehensive income	—		128	128
Net current-period other comprehensive income	3,332		128	3,460

Ending balance	$	415	(1,140)	(725)

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


	For the Six Months Ended June 30, 2022
($ in thousands)	Unrealized Loss on Securities Available for Sale		Postretirement Plans Asset (Liability)	Total
Beginning balance	$	(24,698)	(272)	(24,970)
Other comprehensive loss before reclassifications	(224,450)		—	(224,450)
Amounts reclassified from accumulated other comprehensive income	—		68	68
Net current-period other comprehensive (loss) income	(224,450)		68	(224,382)

Ending balance	$	(249,148)	(204)	(249,352)


							For the Six Months Ended June 30, 2021
($ in thousands)	($ in thousands)	Unrealized Gain (Loss) on Securities Available for Sale		Postretirement Plans Asset (Liability)	Total	($ in thousands)	Unrealized Gain (Loss) on Securities Available for Sale		Postretirement Plans Asset (Liability)	Total
Beginning balance at January 1, 2021		$	15,749	(1,399)	14,350
Beginning balance						Beginning balance	$	15,749	(1,399)	14,350
Other comprehensive loss before reclassifications	Other comprehensive loss before reclassifications	(18,666)		—	(18,666)	Other comprehensive loss before reclassifications	(15,334)		—	(15,334)
Amounts reclassified from accumulated other comprehensive income	Amounts reclassified from accumulated other comprehensive income	—		131	131	Amounts reclassified from accumulated other comprehensive income	—		259	259
Net current-period other comprehensive (loss) income	Net current-period other comprehensive (loss) income	(18,666)		131	(18,535)	Net current-period other comprehensive (loss) income	(15,334)		259	(15,075)

Ending balance at March 31, 2021		$	(2,917)	(1,268)	(4,185)
Ending balance						Ending balance	$	415	(1,140)	(725)

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

Note 14 – Revenue from Contracts with Customers

All of the Company’s revenues that are in the scope of the “Revenue from Contracts with Customers” accounting standard (“ASC 606”) are recognized within noninterest income. The following table presents the Company’s sources of noninterest income for the three and six months ended ~~March 31,~~June 30, 2022 and 2021. Items outside the scope of ASC 606 are noted as such.

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

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	For the Three Months Ended			For the Six Months Ended
($ in thousands)	June 30, 2022		June 30, 2021	June 30, 2022	June 30, 2021
Noninterest Income: In-scope of ASC 606:
Service charges on deposit accounts	$	3,700	2,824	7,241	5,557
Other service charges and fees:
Bankcard interchange income, net	4,812		4,409	9,523	7,933
Other service charges and fees	1,490		1,160	2,753	2,151
Commissions from sales of insurance and financial products:
Insurance income	—		1,393	—	2,719
Wealth management income	1,151		1,073	2,096	1,937
SBA consulting fees	704		2,187	1,484	4,951
Noninterest income (in-scope of ASC 606)	11,857		13,046	23,097	25,248
Noninterest income (out-of-scope of ASC 606)	5,407		8,328	13,418	16,795
Total noninterest income	$	17,264	21,374	36,515	42,043

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

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

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

Commissions from the ~~sale~~sales of insurance and financial products: The Company earns commissions from the sale of wealth management products and also earned commissions from the sale of insurance policies until the sale of First Bank Insurance Services on June 30, 2021.

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.

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

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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.

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.

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

Overview and Highlights at and for Three Months Ended ~~March 31,~~June 30, 2022

~~The Company~~We earned net income of ~~$34.0~~$36.6 million, or ~~$0.95~~$1.03 diluted EPS, during the three months ended ~~March 31,~~June 30, 2022 compared to net income of ~~$28.2~~$29.3 million, or ~~$0.99~~$1.03 diluted EPS, for the three months ended ~~March 31,~~June 30, 2021. ~~The main drivers to the increase in net income are presented below. Refer also to additional discussion in the Results of Operations section following.~~

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

The main drivers to the increase in net income are presented below. Refer also to additional discussion in the Results of Operations section following.

•Net interest income for the ~~first~~second quarter of 2022 was ~~$76.9~~$78.3 million, a ~~39.2%~~33.2% increase from the ~~$55.2~~$58.8 million recorded in the ~~first~~second quarter of 2021. The increase in net interest income from the prior year period was driven by higher earning assets related to both the Select acquisition and organic growth, offset somewhat by a reduction in net interest margin ("NIM").

•For the three months ended ~~March 31,~~June 30, 2022, ~~the Company recorded a~~we did not record any provision for credit losses ~~of $3.5 million~~ based primarily on ~~changes in the loan portfolio and~~updated economic forecasts, improving trends, and a reversal of the provision for unfunded commitments of $1.5 million related to fluctuations in the levels and mix of outstanding loans commitments. No provision for credit losses or unfunded commitments was required in the comparable period of 2021, which was the first quarter we adopted CECL.CECL model assumptions.

•Noninterest income declined ~~$1.4~~$4.1 million, or ~~6.9%~~19.2%, for the three months ended June 30, 2022from the prior year period primarily due to a ~~$3.4~~$2.2 million decrease in gains on SBA loan sales, a $1.8 million decrease in mortgage banking income related to lower levels of activity, a ~~$2.0~~$1.5 million decrease in SBA consulting fees due to lower PPP-related revenues, and a ~~$1.2~~$1.3 million decrease in commissions on sales of financial and insurance products due to the sale of substantially all of the assets of our property and casualty insurance agency subsidiary in June 2021. Reductions in noninterest income were substantially offset by higher levels of transactions and number of accounts generating service charge income and bankcard revenue.

•Noninterest expense increased ~~$11.4~~$8.4 million, or ~~28.5%~~20.5%, for the quarter ended ~~March 31,~~June 30, 2022, as compared to the prior year period driven by higher operating expenses resulting from the Select acquisition.

•Income tax expense increased $1.6 million relative to the higher pre-tax income. The effective tax rates were 20.7% and 21.3% for the second quarter of 2022 and 2021, respectively. The lower effective tax rate in the second quarter of 2022 was related to higher tax exempt income in that quarter relative to taxable income.

Total assets at June 30, 2022 amounted to $10.6 billion, a 0.5% increase from December 31, 2021. The primary balance sheet changes are presented below. Refer also to additional discussion in the Financial Condition section following.

•Total loans amounted to $6.2 billion at June 30, 2022, an increase of $161.5 million, or 2.7%, from year end, due primarily to organic growth partially offset by reductions in PPP loans during the second quarter of 2022.

•Total investment securities decreased $65.2 million from December 31, 2021 to a total of $3.1 billion at June 30, 2022, as cash flows were utilized to fund loan growth.

•Total deposits amounted to $9.4 billion at June 30, 2022, an increase of $235.1 million, or 2.6%, from December 31, 2021. The high core deposit growth experienced since the onset of the pandemic has started to slow in 2022 and the current growth is primarily attributable to our ongoing growth and retention initiatives.

•We remain well-capitalized by all regulatory standards with a total common equity Tier 1 ratio of 12.90% and total risk-based capital ratio of 15.01%.

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•Accumulated other comprehensive loss increased $224.4 million related to higher unrealized losses on available for sale securities due to increased market rates experienced in the second quarter of 2022.

Overview and Highlights for Six Months Ended June 30, 2022

Total net income of $70.6 million, or $1.98 diluted EPS, was reported during the six months ended June 30, 2022 compared to net income of $57.5 million, or $2.02 diluted EPS, for the six months ended June 30, 2021. As noted above, the acquisition of Select was completed in the fourth quarter of 2021 impacting the comparisons with the prior year period. The main drivers to the increase in net income are presented below. Refer also to additional discussion in the Results of Operations section following.

•Net interest income for the six months ended June 30, 2022 was $155.1 million, a 36.1% increase from the $114.0 million recorded in the six months ended June 30, 2021. The increase in net interest income from the prior year period was driven by higher earning assets related to both the Select acquisition and organic growth, offset somewhat by a reduction in NIM.

•For the six months ended June 30, 2022, we recorded a provision for credit losses of $3.5 million based on CECL model assumption updates including updated loss driver analyses normally performed in the first quarter of the year. A reversal of the provision for unfunded commitments of $1.5 million was recorded related to fluctuations in the levels and mix of outstanding loans commitments. No provision for credit losses and a $1.9 million provision for unfunded commitments was required in the comparable period of 2021.

•Noninterest income declined $5.5 million, or 13.1%, from the prior year period primarily due to a $5.2 million decrease in mortgage banking income related to lower levels of activity, a $3.5 million decrease in SBA consulting fees due to lower PPP-related revenues, and a $2.6 million decrease in commissions on sales of financial and insurance products due to the sale of substantially all of the assets of our property and casualty insurance agency subsidiary in June 2021. Reductions in noninterest income were substantially offset by higher levels of transactions and number of accounts generating service charge income and bankcard revenue.

•Noninterest expense increased $19.8 million, or 24.4%, for the six months ended June 30, 2022 as compared to the same period in the prior year. Included in the ~~March 31,~~six months ended June 30, 2022 ~~quarter~~ was ~~$3.5~~$4.2 million in merger and acquisition expenses primarily related to computer system conversion costs. The balance of the increase in noninterest expenses was driven by higher operating expenses resulting from the Select acquisition.

•Income tax expense increased ~~$1.0~~$2.7 million relative to the higher pre-tax income. The effective tax rates were ~~20.4%~~20.6% and 21.3% for the ~~first quarter of~~six months ended June 30, 2022 and 2021, respectively. The lower effective tax rate infor the ~~first quarter of~~six months ended June 30, 2022 was related to higher tax exempt income in that quarter relative to taxable income.

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

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

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

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

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

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

Impact of COVID-19

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

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

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

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Critical Accounting Policies and Estimates

The accounting principles we follow and our methods of applying these principles conform with GAAP and with general practices followed by the banking industry. Certain 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. We have identified the accounting policies discussed below as being more sensitive in terms of judgments and estimates taking into account their overall potential impact to our consolidated financial statements.

Allowance for Credit Losses on Loans and Unfunded Commitments

The ~~ACL~~allowance for credit losses ("ACL") represents management’s current estimate of credit losses for the remaining estimated life of financial instruments. We perform periodic and systematic detailed reviews of the loan portfolio to identify trends and to assess the overall collectability of the portfolio. We believe the accounting estimate related to the ACL is a “critical accounting estimate” as: (1) changes in it can materially affect the provision for credit losses and net income; (2) it requires management to predict borrowers’ likelihood or capacity to repay, including evaluation of inherently uncertain future economic conditions; (3) the value of underlying collateral must be estimated on collateral-dependent loans; (4) prepayment activity must be projected to estimate the life of loans that often are shorter than contractual terms; and (5) it requires estimation of a reasonable and supportable forecast period for credit losses. Accordingly, this is a highly subjective process and requires significant judgment since it is difficult to evaluate current and future economic conditions in relation to an overall credit cycle and estimate the timing and extent of loss events that are expected to occur prior to end of a loan’s estimated life.

Our ACL is assessed at each balance sheet date and adjustments are recorded in the provision for credit losses. The ACL is estimated based on loan level characteristics using historical loss rates, a reasonable and supportable economic forecast, and assumptions of probability of default and loss given default. Loan balances considered uncollectible are charged-off against the ACL. There are many factors affecting the ACL, some of which are quantitative, while others require qualitative judgment. Although management believes its process for determining the ACL adequately considers all the potential factors that could potentially result in credit losses, the process includes subjective elements and is susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provision for credit losses could be required that could adversely affect our earnings or financial position in future periods.

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Purchased credit deteriorated ("PCD") loans represent assets that are acquired with evidence of more than insignificant credit quality deterioration since origination as of the acquisition date. At acquisition, ~~the~~an allowance ~~for credit losses~~ on PCD assets is booked directly to the ACL. Any subsequent changes in the ACL on PCD assets is recorded through the provision for credit losses.

We believe that the ACL is adequate to absorb the expected life of loan credit losses on the portfolio of loans as of the balance sheet date. Actual losses incurred may differ materially from our estimates.

We estimate expected credit losses on unfunded commitments to extend credit over the contractual period in which we are exposed to credit risk on the underlying commitments, unless the obligation is unconditionally cancellable. The allowance for off-balance sheet credit exposures, which is included in "Other liabilities" on the Consolidated Balance Sheets, is adjusted for as an increase or decrease to the provision for unfunded commitments. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The methodology is based on a loss rate approach that starts with the probability of funding based on historical experience. Similar to methodology discussed above related to the loans receivable portfolio, adjustments are made to the historical losses for current conditions and reasonable and supportable forecast.

Goodwill and Other Intangible Assets

We believe that the accounting for goodwill and other intangible assets also involves a higher degree of judgment than most other significant accounting policies. Accounting Standards Codification 350-10 establishes standards for the amortization of acquired intangible assets, generally over the estimated useful life of the related assets, and impairment assessment of goodwill. At ~~March 31,~~June 30, 2022, we had core deposit and other intangibles of ~~$16.9~~$15.4 million subject to amortization and $364.3 million of goodwill, which is not subject to amortization.

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

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liabilities assumed. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. At each reporting date between annual goodwill impairment tests, we consider potential indicators of impairment. During 2022 there were no triggers warranting interim impairment assessments and for the 2021 annual assessment, we concluded that it was more likely than not that the fair value exceeded its carrying value.

The primary identifiable intangible asset we typically record in connection with a whole bank or bank branch acquisition is the value of the core deposit intangibles which represent the estimated value of the long-term deposit relationships acquired in the transaction. Determining the amount of identifiable intangible assets and their average lives involves multiple assumptions and estimates and is typically determined by performing a discounted cash flow analysis, which involves a combination of any or all of the following assumptions: customer attrition/runoff, alternative funding costs, deposit servicing costs, and discount rates. The core deposit intangibles are amortized over the estimated useful lives of the deposit accounts based on a method that we believe reasonably approximates the anticipated benefit stream from this intangible. The estimated useful lives are periodically reviewed for reasonableness and have generally been estimated to have a life ranging from seven to ten years, with an accelerated rate of amortization. We review identifiable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our policy is that an impairment loss is recognized, equal to the difference between the asset’s carrying amount and its fair value, if the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Estimating future cash flows involves the use of multiple estimates and assumptions, such as those listed above.

Current Accounting Matters

See Note 2 to the Consolidated Financial Statements for information about recently announced or adopted accounting standards.

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RESULTS OF OPERATIONS

Net Interest Income

Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds). Changes in the net interest income are the result of changes in volume and the net interest spread which affects NIM. Volume refers to the average dollar levels of interest-earning assets and interest-bearing liabilities. Net interest spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. NIM refers to net interest income divided by average interest-earning assets and is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities. Net interest income is also influenced by external factors such as local economic conditions, competition for loans and deposits, and market interest rates.

Net interest income for the three months ended ~~March 31,~~June 30, 2022 amounted to ~~$76.9~~$78.3 million, an increase of ~~$21.6~~$19.5 million, or ~~39.2%~~33.2%, from the ~~$55.2~~$58.8 million recorded in the ~~first~~second quarter of 2021. Net interest income on a tax-equivalent basis for the three ~~month period~~months ended ~~March 31,~~June 30, 2022 amounted to ~~$77.6~~$78.9 million, an increase of ~~$21.9~~$19.7 million, or ~~39.3%~~33.2%, from the ~~$55.7~~$59.3 million recorded in the ~~first~~second quarter of 2021. For internal purposes, we evaluate our NIM on a tax-equivalent basis by adding the tax benefit realized from tax-exempt loans and securities to reported interest income then dividing by total average earning assets. We believe that analysis of NIM on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest in different periods without taking into account the different mix of taxable versus non-taxable loans and investments that may have existed during those periods.

The following table presents an analysis of net interest ~~income.~~income for the three months ended June 30, 2022 and 2021.

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Average Balances and Net Interest Income Analysis	Average Balances and Net Interest Income Analysis													Average Balances and Net Interest Income Analysis
		For the Three Months Ended March 31,													For the Three Months Ended June 30,
		2022						2021							2022						2021
($ in thousands)	($ in thousands)	Average Volume		Average Rate		Interest Earned or Paid		Average Volume		Average Rate		Interest Earned or Paid		($ in thousands)	Average Volume		Average Rate		Interest Earned or Paid		Average Volume		Average Rate		Interest Earned or Paid
Assets	Assets													Assets
Loans (1) (2)	Loans (1) (2)	$	6,051,487	4.30	%	$	64,202	$	4,684,143	4.42	%	$	51,073	Loans (1) (2)	$	6,149,174	4.24	%	$	65,077	$	4,679,119	4.48	%	$	52,295
Taxable securities	Taxable securities	2,995,377		1.79	%	13,210		1,652,834		1.45	%	5,913		Taxable securities	3,137,383		1.71	%	13,385		2,157,475		1.45	%	7,789
Non-taxable securities	Non-taxable securities	288,468		1.47	%	1,048		67,196		1.95	%	323		Non-taxable securities	299,982		1.48	%	1,104		131,692		1.45	%	474
Short-term investments, primarily interest-bearing cash	Short-term investments, primarily interest-bearing cash	478,861		0.55	%	649		494,233		0.57	%	700		Short-term investments, primarily interest-bearing cash	363,119		0.97	%	881		418,321		0.56	%	581
Total interest-earning assets	Total interest-earning assets	9,814,193		3.27	%	79,109		6,898,406		3.41	%	58,009		Total interest-earning assets	9,949,658		3.24	%	80,447		7,386,607		3.32	%	61,139

Cash and due from banks	Cash and due from banks	115,748						80,898						Cash and due from banks	125,545						85,742
Premises and equipment	Premises and equipment	135,990						121,798						Premises and equipment	135,553						123,172
Other assets	Other assets	498,488						376,724						Other assets	305,992						370,260
Total assets	Total assets	$	10,564,419					$	7,477,826					Total assets	$	10,516,748					$	7,965,781

Liabilities	Liabilities													Liabilities
Interest-bearing checking	Interest-bearing checking	$	1,576,323	0.06	%	$	224	$	1,203,942	0.09	%	$	266	Interest-bearing checking	$	1,541,768	0.05	%	$	210	$	1,278,969	0.07	%	$	225
Money market deposits	Money market deposits	2,606,133		0.13	%	853		1,650,387		0.23	%	918		Money market deposits	2,567,138		0.11	%	731		1,776,344		0.18	%	799
Savings deposits	Savings deposits	721,911		0.06	%	108		538,781		0.10	%	130		Savings deposits	745,496		0.06	%	106		582,081		0.08	%	112
Time deposits >$100,000	Time deposits >$100,000	581,979		0.30	%	430		555,180		0.63	%	858		Time deposits >$100,000	525,028		0.29	%	378		526,706		0.52	%	681
Other time deposits	Other time deposits	298,570		0.21	%	156		224,045		0.39	%	216		Other time deposits	293,421		0.22	%	160		218,463		0.33	%	182
Total interest-bearing deposits	Total interest-bearing deposits	5,784,916		0.12	%	1,771		4,172,335		0.68	%	2,388		Total interest-bearing deposits	5,672,851		0.11	%	1,585		4,382,563		0.18	%	1,999
Borrowings	Borrowings	67,381		2.77	%	460		61,405		2.53	%	383		Borrowings	67,418		3.52	%	592		61,312		2.49	%	381
Total interest-bearing liabilities	Total interest-bearing liabilities	5,852,297		0.15	%	2,231		4,233,740		0.27	%	2,771		Total interest-bearing liabilities	5,740,269		0.15	%	2,177		4,443,875		0.21	%	2,380

Noninterest-bearing checking	Noninterest-bearing checking	3,435,437						2,301,780						Noninterest-bearing checking	3,664,764						2,568,960
Other liabilities	Other liabilities	66,563						57,116						Other liabilities	20,638						58,968
Shareholders’ equity	Shareholders’ equity	1,210,122						885,190						Shareholders’ equity	1,091,077						893,978
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	10,564,419					$	7,477,826					Total liabilities and shareholders’ equity	$	10,516,748					$	7,965,781

Net yield on interest-earning assets and net interest income	Net yield on interest-earning assets and net interest income			3.18	%	$	76,878			3.25	%	$	55,238	Net yield on interest-earning assets and net interest income			3.16	%	$	78,270			3.19	%	$	58,759
Net yield on interest-earning assets and net interest income – tax-equivalent (3)	Net yield on interest-earning assets and net interest income – tax-equivalent (3)			3.21	%	$	77,575			3.27	%	$	55,681	Net yield on interest-earning assets and net interest income – tax-equivalent (3)			3.18	%	$	78,939			3.22	%	$	59,276

Interest rate spread	Interest rate spread			3.17	%					3.14	%			Interest rate spread			3.09	%					3.11	%

Average prime rate	Average prime rate			3.29	%					3.25	%			Average prime rate			3.94	%					3.25	%

(1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown. Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan fee amortization (including deferred PPP fees), in the amounts of ~~$1.4~~$1.3 million, and ~~$3.4~~$2.2 million for three months ended ~~March 31,~~June 30, 2022 and 2021, respectively.

(2) Includes accretion of discount on acquired and SBA loans of $2.3 million and ~~$1.3~~$3.6 million for three months ended ~~March 31,~~June 30, 2022 and 2021, respectively.

(3) Includes tax-equivalent adjustments of ~~$697,000~~$669,000 and ~~$443,000~~$517,000 for three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, to reflect the tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense.

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Overall, as demonstrated in the table above, net interest income grew ~~$21.6~~$19.5 million for the three months ended ~~March 31,~~June 30, 2022 from the comparable period of the prior year. Higher earning asset volumes, from both organic growth and the Select acquisition, drove the increase. Lower rates on interest-bearing liabilities contributed to higher net interest income while lower yields on interest-earning assets partially offset the increases.

•Average loan volumes for the three months ended June 30, 2022 were $1.5 billion higher than the same period in 2021. Higher volumes were partially offset by lower interest rates on loans related to loans originated during the low market rate environment during 2021, resulting in an increase in loan interest income of $12.8 million.

•Higher average volume of $1.1 billion on total securities resulted in an increase of $6.2 million in interest income for the three months ended June 30, 2022 when compared to the same period in 2021. Also contributing to the increase in interest income was the higher yields on the portfolio as reinvestment rates increased between the periods.

•Lower interest rates paid on deposits drove a $0.4 million decrease in deposit interest expense for the three months ended June 30, 2022 compared to the same period in 2021. Reductions in rates on deposits more than offset the $1.3 billion increase in average volume for total interest-bearing deposits.

•The reduction in NIM was in large part the result of general low market rate environment through most of 2021 and the shift of earning asset mix to lower yielding investment securities from loans as excess liquidity was deployed to securities.

Net interest income for the six months ended June 30, 2022 amounted to $155.1 million, an increase of $41.2 million, or 36.1%, from the $114.0 million recorded in the six months ended June 30, 2021. Net interest income on a tax-equivalent basis for the six months ended June 30, 2022 amounted to $156.5 million, an increase of $41.6 million, or 36.2%, from the $115.0 million recorded in the six months ended June 30, 2021. For internal purposes, we evaluate our NIM on a tax-equivalent basis by adding the tax benefit realized from tax-exempt loans and securities to reported interest income then dividing by total average earning assets. We believe that analysis of NIM on a tax-equivalent basis is useful and appropriate because it allows a comparison of net interest in different periods without taking into account the different mix of taxable versus non-taxable loans and investments that may have existed during those periods.

The following table presents an analysis of net interest income for the six months ended June 30, 2022 and 2021.

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Average Balances and Net Interest Income Analysis
	For the Six Months Ended June 30,
	2022						2021
($ in thousands)	Average Volume		Average Rate		Interest Earned or Paid		Average Volume		Average Rate		Interest Earned or Paid
Assets
Loans (1) (2)	$	6,100,246	4.27	%	$	129,279	$	4,681,604	4.45	%	$	103,368
Taxable securities	3,066,772		1.75	%	26,595		1,906,549		1.45	%	13,702
Non-taxable securities	294,257		1.47	%	2,152		99,622		1.62	%	797
Short-term investments, primarily interest-bearing cash	420,671		0.73	%	1,530		456,066		0.57	%	1,281
Total interest-earning assets	9,881,946		3.26	%	$	159,556	7,143,841		3.36	%	119,148

Cash and due from banks	120,691						83,486
Premises and equipment	135,768						122,485
Other assets	401,660						373,472
Total assets	$	10,540,065					$	7,723,284

Liabilities
Interest bearing checking	$	1,558,950	0.06	%	$	434	$	1,241,662	0.08	%	$	491
Money market deposits	2,586,527		0.12	%	1,584		1,713,714		0.20	%	1,717
Savings deposits	733,769		0.06	%	214		560,550		0.09	%	242
Time deposits >$100,000	553,346		0.29	%	808		540,865		0.57	%	1,539
Other time deposits	295,981		0.22	%	316		221,239		0.36	%	398
Total interest-bearing deposits	5,728,573		0.12	%	3,356		4,278,030		0.21	%	4,387
Borrowings	67,400		3.15	%	1,052		61,356		2.51	%	764
Total interest-bearing liabilities	5,795,973		0.15	%	4,408		4,339,386		0.24	%	5,151

Noninterest bearing checking	3,550,741						2,436,138
Other liabilities	43,098						57,895
Shareholders’ equity	1,150,253						889,865
Total liabilities and shareholders’ equity	$	10,540,065					$	7,723,284

Net yield on interest-earning assets and net interest income			3.17	%	$	155,148			3.22	%	$	113,997
Net yield on interest-earning assets and net interest income – tax-equivalent (3)			3.19	%	$	156,514			3.24	%	$	114,956

Interest rate spread			3.11	%					3.12	%

Average prime rate			3.62	%					3.25	%

(1) Average loans include nonaccruing loans, the effect of which is to lower the average rate shown. Interest earned includes recognized net loan fees, including late fees, prepayment fees, and deferred loan fee amortization (including deferred PPP fees), in the amounts of $2.6 million, and $5.6 million for six months ended June 30, 2022 and 2021, respectively.

(2) Includes accretion of discount on acquired and SBA loans of $4.6 million and $5.0 million for six months ended June 30, 2022 and 2021, respectively.

(3) Includes tax-equivalent adjustments of $1.4 million and $1.0 million for six months ended June 30, 2022 and 2021, respectively, to reflect the tax benefit that we receive related to tax-exempt securities and tax-exempt loans, which carry interest rates lower than similar taxable investments/loans due to their tax exempt status. This amount has been computed assuming a 23% tax rate and is reduced by the related nondeductible portion of interest expense

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Overall, as demonstrated in the table above, net interest income grew $41.2 million for the six months ended June 30, 2022 from the comparable period of the prior year. Higher earning asset volumes, from both organic growth and the Select acquisition, and lower rates on interest-bearing liabilities, which were partially offset by lower yields on interest-earning assets, drove the increase.

•Average loan volumes for the ~~three~~six months ended ~~March 31,~~June 30, 2022 were $1.4 billion higher than the same period in 2021. Higher volumes were partially offset by lower interest rates on loans related to the ~~general~~ low market rate environment experienced during 2021, resulting in an increase in loan interest income of ~~$13.1~~$25.9 million.

•Higher average volume of ~~$1.6~~$1.4 billion on total securities resulted in an increase of ~~$8.0~~$14.2 million in interest income for the ~~three~~six months ended ~~March 31,~~June 30, 2022 when compared to the same period in 2021. Also contributing to the increase in interest income was the higher yields on the taxable portfolio as reinvestment rates increased between the periods.

•Lower interest rates paid on deposits drove a ~~$0.6~~$1.0 million decrease in deposit interest expense for the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to the same period in 2021. Reductions in rates on deposits more than offset the ~~$1.6~~$1.5 billion increase in average volume for total interest-bearing deposits.

•The reduction in NIM was in large part a result of a general low market rate environment through most of 2021 and the shift of earning asset mix to lower yielding investment securities from loans as excess liquidity was deployed to securities.

Our NIM for all periods benefited from ~~the~~ net accretion income, primarily associated with purchase accounting premiums/discounts associated with acquisitions. Presented in the table below is the amount of accretion which increased net interest income in each ~~year.~~time period presented.


		Three Months Ended March 31,				Three Months Ended June 30,			Six Months Ended June 30,
($ in thousands)	($ in thousands)	2022		2021	($ in thousands)	2022		2021	2022	2021
Interest income – increased by accretion of loan discount on acquired loans	Interest income – increased by accretion of loan discount on acquired loans	$	1,671	752	Interest income – increased by accretion of loan discount on acquired loans	$	1,545	2,913	3,216	3,665
Interest income - increased by accretion of loan discount on retained SBA loans	Interest income - increased by accretion of loan discount on retained SBA loans	667		589	Interest income - increased by accretion of loan discount on retained SBA loans	730		718	1,397	1,307
Total interest income impact	Total interest income impact	2,338		1,341	Total interest income impact	2,275		3,631	4,613	4,972
Interest expense – reduced by premium amortization of deposits	Interest expense – reduced by premium amortization of deposits	234		15	Interest expense – reduced by premium amortization of deposits	168		11	402	27
Interest expense – increased by discount accretion of borrowings	Interest expense – increased by discount accretion of borrowings	(73)		(44)	Interest expense – increased by discount accretion of borrowings	(53)		(44)	(126)	(88)
Total net interest expense impact	Total net interest expense impact	161		(29)	Total net interest expense impact	115		(33)	276	(61)
Total impact on net interest income	Total impact on net interest income	$	2,499	1,312	Total impact on net interest income	$	2,390	3,598	4,889	4,911

The ~~increase~~ decrease in loan discount accretion on purchased loans ~~for~~for both the ~~first quarter of~~three months and the six months ended June 30, 2022 as compared to the same periods in the prior year ~~was driven by~~is related to accelerated accretion recorded in 2021 on the ~~loans acquired from Select in the fourth quarter~~payoffs of ~~2021.~~five former failed-bank loans. Generally the level of loan discount accretion will decline each year due to the natural paydowns in acquired loan portfolios. At ~~March 31,~~June 30, 2022 and 2021, unaccreted loan discount on purchased loans amounted to ~~$15.6~~$14.0 million and ~~$12.7~~$5.3 million, respectively.

In addition to the loan discount accretion recorded on acquired loans, we record accretion on the discounts associated with the retained unguaranteed portions of SBA loans sold in the secondary market. The level of SBA loan discount accretion will vary relative to fluctuations in the SBA loan portfolio. At ~~March 31,~~June 30, 2022 and 2021, unaccreted loan discount on SBA loans amounted to ~~$5.9~~$5.4 million and ~~$7.1~~$7.0 million, respectively.

Amortization of net deferred loan fees also impacts interest income. During the ~~first quarter of~~six months ended June 30, 2022, we amortized net deferred PPP fees of ~~$1.3~~$2.3 million as interest income compared to ~~$3.0~~$5.7 million for the ~~first quarter of~~six months ended June 30, 2021. At ~~March 31,~~June 30, 2022, we had ~~$1.3 million~~$284,000 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 second~~ ~~quarter of 2022 as a result of the loan forgiveness process.~~

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Provision for Credit Losses and Provision for Unfunded Commitments

The provisions for credit losses represents our current estimate of life of loan credit losses in the loan portfolio and unfunded loan commitments. Our estimate of credit losses is determined using a complex model that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ACL and resulting provision for credit losses. The provision for unfunded commitments represents expected losses on unfunded loan commitments that are expected to result in outstanding loan balances. The allowance for unfunded commitments is included in "Other liabilities" in the Consolidated Balance Sheets.

The provision for credit losses of $3.5 million for the three months ended March 31, 2022 was based on changes in the loan portfolio and updated economic forecasts, and is compared to no provision for the three months ended March 31, 2021. The amount of provision recorded in each period was the amount required such that the total ACL reflected the appropriate balance as determined under CECL. ~~We recorded a reversal of~~No provision for ~~unfunded commitments~~credit losses was recorded for the three months ended ~~March 31,~~June 30, 2022 ~~totaling~~based on improving trends, and $3.5 million was recorded for the six months ended June 30, 2022 based on updated economic forecasts and updated loss driver analyses normally performed in the first quarter of the year. Also based on the CECL model results and improving asset quality trends, no provision was required for the three and six months ended June 30, 2021. No provision for unfunded commitments was recorded for the three months ended June 30, 2022, and a reversal provision of $1.5 million was recorded for the six months ended June 30, 2022, related primarily to the fluctuations in the levels and mix of outstanding loan commitments. There was no$1.9 million provision for unfunded commitments for the three and six months ended ~~March 31,~~June 30, 2021.

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

Noninterest Income

Our noninterest income amounted to ~~$19.3~~$17.3 million and ~~$20.7~~$21.4 million for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, and $36.5 million and $42.0 million for the six months ended June 30, 2022 and 2021, respectively. Included in noninterest income was nonrecurring amounts totaling $1.6 million and $1.5 million in other gains ~~and $34,000 in other losses~~ for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, and $3.2 million and $ 1.5 million in other gains for the six months ended June 30, 2022and 2021, respectively. The following table presents the primary components of noninterest income.


		For the Three Months Ended March 31,				For the Three Months Ended June 30,			For the Six Months Ended June 30,
($ in thousands)	($ in thousands)	2022		2021	($ in thousands)	2022		2021	2022	2021
Service charges on deposit accounts	Service charges on deposit accounts	$	3,541	2,733	Service charges on deposit accounts	$	3,700	2,824	7,241	5,557
Other service charges, commissions and fees - net bankcard interchange		4,711		3,523
Other service charges, commissions, and fees - other		2,294		1,999
Other service charges and fees - bankcard interchange income, net					Other service charges and fees - bankcard interchange income, net	4,812		4,409	9,523	7,933
Other service charges and fees - other					Other service charges and fees - other	3,070		2,087	5,364	4,085
Fees from presold mortgage loans	Fees from presold mortgage loans	1,121		4,544	Fees from presold mortgage loans	454		2,274	1,575	6,818
Commissions from sales of insurance and financial products	Commissions from sales of insurance and financial products	945		2,190	Commissions from sales of insurance and financial products	1,151		2,466	2,096	4,656
SBA consulting fees	SBA consulting fees	780		2,764	SBA consulting fees	704		2,187	1,484	4,951
SBA loan sale gains	SBA loan sale gains	3,261		2,330	SBA loan sale gains	841		2,996	4,102	5,326
Bank-owned life insurance ("BOLI") income	Bank-owned life insurance ("BOLI") income	976		620	Bank-owned life insurance ("BOLI") income	942		614	1,918	1,234
Other gains (losses), net		1,622		(34)
Other gains, net					Other gains, net	1,590		1,517	3,212	1,483
Noninterest income	Noninterest income	$	19,251	20,669	Noninterest income	$	17,264	21,374	36,515	42,043

Service charges on deposit accounts increased ~~$0.8~~$0.9 million, or ~~30%~~31%, for the three months ended ~~March 31,~~June 30, 2022 as compared to the three months ended ~~March 31,~~June 30, 2021, and increased $1.7 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was driven by the higher number of new customers and transaction accounts generating fees from both organic growth and the Select acquisition.

Other service charges ~~commissions~~ and fees - ~~net~~ bankcard interchange income, net represents interchange income from debit and credit card transactions, net of associated interchange expense, and ~~totaled $4.7~~increased $0.4 million, or 9%, for the three months ended ~~March 31,~~June 30, 2022 ~~a 34% increase from~~as compared to the ~~$3.5~~prior year period, and increased $1.6 million for the ~~three~~six months ended ~~March 31, 2021.~~June 30, 2022 compared to the prior year period. The growth in card usage by our customers is related to the higher volume of outstanding cards giving rise to increased transaction volume as well as customer payment preferences. Because the Company exceeded $10 billion in total assets at December 31, 2021, it is expected that bankcard revenue will be adversely impacted by the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 limit on debit card interchange fees beginning July 1, 2022.

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Other service charges ~~commissions~~ and fees - other includes items such as SBA guarantee servicing fees and related servicing rights amortization, ATM charges, wire transfer fees, safety deposit box rentals, fees from sales of personalized checks, and check cashing fees. The increase in this line item for the three months ended ~~March 31,~~June 30, 2022 compared to the three months ended

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~~Index~~

~~March 31,~~ June 30, 2021 of ~~$0.3~~$1.0 million, or ~~15%~~47%, and the increase of $1.3 million for the six months ended June 30, 2022 compared to the prior year period, was primarily due to growth in the number of accounts and related transaction activity, as well as the Bank's deposit base increases.

Fees from presold ~~mortgages~~mortgage loans amounted to ~~$1.1~~$0.5 million for the three months ended ~~March 31,~~June 30, 2022, a decline of ~~$3.4~~$1.8 million, or ~~75%~~80%, from the same time period in ~~2021.~~2021, and a $5.2 million decrease for the six months ended June 30, 2022 compared to the prior year period. The decrease was due to the general increase in market interest rates and related decline in home mortgage refinancings and new originations during 2022 as compared to the prior year.

Commissions from sales of insurance and financial products ~~amounted to $0.9 million~~ for the three months ended ~~March 31,~~June 30, 2022 ~~down $1.2~~decreased $1.3 million from the same period in ~~2021.~~2021, and decreased $2.6 million for the six months ended June 30, 2022 compared to the prior year period. The ~~decrease is~~decreases were due to the sale of the majority of the assets of our property and casualty insurance subsidiary in June 2021.

~~The reduction in~~ SBA consulting ~~services~~fees decreased for the three months ended ~~March 31,~~June 30, 2022, compared to the same period in 2021 ~~of $2.0~~by $1.5 million, or ~~72%~~68%, iswhich was directly related to the wind-down of the PPP loan program and lower related revenues earned in the current period. SBA consulting services decreased $3.5 million for the six months ended June 30, 2022 compared to the prior year period.

SBA loan sale gains ~~were up $0.9~~ decreased $2.2 million, or ~~40%~~72%, for the three months ended ~~March 31,~~June 30, 2022 compared to the three months ended ~~March 31,~~June 30, 2021 relating to the timing of sales and the volume of originated loans available to be sold in each period. SBA loan sale gains decreased $1.2 million for the six months ended June 30, 2022 compared to the prior year period.

~~The increase in BOLI income~~Other gains, net for the three months and six months ended ~~March 31,~~June 30, 2022 ~~compared~~are primarily related to death benefits realized on BOLI policies. Other gains, net for the ~~same period in~~comparable periods of 2021 ~~of $0.4 million was~~are primarily related to the ~~acquisition of Select which contributed $31.0 million in BOLI as~~sale of the ~~date~~the majority of ~~acquisition.~~the assets of our property and casualty insurance subsidiary in June 2021.

~~Other gains (losses), net amounted to a net gain of $1.6~~Noninterest Expenses

Noninterest expenses totaled $49.4 million and $41.0 million for the three months ended ~~March 31,~~June 30, 2022 ~~due primarily to death benefits realized on BOLI policies.~~

~~Noninterest Expenses~~

~~Total noninterest expenses totaled $51.5~~and 2021, respectively, and $100.9 million and ~~$40.1~~$81.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Included in noninterest expense was nonrecurring merger and acquisition costs totaling ~~$3.5~~$0.7 million and $0.4 million for the three months ended ~~March 31, 2022. There were no merger~~June 30, 2022 and 2021, respectively. Merger and acquisition costs totaled $4.2 million and $0.4 million for the ~~comparable period of 2021.~~six months ended June 30, 2022 and 2021, respectively. The following table presents the primary components of noninterest expense.

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

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	For the Three Months Ended June 30,			For the Six Months Ended June 30,
($ in thousands)	2022		2021	2022	2021
Salaries	$	23,799	21,187	47,253	41,318
Employee benefits	6,310		4,084	11,888	8,658
Total personnel expense	30,109		25,271	59,141	49,976
Occupancy expense	3,122		2,668	6,506	5,572
Equipment related expenses	1,514		1,053	2,818	2,098
Merger and acquisition expenses	737		411	4,221	411
Amortization of intangible assets	953		845	1,970	1,742
Credit card rewards and other expenses	970		1,116	2,213	2,192
Telephone and data lines	855		740	1,790	1,490
Software costs	1,288		1,502	2,862	2,709
Data processing expense	1,920		1,357	4,022	2,699
Advertising and marketing expense	884		620	1,795	1,230
Foreclosed property gains, net	(292)		(173)	(372)	(16)
Non-credit losses	488		276	1,090	461
Other operating expenses	6,850		5,299	12,807	10,486
Total	$	49,398	40,985	100,863	81,050

In general, the increase in noninterest expenses was driven by higher operating expenses from personnel, locations, number of accounts, and higher level of activity resulting from the Select acquisition completed in the fourth quarter of 2021. Merger and acquisition expenses amounted to ~~$3.5~~$4.2 million for the six months ended June 30, 2022 and primarily related to core system conversion costs incurred in the Select acquisition.

Total personnel expense increased $4.8 million, or 19%, for the three months ended ~~March 31,~~June 30, 2022 ~~primarily related~~as compared to ~~computer system conversion costs.~~

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the three months ended June 30, 2021. Total personnel expense increased ~~from $24.7~~$9.2 million for the ~~three~~six months ended ~~March 31, 2021 to $29.0 million for the three months ended March 31,~~June 30, 2022 ~~an increase of $4.3 million, or 18%. Within personnel expense, total compensation increased $3.3 million, or 16.5% primarily related~~compared to the prior year period. The increase for each period was a direct result of the incremental increase in the number of associates from the Select acquisition, combined with regular annual salary increases. ~~Employee benefits expense increased $1.0 million, or 22% relative~~Also contributing to the ~~higher salaries and other compensation expense combined with~~increases were higher insurance claims and costs in the ~~first quarter of~~ 2022 compared to the prior year.

Income Taxes

We recorded income tax expense of ~~$8.7~~$9.6 million for the three months ended ~~March 31,~~June 30, 2022 and ~~$7.6~~$7.9 million for the three months ended ~~March 31,~~June 30, 2021. Our effective tax rates declined to ~~20.4%~~20.7% from 21.3% for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The lower effective tax rate in the ~~first~~second quarter of 2022 was related to higher tax-exempt income in that quarter relative to taxable income.

We recorded income tax expense of $18.2 million and $15.6 million for the six months ended June 30, 2022 and 2021, respectively. Our effective tax rates declined to 20.6% from 21.3% for the six months ended June 30, 2022 and 2021, respectively. The lower effective tax rate for the six months ended June 30, 2022 was related to higher tax-exempt income in the time period relative to taxable income.

FINANCIAL CONDITION

Total assets at ~~March 31,~~June 30, 2022 amounted to ~~$10.7~~$10.6 billion, a ~~1.4%~~0.5% increase from December 31, 2021. Total loans at ~~March 31,~~June 30, 2022 amounted to ~~$6.1~~$6.2 billion, a ~~0.3% decrease~~2.7% increase from December 31, 2021, and total deposits amounted to $9.4 billion, a ~~2.9%~~2.6% increase from December 31, 2021.

For the ~~first three~~six months ofended June 30, 2022, loans ~~declined $17.0~~increased $161.5 million, or ~~0.3%~~2.7%, related primarily to core growth partially offset by forgiveness of PPP ~~loans offsetting core growth, which is historically slower in the first quarter of the year.~~loans. We ~~did experience~~experienced organic growth in most of our loan categories, with commercial real estate ~~and~~and 1-4 family first mortgage categories ~~and expect to experience continued organic growth during~~experiencing the ~~remainder of 2022.~~largest growth. The mix of our loan portfolio remained substantially the same at ~~March 31,~~June 30, 2022 compared to December 31, 2021. The majority of our real estate loans were personal and commercial loans where real estate provides additional security for the

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loan. Note 4 to the consolidated financial statements presents additional detailed information regarding our mix of loans.

For the ~~three month period~~six months ended ~~March 31,~~June 30, 2022, we continued to experience growth in our deposit base, with total deposits increasing by ~~$260.5~~$235.1 million, or ~~2.9%~~2.6%, from December 31, 2021. Deposit growth was primarily in transaction accounts (checking and money market ~~and savings)~~products), which we believe to be related to our ongoing deposit growth initiatives, as well as stimulus funds and changes in customer behaviors remaining from the pandemic. We routinely engage in activities designed to grow and retain deposits, such as (1) emphasizing relationship banking to new and existing customers, where borrowers are encouraged and normally expected to maintain deposit accounts with us, (2) pricing deposits at rate levels that will attract and/or retain deposits, and (3) continually working to identify and introduce new products that will attract customers or enhance our appeal as a primary provider of financial services.

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Nonperforming Assets

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

$ in thousands
As of/for the quarter ended March 31, 2022 As of/for the quarter ended December 31, 2021
Nonperforming assets
Nonaccrual loans $ 33,460 34,696
TDRs – accruing 12,727 13,866
Accruing loans >90 days past due — 1,004
Total nonperforming loans 46,187 49,566
Foreclosed real estate 2,750 3,071
Total nonperforming assets $ 48,937 52,637
Asset Quality Ratios
Nonaccrual loans to total loans 0.55 % 0.57 %
Nonperforming loans to total loans 0.76 % 0.82 %
Nonperforming assets to total loans and foreclosed properties 0.81 % 0.87 %
Nonperforming assets to total assets 0.46 % 0.50 %
Allowance for credit losses to nonaccrual loans 245.27 % 227.08 %


$ in thousands	June 30, 2022			December 31, 2021
Nonperforming assets
Nonaccrual loans	$	28,715		34,696
TDRs – accruing	11,771			13,866
Accruing loans >90 days past due	—			1,004
Total nonperforming loans	40,486			49,566
Foreclosed real estate	658			3,071
Total nonperforming assets	$	41,144		52,637

Asset Quality Ratios
Nonaccrual loans to total loans	0.46		%	0.57	%
Nonperforming loans to total loans	0.65		%	0.82	%
Nonperforming assets to total loans and foreclosed properties	0.66		%	0.87	%
Nonperforming assets to total assets	0.39		%	0.50	%
Allowance for credit losses to nonaccrual loans	202.99		%	158.96	%

As shown in the table above, nonperforming assets decreased from December 31, 2021 to ~~March 31,~~June 30, 2022, ~~which was primarily driven by the decrease~~with improvements noted in ~~TDRs, decrease in accruing loans past due 90 days or more which were directly related to the Select acquisition, and the reduction in foreclosed properties.~~

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

all categories. At ~~March 31,~~June 30, 2022, total nonaccrual loans amounted to ~~$33.5~~$28.7 million, compared to $34.7 million at December 31, ~~2021.~~2021. "Real ~~estate-mortgage-commercial~~estate-mortgage-commercial and other" is the largest category of ~~nonaccruals~~nonaccrual loans, at ~~$15.2~~$11.9 million, or ~~45%~~42%, of total nonaccrual loans, followed by "Commercial, financial, and agricultural" at ~~$12.6~~$11.4 million, or ~~38%~~40%, of total nonaccrual loans. Included in those categories are nonaccrual SBA loans totaling ~~$18.0~~$15.8 million at ~~March 31,~~June 30, 2022, or ~~54%~~55%, of total nonaccrual loans, that have ~~$7.4~~$6.2 million in guarantees from the SBA.

TDRs are accruing loans for which we have granted concessions to the borrower as a result of the borrower’s financial difficulties. At ~~March 31,~~June 30, 2022, total accruing TDRs amounted to ~~$12.7~~$11.8 million, compared to $13.9 million at December 31, 2021, with the decrease being attributed to ~~one~~three large commercial ~~TDR~~TDRs paying off ~~during~~during the period.

As reflected in Note 4 to the financial statements, total classified loans ~~were relatively flat at $55.8~~declined 11.1% to $49.8 million at ~~March 31,~~June 30, 2022 compared to $56.0 million at December 31, 2021. Special mention loans decreased from $43.1 million at December 31, 2021 to ~~$38.2~~$36.2 million at ~~March 31,~~June 30, 2022. The majority of the improvements were in the commercial real estate and 1-4 family mortgage categories.

Total foreclosed real estate amounted to ~~$2.8~~$0.7 million at ~~March 31,~~June 30, 2022 and $3.1 million at December 31, 2021. Our foreclosed property balances have generally been decreasing as a result of sales activity during the periods and favorable overall asset quality. During the ~~first quarter of~~six months ended June 30, 2022, we recorded sales of ~~three~~six foreclosed

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properties partially offset by the addition of one foreclosed property. We believe that the fair values of foreclosed real estate, less estimated costs to sell, equal or exceed their respective carrying values at the dates presented.

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


($ in thousands)	($ in thousands)	At March 31, 2022		At December 31, 2021	($ in thousands)	At June 30, 2022		At December 31, 2021
Vacant land and farmland	Vacant land and farmland	$	103	104	Vacant land and farmland	$	103	104
1-4 family residential properties	1-4 family residential properties	911		1,231	1-4 family residential properties	555		1,231
Commercial real estate	Commercial real estate	1,736		1,736	Commercial real estate	—		1,736
Total foreclosed real estate	Total foreclosed real estate	$	2,750	3,071	Total foreclosed real estate	$	658	3,071

Allowance for Credit Losses and Loan Loss Experience

Our ACL is based on the total amount of loan losses that are expected over the remaining life of the loan portfolio. Our estimate of credit losses on loans is determined using a complex model ~~based primarily on the utilization of discounted cash flows,~~ that relies on reasonable and supportable forecasts and historical loss information to determine the balance of the ~~allowance for credit losses~~ACL and resulting provision for credit losses.

~~We recorded $3.5 million provision~~ The ACL is measured on a collective pool basis when similar risk characteristics exist based primarily on discounted cash flows computed for each loan in a pool based on its individual characteristics. When we determine that foreclosure is probable or when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. We have reviewed the collateral for our nonperforming assets, including nonaccrual loans, and have included this review among the factors considered in the ~~first quarter~~evaluation of ~~2022 compared to no provision in~~ the ~~first quarter of 2021, which was the first quarter of our adoption of CECL. The~~ ~~higher provision in 2022 was primarily related to changes in the loan portfolio and updated economic forecasts.~~ACL.

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

For the six months ended June 30, 2022, we recorded a provision for credit losses of $3.5 million based on our CECL model assumption updates and the recalibration of the model to include the historical loss rates from the Select acquired portfolio. A reversal of the provision for unfunded commitments of $1.5 million was recorded for that period related to fluctuations in the levels and mix of outstanding loans commitments. For the comparable period of 2021, based on our loan portfolio mix and economic forecast updates, no provision for credit losses and a $1.9 million provision for unfunded commitments were required.

For the periods indicated, the following table summarizes our balances of loans outstanding, average loans outstanding, ~~allowance for credit losses,~~ACL, charge-offs and recoveries, and key ratios.

Loan Ratios, Loss and Recovery Experience
($ in thousands) Three Months
Ended
March 31, 2022 Twelve Months
Ended December 31,
2021 Three Months
Ended
March 31, 2021
Loans outstanding at end of period $ 6,064,698 6,081,715 4,624,054
Average amount of loans outstanding 6,051,487 5,018,391 4,684,143
Allowance for credit losses, at period end 82,069 78,789 65,849
Total charge-offs (1,043) (7,602) (2,317)
Total recoveries 823 4,922 1,203
Net charge-offs $ (220) $ (2,680) $ (1,114)
Ratios:
Net charge-offs as a percent of average loans (annualized) 0.01 % 0.05 % 0.10 %
Allowance for credit losses as a percent of loans at end of period 1.35 % 1.30 % 1.42 %
Recoveries of loans previously charged-off as a percent of loans charged-off 78.91 % 64.75 % 51.92 %

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Loan Ratios, Loss and Recovery Experience
($ in thousands)	Six Months Ended June 30, 2022			Twelve Months Ended December 31, 2021		Six Months Ended June 30, 2021
Loans outstanding at end of period	$	6,243,170		6,081,715		4,782,064
Average amount of loans outstanding	6,100,246			5,018,391		4,681,604
Allowance for credit losses, at period end	82,181			78,789		65,022

Total charge-offs	(2,803)			(7,602)		(4,448)
Total recoveries	2,695			4,922		2,507
Net charge-offs	$	(108)		(2,680)		(1,941)

Ratios:
Net charge-offs as a percent of average loans (annualized)	0.00		%	0.05	%	0.08	%
Allowance for credit losses as a percent of loans at end of period	1.32		%	1.30	%	1.36	%
Recoveries of loans previously charged-off as a percent of loans charged-off	96.15		%	64.75	%	56.36	%

In addition to the ~~allowance for credit losses~~ACL on loans, we maintain an allowance for lending-related commitments such as unfunded loan commitments. We estimate expected credit losses associated with these commitments over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable. The allowance for lending-related commitments on off-balance sheet credit exposures is adjusted as a provision for unfunded commitments expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The allowance for unfunded commitments of $12.0 million and $13.5 million at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively, is classified on the balance sheet within "Other liabilities".

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We recorded a reversal provision for credit losses on unfunded commitments of $1.5 million during the ~~first quarter of~~six months ended June 30, 2022 primarily relating to the fluctuations in the levels and mix of outstanding loan commitments.

We believe the ACL is adequate at each period end presented. It must be emphasized, however, that the determination of the allowances using our procedures and methods rests upon various judgments and assumptions about economic conditions and other factors affecting loans. No assurance can be given that we will not in any particular period sustain loan losses that are sizable in relation to the amounts reserved or that subsequent evaluations of the loan portfolio, in light of conditions and factors then prevailing, will not require significant changes in the ~~allowance for credit losses~~ACL or future charges to earnings. See “Critical Accounting Policies – Allowance for Credit Losses on Loans and Unfunded Commitments” in Note 1 to the 2021 Annual Report on Form 10-K filed with the SEC for more information.

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

Liquidity, Commitments, and Contingencies

Our liquidity is determined by our ability to convert assets to cash or acquire alternative sources of funds to meet the needs of our customers who are withdrawing or borrowing funds, and to maintain required reserve levels, pay expenses and operate the Company on an ongoing basis. Our primary liquidity sources are net income from operations, cash and due from banks, federal funds sold and other short-term investments. Our securities portfolio is comprised almost entirely of readily marketable securities, which could also be sold to provide cash. Since the beginning of the COVID-19 pandemic in early 2020, we have seen our liquidity levels increase, with increases in deposits account balances leading to higher cash and investment securities levels.

In addition to internally generated liquidity sources, we have the ability to obtain borrowings ~~from the following three sources:~~under: 1) an approximately ~~$876~~$858 million line of credit with the FHLB (of which $1.9 million and $2.0 million were outstanding at ~~March 31,~~June 30, 2022 and December 31, 2021, respectively); 2) a ~~$100~~$150 million federal funds line with a correspondent bank ~~(of~~

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(of which none was outstanding at ~~March 31,~~June 30, 2022 or December 31, 2021); and 3) an approximately ~~$138~~$169 million line of credit through the Federal Reserve Bank of Richmond’s discount window (of which none was outstanding at ~~March 31,~~June 30, 2022 or December 31, 2021). Unused and available lines of credit amounted to ~~$1.1~~$1.2 billion at ~~March 31,~~June 30, 2022.

Our overall liquidity is essentially the same as at December 31, 2021 with our liquid assets (cash and securities) as a percentage of our total deposits and borrowings at ~~33.9%~~30.5% at ~~March 31,~~June 30, 2022. We believe our liquidity sources, including unused lines of credit, are at an acceptable level and remain adequate to meet our operating needs in the foreseeable future.

The amount and timing of our contractual obligations and commercial commitments has not changed materially since December 31, 2021, detail of which is presented in the Contractual Obligations and Other Commercial Commitments table of our 2021 Annual Report on Form 10-K. In addition, we are not involved in any legal proceedings that, in our opinion, could have a material effect on our consolidated financial position.

Off-Balance Sheet Arrangements and Derivative Financial Instruments

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

Derivative financial instruments include futures, forwards, interest rate swaps, options contracts, and other financial instruments with similar characteristics. We have not engaged in significant derivative activities through ~~March 31,~~June 30, 2022, and have no current plans to do so.

Capital Resources

The Company is regulated by the FRB and is subject to the securities registration and public reporting regulations of the SEC. Our banking subsidiary, First Bank, is also regulated by the FRB and the North Carolina Office of the Commissioner of Banks. We must comply with regulatory capital requirements established by the FRB. Failure to

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

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

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

In addition to the risk-based capital requirements described above, we are subject to a leverage capital requirement, which calls for a minimum ratio of Tier 1 capital (as defined above) to quarterly average total assets of 3.00% to 5.00%, depending upon the institution’s composite ratings as determined by its regulators. The FRB has not advised us of any requirement specifically applicable to us.

At ~~March 31,~~June 30, 2022, our capital ratios exceeded the regulatory minimum ratios discussed above. The following table presents the capital ratios for the Company and the regulatory minimums discussed above for the periods indicated.

March 31, 2022 December 31, 2021
Risk-based capital ratios:
Common equity Tier 1 to Tier 1 risk weighted assets 12.85 % 12.53 %
Minimum required Common Equity Tier 1 capital 7.00 % 7.00 %
Tier I capital to Tier 1 risk weighted assets 13.74 % 13.42 %
Minimum required Tier 1 capital 8.50 % 8.50 %
Total risk-based capital to Tier II risk weighted assets 14.99 % 14.67 %
Minimum required total risk-based capital 10.50 % 10.50 %
Leverage capital ratio:
Tier 1 capital to quarterly average total assets 9.60 % 9.39 %
Minimum required Tier 1 leverage capital 4.00 % 4.00 %

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	June 30, 2022		December 31, 2021
Risk-based capital ratios:
Common equity Tier 1 to Tier 1 risk weighted assets	12.90	%	12.53	%
Minimum required Common Equity Tier 1 capital	7.00	%	7.00	%

Tier I capital to Tier 1 risk weighted assets	13.76	%	13.42	%
Minimum required Tier 1 capital	8.50	%	8.50	%

Total risk-based capital to Tier II risk weighted assets	15.01	%	14.67	%
Minimum required total risk-based capital	10.50	%	10.50	%

Leverage capital ratio:
Tier 1 capital to quarterly average total assets	9.95	%	9.39	%
Minimum required Tier 1 leverage capital	4.00	%	4.00	%

First Bank is also subject to capital requirements that do not vary materially from the Company’s capital ratios presented above. At ~~March 31,~~June 30, 2022, First Bank exceeded the minimum ratios established by the regulatory authorities.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

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

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

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Our exposure to interest rate risk is analyzed on a regular basis by management using standard "gap" reports (which measure the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period), maturity reports, and an asset/liability software model that simulates future levels of interest income and expense based on current interest rates, expected future interest rates, and various intervals of “shock” or "ramped" interest ~~rates.~~rate scenarios. Over the years, we have been able to maintain a fairly consistent yield on average earning assets ~~(NIM)~~(our NIM), even during periods of changing interest rates. Over the past five calendar years, our NIM has ranged from a low of 3.16% (realized in 2021) to a high of 4.09% (realized in 2018). The 93 basis point fluctuation in NIM between the high and low point during this period was a direct result of the FRB monetary policy enacted at the beginning of the COVID-19 pandemic resulting in a reduction in short-term market interest rates totaling 150 basis points in March 2020. During the first ~~quarter~~six months of 2022, the FRB implemented monetary policy to combat inflationary conditions and increased short-term rates 25175 basis points, with the anticipation of additional rate increases to occur throughout 2022.

There has be no significant change in the Company-estimated net interest income sensitivity from December 31, 2021. Using stated maturities for all fixed rate instruments except mortgage-backed securities (which are allocated in the periods of their expected payback) and securities and borrowings with call features that are expected to be called (which are shown in the period of their expected call), at ~~March 31,~~June 30, 2022, we had ~~approximately~~approximately $3.2 billion more in interest-bearing liabilities that are subject to interest rate changes within one year than earning assets. This generally would indicate that net interest income would experience downward pressure in a rising interest rate environment and would benefit from a declining interest rate environment. However, this method of analyzing interest sensitivity only measures the magnitude of the timing differences and does not address earnings, market value, or management actions. Also, interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. In

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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 as of ~~March 31,~~June 30, 2022 were deposits ~~totaling~~totaling $4.9 billion ~~comprised~~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.

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

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

The general discussion in the foregoing paragraph applies most directly in a “normal” interest rate environment in which longer-term maturity instruments carry higher interest rates than short-term maturity instruments, and is less applicable in periods in which there is a “flat” interest rate curve. A “flat yield curve” means that short-term interest rates are substantially the same as long-term interest rates. Actions taken by the FRB at the beginning of the pandemic resulted in a very low and flat interest rate curve environment. Recent actions to raise short-term interest rates have resulted in a some steepening of the yield curve on the short end (within ~~3 years)~~1 year). However, the longer end of the curve continues to be ~~flat.~~flat to slightly inverted (between 1 and 10 years). A flat interest rate curve is an unfavorable interest rate environment for many ~~banks,~~financial institutions, 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.

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Assuming that short term rates continue to rise over the next 12 months, we may see some benefit to our net interest margin from raising rates if we are able to maintain stable funding costs. Our experience historically has been that our demand deposit accounts have lagged the timing and amount of general market increases. However, we expect continued pressure on net interest margin from market competition for quality loans and the ~~investment~~current mix of ~~liquidity~~out earning assets in lower ~~earning assets until loan demand increases sufficiently to deploy excess liquidity from short-term investments and~~yielding investment securities.

Inflation

Because the assets and liabilities of a bank are primarily monetary in nature (payable in fixed, determinable amounts), the performance of a bank is affected more by changes in interest rates than by inflation as discussed above under Interest Rate Risk. Interest rates generally increase as the rate of inflation increases, but the magnitude of the change in rates may not be the same. The effect of inflation on banks is normally not as significant as its influence on those businesses that have large investments in plant and inventories. During periods of high inflation as we have recently experienced, 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.

Item 4 – Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, which are our controls and other procedures that are designed to ensure that information required to be disclosed in our periodic reports with the SEC is recorded, processed, summarized

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

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Part II. Other Information

Item 1 – Legal Proceedings

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

Item 1A – Risk Factors

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

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


Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs (1)
~~January~~April 1, ~~2021~~2022 to ~~January 31, 2021~~April 30, 2022	—	$	—	—	$	—40,000,000
~~February~~May 1, ~~2021~~2022 to ~~February 28, 2021~~May 31, 2022	—	—		—	$	40,000,000
~~March~~June 1, ~~2021~~2022 to ~~March 31, 2021~~June 30, 2022	—	—		—	$	40,000,000
Total	—	—		—	$	40,000,000

(1)All shares available for repurchase are pursuant to publicly announced share repurchase authorizations. On February 7, 2022, the Company reported the authorization of a $40 million repurchase program with an expiration date of December 31, 2022. As of ~~March 31,~~June 30, 2022, the Company had the remaining authorization to repurchase up to $40 million of the Company's stock.

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Item 6 - Exhibits

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

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

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

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

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

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

2.f			Merger Agreement between First Bancorp and GrandSouth Bancorporation dated June 21, 2022 was filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on June 21, 2022, and is incorporated herein by reference.

3.a			Articles of Incorporation of the Company and amendments thereto were filed as Exhibits 3.a.i through 3.a.v to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2002, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibits 3.1 and 3.2 to the Company’s Current Report on Form 8-K filed on January 13, 2009, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1.b to the Company’s Registration Statement on Form S-3D filed on June 29, 2010 (Commission File No. 333-167856), and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on September 6, 2011, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 26, 2012, and are incorporated herein by reference. Articles of Amendment to the Articles of Incorporation were filed as Exhibit 99.1 to the Company's Current Report on Form 8-K filed June 14, 2022, and are incorporated herein by reference.

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

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

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

21			List of Subsidiaries of Registrant

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

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

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

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

101			The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2022, formatted in eXtensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

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

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SIGNATURES

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


			FIRST BANCORP

~~May 10,~~August 5, 2022			BY:/s/ Richard H. Moore
			Richard H. Moore Chief Executive Officer (Principal Executive Officer), and Director


~~May 10,~~August 5, 2022			BY:/s/ Elizabeth B. Bostian
			Elizabeth B. Bostian Executive Vice President and Chief Financial Officer


~~May 10,~~August 5, 2022			BY:/s/ Blaise B. Buczkowski
			Blaise B, Buczkowski Executive Vice President and Chief Accounting Officer

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$ in thousands	As of/for the quarter ended March 31, 2022			As of/for the quarter ended December 31, 2021
Nonperforming assets
Nonaccrual loans	$	33,460		34,696
TDRs – accruing	12,727			13,866
Accruing loans >90 days past due	—			1,004
Total nonperforming loans	46,187			49,566
Foreclosed real estate	2,750			3,071
Total nonperforming assets	$	48,937		52,637

Asset Quality Ratios
Nonaccrual loans to total loans	0.55		%	0.57	%
Nonperforming loans to total loans	0.76		%	0.82	%
Nonperforming assets to total loans and foreclosed properties	0.81		%	0.87	%
Nonperforming assets to total assets	0.46		%	0.50	%
Allowance for credit losses to nonaccrual loans	245.27		%	227.08	%


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

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

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